How Do Savings Accounts Work_780x440: Read on to learn about the different types of savings accounts and how they might come into play in a person’s overall financial plan.

How Do Savings Accounts Work?

Peanut butter and jelly, chips and salsa, avocado and toast, and checking and savings? These things often travel in pairs, but they’re not one and the same.

Instead, a savings account serves to complement checking, and vise versa.

When you need a place to keep your money that you’ll use to pay bills or cover expenses, a checking account can be a good choice.

But when you want to set money aside for future needs and goals and earn interest on your money, a savings account can often be the better option.

Read on to learn about the different types of savings accounts and how they might come into play in a person’s overall financial plan.

What Makes a Savings Account Unique?

Savings accounts can be a great way to diversify a financial strategy. A person might not want to put all their money into a savings account, but a savings account can complement their larger financial plan.

Compared to investments, savings accounts can be a safer spot to put cash away for short-term savings. And, savings accounts typically earn more than checking accounts.

Savings accounts set themselves apart because:

•   They earn interest. Unlike many checking accounts, savings accounts are interest-bearing—that means the bank will pay a small annual percentage yield (APY), based on the money in the account.
•   They’re insured. The money in a savings account is insured by the FDIC (Federal Deposit Insurance Corporation). The FDIC was established in 1933 after the stock market crashed, and when an account is insured, it guarantees that the customer will be able to get their money even in the rare event that a bank goes out of business. Savings accounts in FDIC-insured institutions are generally a safe place to keep cash.

Pros of a Savings Account

Savings accounts yield lots of benefits for their users. Account benefits vary by financial institution, so customers might want to check the fine print for rates and details.

Earned interest. As money sits in a bank account, it makes more money in interest. And as long as that money sits in the account, that interest will also earn interest. It might sound too good to be true, but your money provides a service to the bank. How it works: Customers open a savings account and deposit cash there to earn interest. The bank takes that cash and loans it out to other customers at a higher interest rate. But don’t worry, savings account holders can access their savings at any time.

Easy access. A savings accounts is typically more liquid than an investment account, making it a good candidate for short-term savings goals, since account owners can easily and quickly access their money. Typically, a customer can transfer the funds online with the click of a few buttons.

Low risk. Since savings accounts are liquid and easy to get to, they’re generally regarded as low risk. Savings accounts don’t have the risk associated with investing. If a person is saving up for a big purchase in the next year or two, they might want to consider keeping the money in a savings account, where they can access it easily without the concern of market volatility.

Cons of a Savings Account

While savings accounts have their fair share of benefits, they also have a few drawbacks. Depending on a person’s needs and savings goals, these accounts might not always be the best fit. Here are a few things to keep in mind while mulling over where to deposit extra cash:

They might require a minimum balance. Some savings accounts require a minimum balance, depending on the financial institution. That means the account can’t fall below a certain amount. If it does, there could be a fee or extra charges headed the account holder’s way.
Limited transactions. With the benefit of higher-than-average interest comes the drawback of potentially limited withdrawals, deposits, and transfers. The Federal Reserve lifted its rule that banks must penalize members who make more than six transactions per month from their savings accounts in 2020. However, banks can still penalize you (with fees) if they want to. It’s a good idea to ask your bank about its policy before making more than six transactions in a month.
Setup fees. Depending on the financial institution and type of account, there could be fees associated with opening a savings account. This varies by institution.

Types of Savings Accounts

While they follow the same general rules, not all savings accounts are built the same. These are the some commonly offered savings accounts:

Traditional savings. Consider this a beginner’s savings account. A traditional savings account is offered by most financial institutions, and typically comes tied directly to a checking account. A traditional savings account typically will have a low-interest rate compared to other savings accounts.

High-yield savings. As the name suggests, a high-yield savings account will have a higher yield than a traditional savings account. The higher APY may come with caveats that vary by bank, such as requiring a large initial deposit and/or monthly balance. The bank might also be more likely to limit transactions to six per month.

Online savings. Online-only banks don’t have to support expensive brick-and-mortar branches, which can enable them to offer annual APYs that are higher than traditional savings accounts. These accounts also tend to have low initial deposit requirements and typically don’t charge monthly maintenance fees.

