Budgeting Tips for Life After Divorce

You may be getting divorced, but you’re not alone. According to the U.S. Census Bureau, 34% of women and 33% of men in the United States are right there with you, having endured the end of their unions.

Certainly, though, this life event can cause emotional turmoil, and it may trigger worries about money too. Take heart: The end of a marriage does not have to mean an end to financial security. If you keep calm and make a careful post-divorce budget, you are more likely to stay fiscally fit.

Learn more here with tips on how to prepare financially for a divorce and soften your landing, including:

•   Why a post-divorce budget is critical

•   How to budget after divorce

•   How to divide kids’ expenses

•   How to adjust to one income

•   How to supplement earnings.

Why Is a Post-divorce Budget Critical?

A realistic budget after divorce is a must. It can often cost a lot more to run two households than one. Still, doing what’s right for your personal life path and well-being comes first; there’s no point staying unhappily wed simply to save money. It can be possible to find steady footing during this transition with the right basic living expenses budget.

Truth is, after the sometimes hefty expense of a divorce lawyer (if you hired one), you will possibly be solely responsible for housing, utilities, groceries, car maintenance, and more.

There are various ways to budget for this, including the 50/30/20 rule and the envelope system, among others. You’ll also likely encounter a variety of tools, including spreadsheets and apps. Take the time to review your options and find an approach that feels right for you.

Recommended: Am I Responsible for My Spouse’s Debt?

Lifestyle Pre-divorce and Post-divorce Will Be Different

Get ready for changes in your lifestyle and your cash management. Transitioning from couplehood to single status can take time, patience, and being kind to yourself.

You may be responsible for more household chores now, as you may not be able to afford, say, the cleaning person or landscaper you used to employ. Trimming the leisure budget (dinners out, vacations, entertainment, fitness classes) might be necessary, but all is not lost. Prioritize what is most important to your self-care now. This can be a bump in the road, not the end of the line.

Newly Single Life Can Be Taxing Emotionally and Financially

Divorce can affect your spirit as well as your bank account. If you’re struggling and don’t have a therapist, consider finding one and/or joining a support group in your community. No awards are given for white-knuckling a marriage breakup without counsel. We can’t always “adult” our way through rough seas.

Finances for Children May Be Difficult

Children are a hot-button topic for almost all parents, both married and divorced. Meeting their emotional and financial needs can lead to a tug-of-war, especially if you and your ex don’t communicate calmly and effectively.

As your divorce unfolds, pay close attention to what counts as child support. For instance, you may want to continue your child’s soccer league, guitar lessons, or art classes, but these activities may or may not be covered. Also, if you have a teen who is begging for a used car, that large expenditure may not be covered by child support either.

Knowing just what counts as a child support expense, along with careful record keeping, will be important as you develop with your divorce budget. After all, knowledge is power. It will help you negotiate and budget better as a single parent, as well as keep the peace as you co-parent.

Recognize You Can No Longer Rely on Two Incomes

It can be a huge learning curve: Relying on a single salary instead of two. This post-divorce situation can be especially complicated if your ex had the employee benefits, including family health and dental insurance, 401(k) contributions, and a flexible spending account (FSA), where payroll deductions cover everything from child care to eyeglasses.

Now is the time to investigate what options you have to gain self-sufficiency and stay on budget. For example, if you work, does your employer offer an affordable health insurance plan? If you are self-employed, what networking groups could advise you on good options? Do you perhaps qualify for a lower-cost health insurance plan on the marketplace? Invest some time in exploring what’s available that suits your needs and budget.

Potential Questions to Ask Yourself

As you move through your divorce process and onto your newly single life, ask and answer the big questions. These can help you both trouble-shoot and thrive.

•   How much is my income going to change? First, look at joint bank statements (it’s easy online). See how much your spouse and you have each contributed to the family income. In many cases, of course, alimony will come into play, but you need a realistic income-based expectation for that, too.

•   What do I need to let go of? This may take soul-searching. As you go from two to one income, it’s likely that something’s got to give in terms of expenditures. Think creatively about where and how to economize. You might decide to plan and cook ahead for the week to minimize the temptation and expense of eating out. Or perhaps you decide to split an apartment with a friend for a while to save on rent while you get your bearings. It’s your call.

•   How should I supplement my income? If you need to get cash flowing your way, contemplate what’s in your toolbox of strengths and skills. A key benefit of a side hustle is that it can boost your income and fit your schedule. Maybe you’re a super-organized person who offers decluttering skills, a tech-savvy type who can build websites for others, or an animal lover who pet-sits or walks dogs. Other ideas: Fill free hours as an Instacart shopper, Amazon delivery person, or Uber driver.

•   How will we fairly work out financial support for the kids? Are the children dividing their time 50/50 between you and your ex? What will your child support agreement entail? What additional expenses may come up in the future (tutoring, college prep classes)? Think and work it through, possibly with professional guidance which can share the prevailing practices on this front.

Post-Divorce Budgeting Tips

Once you have mulled over the issues relating to post-divorce life, keep these strategies in mind to help you optimize your finances.