Recommended: 5 Types of Savings You Should Consider Having

Alternatives to Savings Accounts

There are other short-term savings options that don’t involve investment risk. Here are a few alternatives:

Certificate of deposit (CD). A CD is similar to a high-yield savings account when it comes to interest rates. However, when a person sets up a CD, they have to commit to keeping it there for a certain amount of time, and early withdrawal can lead to penalties. As a general rule of thumb, the longer the length of the CD, the better the interest rate.

Money market deposit account (MMDA). MMDAs often come with high-yield savings, but account holders typically need to meet requirements and adhere to the transaction limits to see the benefits. These typically include a minimum balance, and a limited number of transactions per month (including deposits, withdrawals, and transfers).

Cash management account (CMA). A cash management account functions as both a spending and a savings account, and often offers a higher interest rate than a traditional savings account. With many CMAs, account holders can write checks, pay bills, transfer funds, and make deposits. CMAs are offered by both brick-and-mortar and online financial institutions.

How to Use a Savings Account

Generally, a savings account is used for short-term savings goals, like an upcoming vacation or large purchase. This type of account is generally used to save or plan for expenses that don’t come up on a daily basis.

If you have multiple short-term savings goals, you might choose to open multiple savings accounts. You don’t have to open up an account for every goal, but keeping separate savings accounts could make budgeting easier. Watching balances grow could be an excellent motivator to keep saving.

On the other hand, financial minimalists might be overwhelmed by juggling multiple account numbers and balances. In that case, having more than one savings account might cause more confusion than clarity. The important thing is knowing how much you are saving and where.

Some specific reasons a person might open a savings account (or two):

•   An emergency fund. Emergencies crop up when least expected. That means the money always needs to be liquid and available. A savings account can be a good place to build and keep an emergency fund.
•   Short-term saving goals. Many things could fall under this umbrella, including upcoming travel, saving for a downpayment on a home, or putting aside funds to purchase a car. A savings account can be a good place for savings goals you hope to accomplish within the next few months or a year.

These are just a few ways someone could use a savings account when it comes to personal finance. There’s no one right way to use a savings account, and depending on a person’s preference and goals, they might keep one or multiple savings accounts.

The Takeaway

A savings account is a bank account that lets you store your money securely typically while earning interest.

Using a savings account separates money you intend to use at a later date, say for a large purchase or upcoming event, from everyday spending money that is kept in your checking account.

High-yield savings accounts and online savings accounts often offer higher interest than traditional savings accounts.

SoFi Money® is a cash management account that allows you to earn competitive interest, save, and spend–all in one account. And, you’ll pay zero account fees to do it.

Start saving with SoFi Money today.



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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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What Are CashBack Rewards and How Do They Work_780x440: Cash-back credit cards are offered by many credit card companies to qualified consumers.

What Are Cash-Back Rewards and How Do They Work?

Everyone loves a good deal especially when it comes with a little cash back in their pockets.

According to a CreditCards.com survey, 57% of U.S. adults have at least one rewards credit card. And, of those, 43% of rewards cardholders prefer cash-back cards over any other option.

If you’re thinking about adding a credit card to your wallet, here are a few things you might want to know about cash-back rewards, like how do cash-back rewards work anyway, and whether this type of rewards card makes sense for you.

What Are “Cash-Back Rewards”?

Cash-back credit cards are offered by many credit card companies to qualified consumers. Consumers can use these credit cards to make purchases, and a certain percentage of that purchase is returned to the customer as a cash incentive. In other words, cash back rewards can be an easy way to make the most of everyday expenses.

Typically, cash-back rewards range between 1% and 2%, however, there could be cards out there offering more.

Some rewards cards offer a set number of points per purchase that can be redeemed later for cash or for goods like airline tickets, discounts at coffee shops, or gift cards.

How Does Cash Back Work?

Cash-back rewards can be extremely easy to use. All consumers have to do is spend as they normally do, and in return, the credit card company calculates the percentage to return to the cardholder based on what they spent on eligible purchases.

For example: A card pays a flat rate of 2% cash back on all purchases. If the cardholder spends $1,000 in a statement period, the card issuer will then give the cardholder $20 in cash-back rewards.

The card issuer pays out the percentage at the end of a given term, which could mean paying it out at the end of a statement period or billing cycle, or even once you hit a predetermined amount, like $20.

Cash-back cards might come in handy for everything from large purchases to everyday needs. Think of it this way—rather than purchasing things with cash, which doesn’t provide any added benefits, a cash-back card could return money right into a consumer’s pockets.