Focusing On Current Income

Base your budget on your income now, after taxes. Do not base it on the projected income you hope to have. Don’t get caught up thinking about your former two-person income. Being pragmatic right now wil likely pay off and help you stay out of debt.

Focusing On Most Important Monthly Expenses

For now, prioritize what it will take to get through daily life. Calculate costs of a roof over your head, a way to get to work, food, child care, healthcare, and other essentials. Take care of people first, starting with yourself; then deal with material things later.

Letting Go of Unnecessary Items

Go ahead and slash some items out of your budget. Perhaps you can jettison a couple of streaming services, cut back on clothes shopping, and mow your own lawn instead of hiring someone else to do it. That feeling of opening up some room in your budget can be priceless.

Giving Yourself Safe and Budget-Friendly Fun

Find the right mood lifters. Avoid expensive, impulsive purchases (say, a new car) when you are feeling emotionally hurt and raw. They can wreak havoc with your finances.

Instead, treat yourself to free or low-cost adventures and experiences. Fresh air can be healing and motivating; local parks and wildlife sanctuaries may offer free guided walks and birdwatching outings. Or perhaps get a membership to The North American Reciprocal Museum (NARM) Association and enjoy free entry to 1,000 member institutions.

Considering Working With a Financial Advisor

As you sort out your finances as you approach a divorce, you may want to enlist a professional versed in the issues that can crop up. Child support, shared credit-card debt, and division of jointly owned real estate can require this kind of guidance. A certified divorce financial analyst (CDFA) is trained to assist with this and help you get the fairest possible deal.

Post-divorce, you might also seek out an advisor who can help you set up a financial plan so that your spending and saving habits suit your new situation.

The Takeaway

Transitioning from pre-divorce to post-divorce life can stir up fears and insecurities, but you can take concrete steps to manage the unknown. Face facts about income, and set a realistic budget. Prioritize your needs, and be willing to put unnecessary expenses on hold for now. Like so many others, you will find your footing and peace of mind, thanks to patience, flexibility, and wise budgeting.

Looking for a financial institution that can help out? A SoFi online bank account makes it easier to manage finances, follow a budget, and track your income, right on your smartphone or laptop. Sign up for our Checking and Savings with direct deposit, and you’ll earn a top-notch 2.00% APY, without any account fees. That means your money could grow faster.

Bank better with SoFi.

FAQ

How do you budget after a divorce?

To budget for post-divorce life, assess and prioritize non-negotiable needs (such as housing, food, utilities, and child care), and phase out or reduce unnecessary extras. Pay attention to the details of your divorce agreement, as alimony and/or child support may impact your finances significantly.

How long does it take to financially recover from divorce?

The timeline for recovering financially from divorce varies tremendously, depending on the particulars of a person’s income, divorce agreement, and other factors. Many people feel it takes at least a few years to fully regain their sense of control over their money, though that could happen much sooner for some.

Will I be poor after divorce?

The U.S. Census Bureau reports that after a divorce, household income for women can drop considerably. This is all the more reason to budget carefully after divorce and seek professional advice. These steps could help you avoid costly mistakes that impact your financial wellness.


Photo credit: iStock/PeopleImages

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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16 Ways to Reward Yourself Without Breaking Your Budget

16 Ways to Reward Yourself Without Breaking Your Budget

Who doesn’t like to hear the words “Good job!” or “I’ve got a little treat for you”? Almost no one. And the fun part is, you can be the person bestowing good will upon yourself.

As recognition for wrangling a tough work project, getting through a stressful week, being a good friend, or finishing a home-repair project, it’s important to pat yourself on the back. And there’s room in almost any budget for a little reward. Low-cost and free treats can serve as positive reinforcement without launching you on that slippery slope of overspending.

If you need help getting started, read on to learn:

•   Why treating yourself is essential

•   How to reward yourself on a budget

Why Treating Yourself Is Essential

Treating yourself is a form of self-care, which is a way of showing yourself kindness by engaging in acts that make you feel good. Studies on self-care have found it can help reduce or eliminate anxiety and depression, manage stress, and increase happiness.

Treats or self-rewards are a pat on the back; a way of recognizing that you’re doing a good job and meeting goals. Fortunately, there’s room in almost any budget for them. Whether an occasional bouquet of supermarket roses or a TGIF beer with friends, these purchases are unlikely to wreak havoc on your finances or trigger a situation in which you can’t stop overspending.

Recommended: Guide to Practicing Financial Self-Care

Rewarding Yourself: 16 Different Ideas

Maybe you asked for and got a raise at work, buckled down on your budget, finally cleaned out your closets, or just feel you need a lift after a draining week. It’s time to treat yourself. Consider these free or low-cost rewards:

1. Drop in for a Single Yoga Class

Yoga provides a plethora of physical and mental benefits, such as helping to relieve back and neck pain, improve sleep quality, and reduce stress. Many yoga studios offer drop-in classes, with the average price about $16 a class. If that’s a bit steep, YouTube features an array of free yoga videos led by experienced instructors.