However, in order for that money to really pay off, the cardholder will likely want to pay off the credit card balance every month in full so they’re not accruing interest and fees, and negating that cash-back reward.

One thing to remember is that cash-back cards are different from other rewards cards. There are rewards cards that offer specific travel rewards, cards that partner with gas stations to earn free gallons, and many more.

Recommended: Credit Cards vs. Debit Cards

Four Ways to Redeem Cash-Back Rewards

As explained above, cash-back rewards cards offer cardholders a percentage of money spent on purchases during a given billing cycle. However, there may be a variety of ways consumers can receive those cash rewards.

1. Credit card balance reduction: Card users may be able to allocate their cash rewards to be sent directly back to the card issuer each billing cycle. This is known as “credit card balance reduction.” It means users would be paying off a portion of their bill with their own rewards.

2. Gift cards: Some cardholders may be able to redeem their cash-back rewards in the form of gift cards to their favorite places. To sweeten this deal, some credit card companies partner with destinations like coffee shops, online retailers, airlines, and more, to provide bonus payouts when cash-back rewards are redeemed with a gift card.

3. Charitable giving: Several card providers allow users to use their cash back for good, sending their rewards directly to the charity of their choice. All users need to do is select the charity and the card does the rest.

4. Paper check or direct deposit: One other option is to ask the card company if it’s possible to send the rewards money right to your bank account in the form of a direct deposit or to send a paper check directly to you via mail.

The Different Types of Cash-Back Cards

Though cash-back rewards seem straightforward enough, there are a few nuances consumers might want to know to help use each card to its highest potential.

There is the flat-rate card, which offers a standard rate when it comes to cash-back rewards. That means cardholders will receive the same exact cash-back percentage on every eligible purchase, be it groceries or plane tickets. This option is easy as users never have to think about the way they use their cards.

Another option is varying cash-back bonuses, which offer different amounts of cash-back rewards for different purchase categories.

For example, if a person opens a gasoline-specific credit card, they may get more cash back on purchases at the pump—say 2%—than they do on other items—say 1% on all other purchases. If opting for this type of card, it might be a good idea to make sure the higher variable percentage is for an item purchased often.

Lastly, there is a bonus category. Cash-back rewards may not end at the baseline cash-back percentage. Often, credit card companies will offer bonuses and opportunities for cardholders to earn even more in specific categories.

Any of these cards may offer special features, such as:

•   Special promotions: One option to earn even more cash back may be via a special promotion run through the credit card. For example, a credit card may typically offer 1% cash-back, however, for one billing cycle, it could partner with a large retailer for 5% cash-back for all eligible purchases.

•   Signup bonuses: Cash-back rewards cards might also come with higher incentivized signup bonuses to get new users to join. This might be in the form of cash signup bonuses of $100 or more if a user spends enough money in the first three months of card use. All this could add up to more cash-back in your pocket now to have more to spend—or save—later.

Potential Drawbacks of Cash-Back Rewards

Cash-back credit cards can come with a few potential downsides that users may also want to be aware of. As with signing up for any new credit card, it’s a wise idea to read the fine print.

For instance, you may want to be sure to read through the contract carefully to understand exactly how the rewards work, what to expect along the way, and also suss out any hidden credit card fees such as late payment fees, balance transfer fees, foreign transaction fees, and more.

It can also be a good idea to find out if the card has a high annual fee, which may negate any earned rewards, and what the APR (annual percentage rate) is, in case you get into a bind and need to carry over a balance month to month. However, it’s key to keep in mind that carrying a balance nearly always outweighs any rewards.

It’s also important to note that many credit cards (cash-back or otherwise) can retain the right to change their bonus structure at any time. That means it could change the percentage of cash users receive in return for purchases for a lower (or higher) amount. So, users might want to be happy with the card and its rates and policies, not just the cash-back rewards, as that could change at any moment.

When looking at the fine print, consumers might also want to identify if the card comes with a cap on possible rewards. Many cards limit just how much money a user is allowed to claim, so make sure to know that number and be comfortable with the limit.

And, again, like all cards, it’s key to pay off a cash-back rewards card in a timely fashion. This way, users won’t be paying interest on purchases with a card that was meant to bring them a little money in return.

Recommended: What is a Good APR?

The Takeaway

Cash-back is a credit card rewards benefit that refunds the cardholder a small percentage of some or all purchases made with the card.