2. Get a Cup of Fancy Coffee

Making coffee at home saves tons of money, but there’s nothing like the occasional barista-made cappuccino or flat white from your favorite coffee shop. Whether you have one as Monday motivation to start your week off right or reward yourself on a weekend AM, it can be a low-cost bit of self-care.

3. Pick up a Bouquet of Flowers

Treat yourself to some colorful blooms from your local grocery store. Research has shown flowers can improve mood and increase happiness.

4. Buy Yourself Your Favorite Ice Cream

Many of us have cheered up a kid with an ice cream cone. Why not do the same thing for yourself? Mint chip, strawberry, and good old vanilla just begin to describe the possibilities.

5. Go for an Inexpensive Mani-Pedi

Many nail salons offer weekly specials that include a manicure, pedicure, and perhaps a short massage. It can be an affordable way to help you look and feel good. Go ahead and pamper yourself on a budget.

Recommended: 15 Creative Ways to Save Money

6. Take a Nap

Few things feel as good as a power nap. If you work from home, schedule one as you see fit; office workers can squeeze one in on weekends. A snooze of 30 to 60 minutes can refresh you, improve your mood, and increase alertness. It’s a great way to treat yourself without spending money. Just beware of sleeping more than an hour though; it can leave you feeling groggy and interfere with your nighttime slumber.

7. Stream Some Shows

Streaming channels such as Hulu, Apple TV+ and Paramount+ offer free trial periods ranging from a week to a month. That could be enough time to binge-watch those shows you’ve been hearing about without necessarily signing up for a monthly subscription.

Recommended: 7 Ways to Achieve Financial Self-Discipline

8. Camp Out

Camping for a night or two is typically an inexpensive pursuit. Being out in nature, taking a walk in the woods, and looking up at the constellations at night can be a wonderful treat and spirit-reviver. Not for you? How about an afternoon of forest bathing near your home? All that means is spending time in nature, focusing on the sights, sounds, and smells of the woods.

9. Visit a Local Museum

Whether you look at Old Masters art or challenging avant-garde works, a museum visit can immerse you in beauty and share refreshing new perspectives. Most museums either have specific days or times when entry fees are free or reduced.

10. Get Crafty

Having a creative outlet is not only a way to relieve stress, it’s also fun. A good self-reward can be to spark your creativity with anything from an adult coloring book to a ceramics lesson.

11. Have a Nice Lunch or Dinner Out

Most of us grab takeout now and then, but a special self-reward can be to plan a meal at a restaurant you’ve been wanting to try or sampling a type of food you don’t usually eat. Invite a friend you’d like to catch up with; that can make it more memorable. Tip: Check out special offers, like a prix fixe menu, to make your outing even more affordable.

12. Spend a Day at the Beach

Sun, sand, and surf have a way of restoring one’s spirits, as does the sound of seagulls. It’s a terrific way to spend a day, even off-season. You might have to pay for parking, but otherwise, this outing can be a very low-cost way to treat yourself.

Recommended: Sticking to a Summer Budget

13. Visit a Thrift Shop or Flea Market

Shopping second-hand, especially one where the proceeds go to a charitable organization, is a great way to reward yourself with inexpensive clothing, jewelry, books, cookware, and maybe even the perfect acoustic guitar. You’re also helping the environment since thrifting keeps items out of landfills and incinerators.

Recommended: A Guide to Ethical Shopping

14. Take a Mental Health Day

It may take some planning and organization, but gifting yourself a day off to rest and recharge can help prevent burnout and reduce stress. Spend it however you like: Lazing on the couch, out taking photos, or visiting a friend you haven’t seen in a while.

Recommended: Making Money Through Social Media

15. Listen to Live Music

Sure, you could splurge on a major concert, but local bars, beer gardens, and other spots often have live music without any sticker-shock tickets. Whether it’s folk, Zydeco, or classic-rock covers, you’re likely to feel better for it. Music has been shown to reduce anxiety and improve one’s mood.

16. Buy a Good Book

A good story can transport you away from daily life. Why not treat yourself to one? You can stop by the bookstore and purchase that book you’ve been wanting or listen to it while you’re taking a walk, driving, or relaxing at home. Borrow an audiobook from the library or enjoy a 30-day free trial at Audible.com.

The Takeaway

Everyone needs and deserves a treat now and then: a reward for saving money, getting kudos at work, or finally organizing your coat closet. Self-care can boost your mental health and keep you motivated with your goals. There are endless ways to treat yourself, and plenty of ways to do so without busting your budget. With the ideas described here, you can reward yourself and stay on track money-wise, which is a win-win.

How about opening a bank account that rewards you, too? With SoFi’s Checking and Savings, you’ll earn an amazing 2.00% APY when you sign up with direct deposit. Plus you won’t pay any account fees, so your money could grow faster.

Bank smarter with SoFi today.

FAQ

What is it called when you reward yourself?

People use a variety of terms in addition to reward. These include a treat, self-reward, self-care, positive motivation, and positive reinforcement.

What if I feel guilty when rewarding myself?

Some people feel guilty when rewarding themselves. This may be because they were raised in a household that felt people should work hard without reward or because they believe rewards will make them “soft” and unmotivated. However, rewards can actually help people recharge, achieve more, and enjoy life more, so try giving yourself permission.

How do I not go overboard when rewarding myself?

It’s wise to have your self-rewards as a line item on your budget to avoid going overboard. That “fun money” doesn’t have to be a lot: Many treats are low-cost or even free.


Photo credit: iStock/Prostock-Studio

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Compulsive or Impulsive Shopping: How to Combat It

Compulsive or Impulsive Shopping: How to Combat It

Spending money on purchases is a part of daily life (groceries, for instance) and can be a pleasure (those cool new boots you’ve been eying for weeks). But for some people, shopping gets out of hand and becomes impulsive or compulsive shopping. They literally “can’t resist” buying and find themselves purchasing often and when they don’t really need anything.

Both compulsive and impulsive shopping can negatively impact your finances and personal life, though they are not the same thing. If you feel as if you can’t control your spending and your money management is suffering from it (such as debt is piling up), know that you can take steps to regain control.

Here, you’ll learn:

•   What compulsive shopping is

•   Causes of compulsive shopping

•   What impulsive shopping is

•   Causes of impulsive shopping

•   How to take control of compulsive or impulsive shopping

What Is Compulsive Shopping?

Compulsive shopping is defined as an uncontrollable desire to shop, resulting in a person investing large amounts of time and money in the activity. People who shop compulsively tend to make purchases regardless of whether they need or want an item — or can actually afford it.

Compulsive shopping, or compulsive buying behavior (CBB), is considered a mental health condition that can have negative consequences financially and personally. It can become a preoccupation and involve the loss of self-control. Compulsive shoppers may use excessive spending as a coping method to mask feelings of low self-esteem, stress, and anxiety. They may feel a high when buying something but often experience disappointment and guilt afterwards.

Characteristics of compulsive shopping include:

•   Obsessive research over coveted items

•   Making unnecessary purchases

•   Potentially dire financial issues as a result, such as bankruptcy, credit card debt, and foreclosure

Causes of Compulsive Shopping

Approximately 6% of adults experience compulsive shopping, which can express a variety of emotional needs and wants, such as:

•   Perfectionism. The shopper may be focused on finding the perfect item, which brings them feelings of satisfaction once discovered.

•   Desire to be in control. Purchasing items can make them feel as if they have achieved something when other aspects of their life are not well managed.

•   Childhood trauma, neglect, or abuse. If a person has endured this kind of pain, buying items may feel like a reward that offsets this negativity.

•   Feelings of loneliness and depression. Buying items can be an exciting mood-lifter; a kind of high.

•   Mood, anxiety, or personality disorders. Compulsive shopping can be a self-soothing behavior.

What Is Impulsive Shopping?

Impulsive shopping is somewhat different from compulsive shopping, though some mental-health professionals consider them to be aspects of the same issue. Impulsive shopping tends to happen when a person gets caught up in the moment and spontaneously buys something. It’s a purchase without any forethought, planning, and it’s often not within a person’s budget.

People who impulse-shop are usually influenced by external triggers, such as seeing an item on sale or positively responding to a store’s atmosphere. Everyone indulges in some impulse-fueled retail therapy now and then. However, when these immediate gratification purchases become habitual, the behavior can morph into something uncontrollable and financially damaging. When it has this kind of negative impact, it nudges into the realm of a disorder.

Causes of Impulsive Shopping

Impulsive shopping can have a variety of causes, including:

•   Wanting to ease negative feelings or improve one’s mood with a “pick-me-up”

•   A need for fun or entertainment

•   Lower levels of self-control

•   Fear of missing out (FOMO) on items or experiences other people have

•   Materialism; placing value on owning possessions

Compulsive vs Impulsive Shopping: What’s the Difference?

While these two behaviors’ names may sound similar, they are actually distinct. Here are the key differences when one compares impulsive vs. compulsive shopping:

Compulsive

Impulsive

Resembles addictive behavior Can develop into addictive-like behavior if left unchecked
Buying things regularly Buying is more occasional and situational
Shopping is planned and premeditated Shopping is unplanned and spontaneous
More internally motivated by uncomfortable emotions More externally motivated and influenced by shopping environments and marketing

Tips for Combating Compulsive or Impulsive Shopping

Impulsive and compulsive shopping can tip into the danger zone and ruin your budget and financial fitness. They can also take up too much mental space. If you have entered that realm and perhaps are carrying a hefty amount of debt, taking control of the situation can feel overwhelming. But there is help. Consider these suggestions on how to get started if you think you’re a shopaholic:

Seeking Some Professional Help

Individual counseling with a mental health professional can help you get to the emotional root of your buying issues. Psychotherapy, such as cognitive behavioral therapy (CBT), can effectively treat these shopping behaviors. Medication may also help manage unwanted or intrusive thoughts about shopping. Group therapy can also be beneficial.