Every time you make an eligible purchase with your cash-back credit card, your card issuer will pay you back a percentage of that transaction.

Your cash-back reward won’t necessarily payout immediately. Like your statement balance, your rewards will accrue each month and show up on your monthly statement.

Many cards offer a number of ways to redeem the cash-back rewards that accumulate on your card statement, including credit towards your balance, a gift card, a check, a charitable donation, or cash off when checking out online at certain retailers.

Choosing a credit card with the right cash-back rewards for you can take a little research.

One option you may want to consider is SoFi Money®️.

SoFi Money is a simple-to-use cash management account that comes with the ability to earn cash-back rewards when you spend at a rotating list of your favorite brands and merchants.

Plus SoFi Money has no account fees, overdraft fees, or minimum balance fees, and offers access to 55,000+ fee-free ATMs.

Check out everything a SoFi Money cash management account has to offer today.



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.
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.
As of 6/9/2020, accounts with recurring monthly deposits of $500 or more each month, will earn interest at 0.25%. All other accounts will earn interest at 0.01%. Interest rates are variable and subject to change at our discretion at any time. Accounts opened prior to June 8, 2020, will continue to earn interest at 0.25% irrespective of deposit activity. SoFi’s Securities reserves the right to change this policy at our discretion at any time. Accounts which are eligible to earn interest at 0.25% (including accounts opened prior to June 8, 2020) will also be eligible to participate in the SoFi Money Cashback Rewards Program.
SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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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Car Repossession: How it Affects Your Finances_780x440

Car Repossession: How it Affects Your Finances

If you fail to make your car payments or otherwise default on your loan, you risk having your car repossessed, or taken back by the lender.

The process of vehicle repossession can be costly. You may be responsible for the deficiency balance on the car, which is the amount you owe on the car, minus the amount the lender sells the car for, as well as additional fees.

Repossession can also have a negative impact on your credit score, which can make it harder to qualify for another car loan, as well as credit cards or a mortgage, in the future.

Read on to learn more about car repossession, how to avoid it, and what your options are if it happens.

Recommended: How Much Auto Insurance Do I Really Need?

Why Do Cars Get Repossessed?

When you borrow money to buy a car, or you lease a car, you generally have to agree to specific terms outlined in the contract.

You will likely have to agree, for instance, that you will make monthly payments on time and keep adequate insurance on the vehicle.

If you don’t meet those requirements, the lender (or leasing company) has the right to take the car.

In some cases, a lender will alert you of your missed payments and attempt to collect payment prior to repossessing the vehicle.

Depending on the loan contract you signed, however, some lenders or leasing companies can take the car back after one missed payment, without any prior notice of late payment, or warning you that your car is going to be repossessed.

If having car insurance is a requirement of your auto contract, as it often is, your car can be repossessed if your auto insurance has lapsed and isn’t being paid.

Recommended: How to Lower Car Insurance & Save Money

What Rights Do I Have if My Car is Repossessed?

While the car does not technically belong to you and is the property of the lender or leasing company, you do have some basic rights if your car is repossessed. These include:

Your Personal Property

If you have any items of value in the car, such as a laptop or car seat, the bank or leasing company that owns the loan, or the car repossession agency, cannot keep or sell the property found inside the car.

In some states, a creditor must tell you what items were found in the car and how you can get them back.

If you’re having trouble retrieving personal items that are of significant value, you might want to file a complaint , or talk to an attorney about how to get your belongings back or if you can be compensated for them.

Pandemic Protection

Some states have temporarily prohibited creditors from taking specific debt collection actions, such as car repossessions, during the pandemic.

You can see if your state is on the list to ensure that the auto repossession was lawful.

Selling Price

If your car is taken and sold, the lender doesn’t have to sell it for the highest possible price, but they are legally required to make an effort to get fair market value for the car and to sell it for a “commercially reasonable” price.

The reason is that the sales proceeds will go toward paying off your debt. It would be unfair to repossess a vehicle and then give it away for very little to somebody else

Also key: If the creditor holds onto the car and doesn’t resell it, you generally will not owe a deficiency balance on the car (which is the amount you owe minus what the car sells for).

Getting a Car Out of Repo

Should you be interested in getting a repossessed car back, that might be an option.

You may be entitled to buy back the vehicle by paying the full amount you owe on the car. This typically includes your past due payments and the remaining debt, along with any fees that accumulated in the repossession process.