Paying Close Attention to Spending Habits

Figuring out your particular shopping triggers can help you avoid or eliminate them. For instance, when buying, do you use credit cards instead of paying with cash or a debit card? Make shopping a priority over paying bills? Grocery shop without making a list? Being honest about how and why you may engage in certain overspending behaviors is vital to understanding the issue. Changing spending habits can then help you manage your finances better.

Recommended: Are You Bad with Money? Here’s How to Get Better

Having an Accountability Mentor

Get some support: A financial counselor, advisor, partner, family member, or friend can assist you on your journey to curb compulsive or impulsive spending. Try taking a trusted, non-judgmental confidant with you when you go shopping. Ask them to help rein you in if you start overbuying. You can also consider having them hold onto your credit cards to eliminate access, chat regularly with you to keep tabs on your progress, and be a sympathetic listener when you need to talk through your feelings.

National 12-step program support groups such as Debtors Anonymous (especially if you’ve racked up credit card debt) and Spenders Anonymous are also an option. They can connect you with others who are dealing with similar issues.

Setting a Budget

Creating and sticking to a budget allows you to gain control over your spending. A well-thought out budget will help with personal accountability and achieving financial discipline. Since life needs to be about balance and we all need to spend money on something fun here and there, try to set yourself up with the flexibility to splurge sometimes. This will help keep you from feeling completely deprived.

One suggestion is to consider incorporating the 50/30/20 budget rule. This guideline recommends spending up to 50% of your after-tax income on must-haves (say, housing, car payments, utilities, healthcare, and groceries). Then, take 30% of your money and reserve it for wants such as dinners out, vacations, concert tickets, electronics, and clothing. The remaining 20% should be allocated for investments, an emergency fund, debt repayment, or savings.

Recommended: 10 Personal Finance Basics

Minimizing Temptation

Many stores are carefully designed to get you to shop and spend, perhaps to an extreme. If a store’s atmosphere — the design, the scents, the music — tends to get you buying, avoid it. Don’t walk down the streets filled with your favorite shops; try to escape the triggers that make you shop too much. If you often spend free time at the mall or online shopping, sign yourself up for a class, take up a new sport, volunteer, or find other ways to fill the hours.

Online promotional discounts, coupon codes, and the ease of electronic transactions can make compulsive or impulsive shopping easier and more appealing. Go ahead and unsubscribe from retailer emails.

Curbing social media exposure can help, too. Research suggests ads and posts from social media influencers and seeing purchases from people in your social networks may encourage a “keeping up with the Joneses” mentality, often leading to impulsive and compulsive buying.

Starting a No-Spend or 30-Day Savings Rule

A quick way to stop spending money is to freeze any non-essential spending for an entire month. Commit to a 30-day shopping ban on things such as clothing, make-up, tech gadgets, or take-out, and see how much extra money you have at the end of the month. The difference may be eye-opening and help you break the cycle.

Successfully controlling your spending can provide a feeling of accomplishment and a confidence boost. Participating in a no-spend challenge can even become a fun game; you can involve other budget-conscious friends and know you’re all in it together.

Recommended: Using a Personal Loan to Pay Off Credit Card Debt

The Takeaway

Although there are differences between compulsive and impulsive shopping, both can seriously affect your financial and personal life. Facing your impulsive or compulsive shopping habits can be daunting, but taking positive, concrete steps is likely to help conquer the problem. Getting past this spending issue, whether by shifting your behaviors or seeking professional help, can be a positive step, both for you personally and for your finances.

Want to get a better handle on your spending? Get started today by signing up for a SoFi Checking and Savings account. You can easily track your weekly spending on our dashboard. What’s more, when you open a SoFi online bank account with direct deposit, you’ll earn an exceptional 2.00% APY and pay no fees, so your money could grow that much faster.

Discover the benefits of banking with SoFi today.

FAQ

Is breaking a budget a sign of compulsive shopping?

Breaking your budget is not necessarily a sign of compulsive shopping. However, if you regularly deviate from your budget, spend money allocated for needs on wants, and find yourself saddled with credit card debt, you may need to rein in your compulsive spending. Analyze your shopping habits and budget to understand your behavior better.

Is making an impulse purchase a bad thing?

The reality is, most of us make occasional impulse buys, and they are not always such a bad thing. However, if this kind of shopping becomes habitual and leaves you with debt, pay attention and take steps to improve the situation.

How do I limit impulse purchases?

One way to limit impulse purchases is to avoid stores or websites where you know you tend to overspend. Also, ask yourself, “Do I need this or do I just want it?” when tempted to make a purchase. If the answer is the latter, wait 24 hours, and see if you still really want it. Your desire may dwindle during that cooling-off period.


Photo credit: iStock/jacoblund

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Can You Deduct Overdraft Bank Fees on Your Taxes?

Can You Deduct Overdraft Bank Fees on Your Taxes?

Overdraft fees are never fun, but there’s a bright spot: In some circumstances, these charges can be tax deductible.

As you are probably well aware, both overdraft fees and taxes are an unavoidable part of life that can involve reducing your hard-earned cash. Which is why it can be really satisfying to use overdraft fees to save on taxes. This payback time, however, is typically not available for the average person who works a nine-to-five job.

So who can deduct these charges? Read on to learn:

•   What are overdraft fees?

•   Can I deduct overdraft fees on my taxes?

•   What other bank fees can be deducted?

•   What are tips for claiming bank-fee tax deductions?

What Are Overdraft Fees?

Before answering the question, “Are overdraft fees tax deductible?” it helps to understand how these charges work. An overdraft fee is assessed when someone authorizes a payment (such as when making a purchase with a debit card or by writing a check), but there isn’t enough money in their bank account to completely cover the cost of the transaction.

A bank may choose not to decline the payment and instead may charge the account holder an overdraft fee. If someone overdrafts multiple times in a day, they might be charged a fee for each overdraft. Or there may be a limit on how many times their bank or credit union might charge them a fee.

How Much Are Overdraft Fees?

Typically, each overdraft is assessed a charge of $35 or so. If you were to, say, make a bunch of payments like rent, utilities, and car payment on the first of the month and all of these triggered overdraft fees, you can imagine how quickly the amount can add up.

What Happens When You Overdraft Your Account?

Once someone realizes they overdrafted, they need to add more money to their bank account — at least enough to cover the amount they overdrafted and the cost of any overdraft fees they were charged. If someone doesn’t add enough money to their account, then the next time they make a deposit, the bank is likely to automatically withdraw that amount from their account.

What’s more, if the account holder doesn’t add more funds, then eventually the bank may choose to close their account. The debt would likely fall into the hands of a collections agency, which isn’t very fun for the consumer.

One way account holders can protect themselves from overdrafting is to set up an automatic transfer from a linked account (like a savings account) that steps in to save the day. There are pros and cons to overdraft protection. It may be offered for free; sometimes this service costs a fee, but even then, it’s usually less than an overdraft fee.

Who Can Deduct Overdraft Fees on Their Taxes?

Avoiding overdraft fees is a common goal, but despite your best efforts, these charges may still crop up and you may hope to write them off on your tax return. Whether or not you can do so depends on who is hoping to get a deduction. Sorry to say, but individuals who earn income from an employer can’t write off overdraft fees on their taxes. Only those who qualify in the following ways can write off their overdraft fees when tax season rolls around:

•   Self-employed individuals

•   Those who receive an IRS 1099-MISC form

•   Anyone who operates an unincorporated limited liability company (LLC)

•   People who practice a profession as a sole proprietorship

•   Landlords who receive income from rental properties

And there’s a catch: These people can only write off overdraft fees that occur during the normal course of business operations. They may not write off their personal overdraft fees.

What Bank Fees Are Considered Business Expenses?

Aside from overdraft fees, other bank charges can be considered business expenses. Take note of the following:

•   Account service charges

•   Credit card fees

•   ATM charges

•   Incoming and outgoing wire fees

•   Printing and depositing check fees

Other Bank Fees That Can Be Deducted

Overdraft fees aren’t the only charges that can potentially be deducted at tax time. As noted briefly earlier, business-related banking charges like credit card fees, ATM charges, and account service charges can be written off on taxes. However, you must own a business, be a sole proprietorship, or otherwise earn business income and incur these fees while running your business.

The cost of printing and depositing checks, incoming and outgoing wire fees, and other charges related to running a business are totally deductible on taxes as well.

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Bank Fee Write Off Example

Let’s look at an example of how a business owner may be able to write off bank fees. Imagine that Paul owns a bakery. He has a business bank account and uses a debit card to make last-minute purchases, plus a business credit card to make larger ongoing purchases. On Monday, he realizes he is out of flour. He places a bulk order for flour using his business credit card, but runs to the store to buy flour for the next few days using his debit card attached to his business bank account.

The problem is, Paul forgot to check his business bank account and is short on funds. As a result he overdrafts at the store. In all this rush, he forgot his credit card bill was due that very day and ended up paying it late, missing out on one of the benefits of automatic bill payments. What a Monday, and an expensive one at that!

What bank fees paid this month could Paul write off on his taxes?

•   Bank account management fee

•   Overdraft fee

•   1/12 of his credit card’s annual fee (assuming he saves up for it and pays it annually)

•   Credit card late fee

All of these fees are a major headache and poor Paul has to pay them, but at least he can write them off on his taxes.

Recommended: Beneficial Banking Account Alerts

Can You Deduct Bank Fees Even if You Do Not Own a Business?

You may be wondering, but what if I don’t own a business; can I deduct bank fees from taxes? It’s only possible to claim overdraft and other bank fees on your taxes if you own a business or work for yourself. Even then, they can only deduct business banking fees that occur during the course of business, not personal banking fees. So if you overdraft on your personal account, that can’t be taken as a deduction at tax time.

Tips for Claiming Bank Fee Tax Deductions

Let’s look at some ways to claim bank fees as tax deductions. Every penny counts, after all.