Another option for getting your car back is to try to buy back the repossessed car by bidding on it at the repossession sale.

Or, you might instead decide to save up for a car and get a less expensive vehicle.

How Much Does a Car Repossession Cost?

If the lender repossesses your car and then sells it at an auction, the sales proceeds go toward your loan balance. In many cases, the car sells for less than you owe, so your loan is still not paid off. The amount you owe is the deficiency balance.

In addition to the deficiency, you may also have to pay for costs related to repossession. Charges can include expenses for sending a repossession agent, storing the vehicle, and preparing the vehicle for sale.

If the deficiency balance goes unpaid, it can result in a lawsuit against you, along with wage garnishment or a lien against your property.

If you are able to buy the car back before it goes to auction, you will likely be responsible for paying the full amount you owe on the car, which may include your past due to payments and the remaining debt, along with any fees that accumulated in the repossession process.

How Car Repossession Affects Your Credit

On its own, a repossession is a red flag on your credit report and can have a serious impact on your scores.

A repossession can also stay on your credit report for seven years, beginning with the date of your first late payment.

In addition to the repossession being listed in your credit report, failing to pay your auto loan on time may trigger other negative marks in your credit.

For each month you are 30 days or more past due, the lender can report the account as delinquent. If the account was sent to a collection agency, a record of the collection account may also appear in your reports.

How to Avoid Car Repossession

It can often be easier to prevent a vehicle repossession from happening than trying to fix it after the car has been taken away.

Here some ways you may be able to reduce the risk of repossession if you’re struggling with car payments.

Talking to Your Lender

If you fall behind on your auto loan or you think you soon may, it can be worthwhile to reach out to the lender to discuss what options you may have.

There is a chance your lender will allow you to defer your loan payments for a period of time or help you come up with another solution to allow you to keep your car. This shows good faith as you try to remedy your situation.

If you and the lender are able to come to an agreement about amending or skipping payments, it’s a good idea to get the new terms addressed in writing to avoid problems down the line.

Refinancing Your Car Loan

If you’re struggling to pay your auto loan, refinancing might help get your payment to an affordable level so you can continue to pay on time.

Refinancing entails paying off your current auto loan with a new car loan. If you are approved for a new loan, refinancing could help you avoid repossession by satisfying what you owe on your existing loan and starting fresh with a new lender.

Considering Voluntary Repossession

if your lender won’t accept late payments and demands that you return the car, voluntarily repossessing, or surrendering, the car may be a better option than having it taken away.

Turning in your car can reduce the creditor’s expenses and, in turn, reduce how much you’re required to pay (though you’ll still likely be responsible for late payments, late fees, and possibly a deficiency balance).

A voluntary repossession also gives you more control over when you give up your car than having the car suddenly taken away from you.

You creditor may still enter the late payments and repossession on your credit report, where it can remain for seven years. However, a “voluntary surrender” can be less damaging to your credit than a “repossession.”


Improving Your Credit After a Car Repossession

While a repossession can negatively impact your credit report, it won’t be forever. As time passes, and as you handle your other credit obligations responsibly, the impact on your credit score can lessen.

Some ways to help rebuild your credit score include:

•   Paying off any outstanding debt on your car loan.
•   Making payments on other debts (such as student loans) on time.
•   Maintaining low balances on credit cards and paying them off in full every month.
•   Making timely payments for all of your bills (so none are ever sent to debt collection agencies).

Handling your money responsibly and getting more motivated to save money can help you pay your debts back diligently.

This shows future lenders that you can make wise money decisions and will be trustworthy when it comes to paying off loans and credit in the future.

Recommended: How Long Does it Take to Repair Credit?

The Takeaway

If you have missed payments on your vehicle or let your car insurance lapse, the lender can repossess your car and sell it at an auction.

You will then likely have to pay the difference between what the car sells for and what you still owe, plus various additional fees.

Depending on your loan or lease contract, you may have time to make the missing payments and retrieve your car before it is sold at auction.

Either way, a car repossession can be costly, and also have a negative and lasting impact on your credit scores.

One of the best ways to avoid car repossession is to stay on top of your car payments, making them in full and on time each month.

Setting up a monthly budget and learning how to save money from your salary can help you make this happen.

Another good safeguard is to wait until you’ve saved up for a substantial downpayment on a car before you buy, or use that money to go with a more affordable used car and pay for it in full.