•   It’s required that business owners file an IRS Schedule C (Form 1040) , Profit or Loss from Business form, in order to deduct business expenses.

•   Any bank charges can be deducted as “other expenses.”

•   If someone can claim deductions because they earn rental property income, they’ll file the Schedule E (Form 1040), Supplemental Income and Loss form.

•   It’s only possible to declare bank charges that occurred in the year for the return being filed.

•   If someone realizes they have unclaimed charges from past years, they need to amend their previous returns and refile them.

•   The IRS wants to see bank accounts that relate to business expense deductions only being used for business purposes; no mixing in personal transactions.

Banking With SoFi

When tax time rolls around, only people who earn business income can potentially deduct overdraft fees related to their work. But even if you don’t have a business account, there are still ways to minimize the impact of overdraft and other banking fees.

See how SoFi can help you bank better in this way. When you open SoFi Checking and Savings with direct deposit, you’ll pay no account fees; if that direct deposit is $1,000 or more monthly, SoFi overdraft coverage will take care of up to $50 for you. What’s more, we pay a super competitive 2.00% APY so your money grows faster. No fees, higher interest? Yes, please.

Open an online bank account today with SoFi today.

FAQ

What bank charges are tax-deductible?

Those who earn business income can deduct bank fees from their taxes. These include overdraft fees, account service charges, and ATM fees that relate to their business.

How do I claim overdraft fees?

People who earn business income and accrue overdraft fees during the course of business can claim these charges by filing the IRS Schedule C (Form 1040), Profit or Loss from Business. If someone earns rental income as a landlord, they can file Schedule E (Form 1040), Supplemental Income and Loss.

Are there taxes on bank fees?

No, you don’t pay taxes on bank fees. Also, some people may be able to deduct bank charges from their taxes, provided they are business bank fees, not personal ones.


Photo credit: iStock/monkeybusinessimages

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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How to Budget on a Fluctuating Income

How to Budget on a Fluctuating Income

When you’re a self-employed, hourly, seasonal, or gig worker, your free-form schedule can give you a lot of freedom to choose where and when you work. However, it also often means your income is irregular, depending on how much work you do each month.

An inconsistent income makes it all the more important that you budget well to make sure that you can cover necessary expenses while still working toward your financial goals. To help you learn how to do just that, read on for advice on:

•   What an irregular income is?

•   Examples of fluctuating incomes.

•   Tips for budgeting with an irregular income.

What Is an Irregular Income?

Irregular income is money that you earn that does not follow a regular schedule. Some people are salary workers and know, down to the last penny, how much they will receive every week or every other week.

But others earn a fluctuating amount of money that can come from a variety of sources, including:

•   Freelance work

•   Contract work

•   Hourly work

•   Seasonal work

•   Commissions

•   Bonuses

•   Stock options, and other types or workplace compensation

Irregular income can fluctuate and at times be unpredictable, making budgeting more challenging. Perhaps you are a home stager who has a super busy season in the spring, full of projects, but things are fairly quiet at other times of year. Or maybe you are a registered nurse who some months takes on more shifts than others. These are examples of why your income can be up and down.

How to Budget With an Irregular Income

In many ways, how to make a budget when income varies is the same process you’d use if you had a regular paycheck. Start by figuring out your average income. Add up how much you made in the past 6 to 12 months and divide by the number of months. This should give you an idea of your typical monthly gross income.

If you work for yourself, taxes won’t be withheld from your paycheck. Be sure to account for these as you develop a budget. The amount you owe will depend on how much you make, but as a rule of thumb, you can subtract 25% to 30% — which should cover whatever taxes you likely owe — to arrive at your net income. Alternatively, you can make taxes a line item in your budget. You might pay these taxes quarterly or once a year, depending on your particular situation.

Next, determine what are considered your living expenses; the basics, such as rent, utilities, car payments, and groceries. Subtract this amount from your average net income. The money you have left represents your discretionary income, which you can spend on things like restaurants, travel, gifts, and entertainment. However, don’t overlook that this discretionary money can and should also be funneled into paying off debt and saving for the future, whether that means an emergency fund or a new car.

Your budget can then guide your spending. If, say, your housing or food costs go up, something else will have to come down. Or if you get hit with an unexpectedly high dental bill, you’ll need to figure out how to accommodate that as well.

Recommended: 7 Reasons Why Budgeting for Couples Is Important

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Tips for Budgeting With an Irregular Income

Once you’ve got an idea of how much you make each month and how much you spend, you can budget with a fluctuating income. Following these tips can help you stick to your budget and tweak as necessary as your income changes month to month.

Using the Zero-Based Budgeting Method

A zero-based budget works well for many people with irregular incomes because it assigns every dollar you earn to a specific purpose. Allocate income to necessary expenses first and then to discretionary spending categories. If there’s any money left over, make sure to assign that a purpose as well. For example, you may want to allocate extra to savings that month.