SoFi Money® can help get you started. SoFi Money is a cash management account that allows you to separate your savings from your spending while earning competitive interest on all your money.

Starting saving up for a new set of wheels with SoFi Money.



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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woman budgeting looking in wallet mobile

What to Do When Money is Tight

When the unexpected happens and money is tight, it’s normal to worry about how you’re going to make ends meet.

But whether you’re going through a short-term budget crunch or dealing with more challenging financial issues, there are ways to feel more in control of your financial situation–and make the money you have go farther.

The key to coping when money is tight is to take a close look at your current budget, find expenses you may be able to pare back or eliminate, and potentially find some new income streams.

Here are some smart spending and saving strategies to try when you’re tight on money.

Getting Honest With Your Budget

When most of your income already goes to essentials, you may wonder if there is really enough money left over for a spending plan.

But taking a close look at your monthly spending can be especially key when money is tight because the less money available, the more important it is to keep those dollars under control.

To get a full picture of your spending, you may want to actually track your spending (every cash/debit/credit card transaction and every bill you pay) for a month or so.

You can do this by carrying around a notebook or saving all of your receipts. There are also a number of phone apps that can make the process of tracking your daily spending easy.

Once you have a sense of average monthly spending, it’s a good idea to compare this to what’s coming in. You can look at your bank statements for the past few months to get an idea of much after-tax income you are taking in on average per month.

Comparing what is coming in vs. going out may be anxiety-provoking, but knowing exactly where you stand when money is tight can be a critical first step toward easing the strain.

Uncovering Places to Save

Once you have a good sense of your monthly spending, you may want to group expenses into categories, and then list them in order of priority, starting with the essentials and going down to the “nice to haves.”

Once you’ve established which expenses are the most important, you can start looking for places to cut some of your unnecessary spending. Cutbacks may not feel fun, but they can be extremely beneficial when money is tight.

For example, if you are spending a lot on restaurants and take-out, you might consider cooking at home a few more nights a week.

Or, if you’re overspending on clothing, it might make sense to institute a short-term spending freeze on new clothes, or a freeze on spending money at a certain store for a period of time.

If you mostly watch streaming services, you might consider ditching that pricy cable subscription. If you love buying the latest best-sellers, It might be a good time to renew your library card.

You may also find you’re paying for memberships and subscriptions you no longer need or want. These are line items you may be able to scratch from the expense list completely.

Negotiating with Service Providers

Another way to save money when your budget is tight is to see if you can reduce some of your monthly “fixed” expenses.

Some of those recurring bills (like cable, internet, cell phone, car insurance) may not actually be set in stone.

It can take little research—and nerve—but you may be able to negotiate for a lower rate from many of your providers, especially if you’re dealing with a company that’s in a competitive market.

Before you call or email a business or provider, it can help to know exactly how much you’re paying for a service, what you’re getting for your money, and how much the competition is charging for the same or similar service.

It’s also a good idea to make sure you are communicating with someone who actually has the power to lower your rate and, if not, ask to speak with someone who does.

You may also want to let providers know that if they can’t do better, you may decide to switch to another company.

Cutting Back on Bigger Expenses

If money is especially tight right now, it can also be a good idea to take a look at the big items in your overall budget.

For example, is your car payment too high? If so, perhaps you could lease a less expensive car, or buy a used vehicle to cut monthly payments.

If rent is eating up too much of your income, you might want to look into finding a cheaper place to live that’s still nice, taking in a roommate, or moving in with friends.

These options may be the last steps you take as you look for ways to reduce expenses, but they really can help you save a sizable amount of money every month. The lower you keep these costs, the easier it will be to live well within a tight budget.

Knocking Down Debt

Having too much debt can make money feel especially tight, and it can also hurt your chances of achieving financial security down the line.

That’s because when you’re spending a lot of money on interest each month, it can be harder to pay all of your other expenses on time, not to mention grow your savings.

Reducing debt may seem like a tall mountain to climb when money is tight, but choosing the right debt reduction strategy may be able to help you chip away and slowly improve your financial situation.

Since credit card debt typically costs the most in interest, you might consider tackling these debts first, and then move on to the debt with the next-highest interest rate, and so on.

Another approach is to pay the minimum toward all your accounts, and then pay any extra you can afford toward the debt with the smallest balance. When that debt is wiped out, you can move on to the next smallest balance, and so on.