For this method, you can start with your average monthly income and adjust in real time if you are having a month where your earnings are higher or lower than expected. More on that in a minute.

Also know that there are a variety of budgeting methods worth considering, including the 50/30/20 budget rule and the envelope system. It can be useful to give more than one a try to find the one that works best for your personal habits.

Not Getting Overly Comfortable When You Make More Than Usual

Remember that months that are more flush with cash may be a temporary situation. Be mindful not to take on more financial responsibilities than you’ll be able to maintain if your income drops. For example, think twice before taking on costly loans, such as one for a new car. If you can’t afford the payments in leaner months, consider cheaper alternatives, like buying a used car.

It can also be wise, in months when you are feeling rich, to funnel some of those funds into savings for leaner months and future goals. Tempting as it may be to plan an impromptu beach weekend when your bank account balance is high, it may be better to reward yourself with a day by the shore plus a nice lunch instead.

Preparing for Months With Low Income

About those leaner months we just mentioned: If you know your income will vary from month to month, consider keeping a buffer of cash that can help protect you from shortfalls as your income varies. You might consider a buffer equal to the difference between your income in your highest earning month and your lowest earning month. If you dip into this cash reserve, be sure to replenish it in months in which you make more money.

This money, sometimes called a cash cushion, can see you through lower-income months and also protect you from overdraft and credit-card debt scenarios.

Making Adjustments to Your Budget When You Get Paid

Having an irregular income means you’ll need to take a more hands-on approach to budgeting throughout the month. As income rolls in, you can make adjustments to your budget. If you have a zero-sum budget, be sure to put that money to work immediately. For example, you may find you have more money than you thought to allocate to savings or discretionary categories.

If you don’t receive income you expected during the month, look for ways to make cuts to your budget or put off big purchases until another time.

Tracking All Expenses

When you track expenses, as you spend money in a certain category, you subtract it from the line item in your budget. That way, you’ll always know how much you have left to spend.

Keeping track of your spending throughout the month is critical. It not only helps you stay on budget, but understanding where you spend can enable you to tweak your future budgets and identify trends in spending. For example, you may notice you tend to spend more on clothing at certain times of year. You can then plan ahead for that expense or find ways to curb it.

Many people shy away from expense tracking because it feels time-consuming and, let’s face it, boring. But there are plenty of methods available to make it easier and fun (or almost). Consider using a customizable spreadsheet you find online. There are also plenty of apps that make it simple to track your spending data in real time, automatically categorize transactions, and even set and monitor goals. Technology can really make your life easier on this front.

Continue to Build Your Emergency Fund

You never see it coming: that pricey car repair or dental bill that can send even the best budget reeling. That’s where an emergency fund comes in, giving you cash to get through a challenging moment. (It also delivers peace of mind, which is a form of financial self care.) Experts recommend that you save three to six months’ worth of average expenses in a dedicated savings account. Often, online banks have top rates in what are known as high-yield savings accounts.

Your emergency fund should be separate from the cash buffer you keep from month to month to help you cover shortfalls in income. You don’t want your emergency fund to dwindle away on everyday expenses. It’s best to keep it aside in case something occurs that is truly an instance of when to use your emergency fund.

Investing Your Money

Make investing for your future a part of your financial plan, even when you are budgeting with an inconsistent income. Compounding interest can really help your funds along, so do start saving early and keep at it.

You may even want to include investing in a retirement account as part of your necessary expenses. It can be helpful to automate those savings. You can have a set amount sent from your checking account to your retirement account each month, regardless of which type of retirement plan you have.

Recommended: Tips for Creating a Financial Plan

The Takeaway

Whether self-employed or a seasonal or shift worker, many people have irregular income month to month. Though budgeting may not exactly be most people’s idea of fun, if you have a fluctuating income, it’s an important practice. By tracking your income, expenses, saving, and spending, you can likely avoid being caught short with regular budgeting. This, in turn, will help keep you out of debt and help your wealth grow.

Speaking of having your wealth grow, whatever your income may be month to month, SoFi can help. When you open a new bank account online with direct deposit, we won’t charge you any of the usual fees, plus you’ll earn an amazing 2.00% APY. Zero fees and a stellar APY are a true win-win. You’ll also enjoy easy tools that help you organize your financial life.

Bank better with SoFi.

FAQ

Will budgeting work if you have an irregular income?

You can build a budget with irregular income. However, you must be diligent about tracking both your income and your spending in real time to make sure you stay on top of your money. Online spreadsheets as well as budgeting apps can help you with this process.

What are examples of irregular income?

Irregular income can take many forms. Some examples include being a freelance worker (whether you are a web designer or a personal trainer), contractor worker, hourly or seasonal employee, or a person who works on commission.

What is the difference between regular income and irregular income?

Regular income is a set amount of money received at regular intervals, such as from a salaried job or a passive source like rental income. Irregular income, on the other hand, can arrive unpredictably and can fluctuate from month to month. It’s also important to note that those who earn irregular income may need to set aside money for taxes, unlike many workers who receive a regular paycheck.


Photo credit: iStock/andresr

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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