If you can qualify for a lower interest rate, another option might be to take out a personal loan that consolidates all those high-interest debts into one more manageable payment.

Starting an Emergency Fund

It might sound crazy–if not impossible–to put money into savings when you’re tight on money.

But here’s why you may want to make putting a little bit away into an emergency fund each month a priority: If you’re living on a tight budget, just one unexpected expense—like your car breaking down or a visit to an urgent care clinic—could put you over the financial edge.

If you start putting just a small amount aside each month into an emergency fund, it won’t be long before you have a decent financial cushion that could prevent you from having to run up high interest credit debt the next time something unexpected rolls around.

Good places to start–and grow–your emergency fund include: a high-interest savings account, a cash management account, or an online savings account.

These options typically offer higher interest than a standard savings account, but keep the money liquid so you can access it if and when you need it.

Spending Only Cash for Everyday Expenses

There’s something about plastic that can make it feel like you are not really spending money.

While it might not be practical to pay your rent or utility bills in cash, switching to cash (and leaving the credit cards at home) for other expenses can be a great idea when money is tight.

The reason is that using cash places a harder limit on your spending and helps you become more aware of your choices. When you can literally see your money going somewhere, you may find yourself becoming much more intentional in the way you spend it.

Groceries and entertainment can be great categories for going cash-only. Cash can also be a good option for clothing and the (occasional) restaurant meal.

Another benefit of cash is that it’s more difficult to get into debt since you can’t spend cash you don’t have.

Starting a Side Gig

Once you’ve done some basic budgeting, it may be clear that additional income could help ease things while money is tight.

Sometimes all it takes is some extra time and energy to earn some extra cash, whether it’s selling things you no longer want or need (and decluttering at the same time), taking on a side hustle, or using your talents to pick up some freelance work.

Some ideas for generating extra income include:

•   Selling things on eBay, Craigslist, or Facebook Marketplace
•   Having a garage sale
•   Creating an Etsy store and selling homemade goods
•   Driving for a rideshare or food delivery service
•   Giving music lessons
•   Renting out a room on Airbnb
•   Walking dogs
•   Cleaning houses
•   Babysitting
•   Handling social media for small businesses
•   Selling writing, photography, or videography services to clients

The Takeaway

If money is feeling tight right now, it’s easy to feel worried and out of control.

But you may be able to regain a sense of control by taking a deep breath, sitting down, and really crunching the numbers. This entails looking at your monthly take-home pay, as well as your average monthly spending, and seeing how it all lines up.

Once you have a sense of the numbers, you can take steps to reduce unnecessary spending, negotiate to lower monthly bills, chip away at expensive debt, and even start building a financial cushion.

It might not happen overnight, but these steps can help ease money stress and put you on the road to a more secure financial future.

Looking for a simple way to manage your spending and saving while money is tight? Consider opening a SoFi Money® cash management account.

With SoFi Money, you can easily see your weekly spending on your dashboard in the app, which can help you stay on top of how much you are spending, and make sure you are on track with your budget.

Signing up for SoFi Money can also help you save on fees, since SoFi Money doesn’t have any account fees, monthly fees, or many other common fees. Plus, withdrawing cash is fee-free at 55,000+ ATMs worldwide.

Check out everything SoFi Money has to offer today!



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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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When Can I Retire? This Formula Will Help You Know

Update: The deadline for making IRA contributions for tax year 2020 has been extended to May 17, 2021.

When it comes to retirement savings, there are a number of factors to consider: Social Security, inflation, and health care costs. But ultimately all these concerns boil down to one question: How much do you need to save to retire?

Thankfully, there’s a formula for calculating these costs, which might help you plan for the future. But first, decide at what age you want to retire and then see how that decision affects your finances.

When Can You Get Full Social Security Benefits?

At what age does the government allow people to retire with full Social Security benefits? And at what age can people start withdrawing from their retirement accounts without facing penalties? For Social Security, the rules are based on your birth year.

The Social Security Administration has a retirement age calculator . For example, people born between 1943 and 1954 could retire with full Social Security benefits at age 66.

Meanwhile, those born in 1955 could retire at age 66 and two months, and those born in 1956 could retire at age 66 and four months. Those born in or after 1960 can retire at age 67 to receive full benefits.

Social Security Early Retirement

A recipient will be penalized if they retire before full retirement age. The earlier a person retires, the less they’ll receive in Social Security.

Let’s use John Doe as an example and say he was born in 1960, so full retirement age is 67. If he retires at age 66, he’ll receive 93.3% of Social Security benefits; age 66 will get John 86.7%. If he retires on his 62nd birthday–the earliest he can receive Social Security–he’ll only receive 70% of earnings.

Here’s a retirement planner table for those born in 1960, which shows how one’s benefits will be reduced.

Social Security Late Retirement

If a person wants to keep working until after full retirement age, they could earn greater monthly benefits.

For example, if the magic retirement number is 66 years but retirement is pushed back to 66 and one month, then Social Security benefits rise to 100.7% per month. So if your monthly benefit was supposed to be $1,000, but you wait until 66 years and one month, then your monthly allotment would increase to $1,007.

If retirement is pushed back to age 70, earnings go up to 132% of monthly benefits. But no need to calculate further: Social Security benefits stop increasing once a person reaches age 70. Here is a SSA table on delayed retirement .

When Can You Withdraw From Retirement Accounts?

Now let’s look at retirement accounts. Each type of account has different rules about when money can be taken out.

If a Roth IRA account has existed for at least five years, withdrawals from the account are usually okay after age 59½ without consequences. Taking out money earlier or withdrawing money from a Roth IRA that’s been open for fewer than five years could result in paying penalties and/or taxes.

There is a little wiggle room. Retirement withdrawal rules do have exceptions for issues like disability or educational expenses, and there is an option to withdraw money early and pay taxes or penalties.

If a person is at least 59½ and has a Roth IRA that is less than five years old, taxes will need to be paid upon withdrawal but not penalties. Taxes or penalties might not need to be paid at age 59½ and if the Roth IRA has been open for five years or more.

People with a traditional IRA can make withdrawals from ages 59½ to 72 without being penalized. The government will charge a 10% penalty on withdrawals before age 59.5, and depending on location, a state penalty tax might also be charged.

People with 401(k)s can typically retire by age 55 and make withdrawals without receiving a penalty. People with either a traditional IRA or 401(k) must start making withdrawals by age 72 or face a hefty penalty.

How Much to Save for Retirement? Here’s the Formula

Everyone’s situation is different, so it might make perfect sense for one person to retire at age 62 and another at 55. However, waiting until full retirement age or even age 70 not only gives Social Security more time to accrue—it gives a potential retiree more time to accumulate savings in a nest egg.

So is working till the age 70 absolutely necessary to earn enough money to live off of after retirement, or will there be enough in savings by age 67 or 68? This is where the question “How much do you need to save to retire?” comes in.

Fidelity’s research shows that if a 30-year retirement is planned and annual spending is expected to be 4% to 5% of savings, adjusting for inflation, there is about a 90% chance of not running out of money.

The exact percentage can depend on the age of retirement and life expectancy. That number changes if a person retires at age 60 and plans a 35-year retirement—about 4.3% could be withdrawn per year to retain that 90% likelihood of financial security.

To break it down, $1 million in savings is a fair number to get through the retirement years.

How Much Money Is Needed Each Year to Live On?

The rule of thumb was once 80% of current income. But that assumes the mortgage is paid off and taxes will be lower. Many people will still have mortgages.

Since a large part of a retirement income comes from withdrawals from retirement plans that give taxable income, the tax rate might not go down much. Plus, many people might want to travel or spend money on hobbies in the early years of retirement, and many might need expensive health care as they live into their 90s and beyond. That means more than a current income might be necessary.

A retiree may be living off money from both Social Security and a retirement account. If Social Security is an option, and if it’s still around at retirement, that could reduce the amount that needs to be withdrawn from a retirement account each year.

Here’s the Retirement Savings Formula: Start with current income, subtract estimated Social Security benefits, and divide by 0.04. That’s the target number in today’s dollars.

The Takeaway

Nobody knows what the future holds—tax rates, inflation, health care reform, and Social Security are all outside our control. But the amount saved and invested is not.

With SoFi Invest®, you can track investments and choose exactly how active you are in the process. SoFi offers an Active Investing platform, where investors can buy stocks, ETFs or fractional shares. For a limited time, opening an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is sign up, play the claw game, and find out how much you won.

Check out SoFi Invest today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Claw Promotion: For the full terms and conditions of SoFi’s Claw Promotion, click here. Probability of a customer receiving $1,000 is 0.028%.
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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