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If you’re wondering how your financial health is tracking, you may want to figure out your net worth and your liquid net worth. These two numbers reflect what your assets (what you have) vs. what you owe, helping you see how your personal wealth is evolving.

While totaling up your net worth offers a more big-picture view of your total assets with your total liabilities subtracted, liquid net worth is a slice of that. It focuses on solely the amount you own in liquid assets minus your total liabilities.

This reflects how much cash you truly have access to or could quickly raise if for some reason you needed to.

Here’s a guide to determining your liquid net worth and ways to improve it.

What Is Liquid Net Worth?

First, know that net worth is the amount of assets you have minus your liabilities, or what you owe. When it comes to income vs. net worth, you see that your worth is more than just what you earn; it’s also what you keep and how you invest and grow your money.

For instance, if you have a high income but spend it all because your cost of living is very high, your net worth could be very low despite your healthy salary.

Now, what is liquid net worth’s meaning? That’s the same calculation as net worth, but only looking at assets that could easily be tapped. So, you would exclude the value of, say, the home you are living in or your retirement accounts which you can’t touch until decades from now.

Liquid net worth reflects assets you could draw upon right now if you had to, without putting your home on the market or pulling money out of an IRA. Net worth vs. liquid net worth, on the other hand, represents all your assets, whether easily tapped or not.

What Counts for Liquid Net Worth Calculations?

Here are some assets that can count when calculating liquid net worth:

•   Cash

•   Money in a checking account

•   Money in a savings, CD, or money market account

•   Mutual funds, stocks, and bonds

•   Possibly jewelry and watches that could be quickly sold, if need be.

Typically, you do not include real estate or retirement savings when calculating liquid net worth as these can’t be cashed in on the spot if that was your goal.

Net Worth vs Liquid Net Worth

As briefly mentioned above, your total net worth includes all of your assets (what you own) and liabilities (what you owe). When you determine your net worth, you add up all your assets, including non-liquid assets, such as your house, car, and retirement accounts, and then subtract all of your liabilities. The resulting number is your total net worth.

•   Your liquid net worth is the amount of money you have in cash or cash equivalents (assets that can be easily converted into cash) after you’ve deducted all of your liabilities.

It’s very similar to net worth, except that it doesn’t account for non-liquid assets such as real estate or retirement accounts.

•   Your total net worth gives you a picture of your overall financial strength and balance sheet, while liquid net worth shows how much money you have available that is quickly accessible in case of emergency or other financial hardship.

•   Both measures of net worth can give you a useful snapshot of your financial wellness, since they consider both assets and debts. Looking at your assets without considering your debts can give you a false picture of your financial situation.

•   Knowing and tracking these numbers can also tell you if you are moving in the right or wrong financial direction. If your net worth or liquid net worth is in negative territory or the numbers are declining over time, it can be a sign you need to make some changes and/or may want to put off making a major purchase such as a home or a car.

Why Liquid Net Worth Matters

Your liquid net worth is a measure of your ability to weather a financial storm. Imagine you need money for something important — a major home or car repair, a trip to the ER, or getting laid off and deciding to start a new business.

You need it now… or, at least, within the next few weeks or months. Where are you going to get the money?

You might not want to look at cashing in things like your home, your car, your retirement savings, your baseball card collection, or Grandma’s wedding ring unless it’s absolutely necessary.

Those kinds of assets can be difficult to convert to cash in a hurry — and there could be consequences if you did decide to go that route.

Instead, it may be easier to tap your more liquid assets, such as cash from a checking, savings, or money market account, or cash equivalents, like stocks and bonds, mutual funds, or money market funds.

Liquid net worth is often considered a true measure of how financially stable you are because it tells you what you can rely on to cover expenses. In addition, your liquid net worth acts as an overall emergency fund.

Calculating Your Liquid Net Worth

The difference in calculating net worth and liquid net worth is understanding which of your financial assets are liquid assets.

Liquid assets are cash and assets that could be converted to cash quickly. The following are considered liquid assets.

•   Cash: This includes the money that is in your wallet, as well as the cash you have in any savings, checking, and money market accounts.

•   Stocks: Any equity in a brokerage account, such as stocks, index funds, mutual funds, and ETFs, is considered a liquid asset. While you might have to pay taxes and other fees if you sell equities to convert to cash, you could liquidate these assets fairly quickly.

•   Bonds: Like equities, any bonds or bond funds are also liquid assets. Again, you may have to pay taxes on your profits when you sell, but the translation is relatively quick.

Non-liquid assets include anything that cannot be converted to cash quickly or for their full value, such as:

•   Retirement accounts, such as 401(k)s and IRAs.

•   A house or other real estate holding (which could take a while to sell and the actual sales price is not known).

•   Cars (while you may be able to liquidate a car relatively quickly, cars generally don’t hold their original value; they depreciate).

Liquid Net Worth Formula

For a liquid net worth calculation, here are the steps to follow:

•   List all of your liquid assets: The cash and cash equivalents you could easily and quickly get your hands on if you need money.

•   Next, list your current liabilities, including credit card debt, student loan balance, unsecured loans, medical debt, a car loan, and any other debt.

•   Subtract your liabilities from your liquid assets. The result is your liquid net worth.

4 Tips for Improving Liquid Net Worth

If your liquid net worth is too low to cover at least three to six months’ worth of living expenses or is in negative territory, you may want to take some steps to bolster this number. Here are some strategies that can help boost liquid net worth.

1. Building an Emergency Fund

If you don’t already have a solid contingency fund set aside in a liquid account, you may want to start building one. Having enough cash on hand to cover three to six months’ worth of expenses can be a great place to start building your liquid net worth.

An emergency fund can help keep you from getting behind on your bills and running up high interest credit card debt in the event of an unexpected expense, job loss, or reduction in work hours.

It’s fine to build towards this slowly. Automating your savings to deposit, say, $25 per paycheck into an emergency fund can be a good starting point if money is tight.

2. Reducing Expenses

For every dollar you save each month, you are potentially increasing your liquid net worth by that amount. One way to cut spending is to take a close look at your monthly expenses and to then try to find places where you may be able to cut back, such as saving on streaming services, lowering your food bills, or shopping around for a better deal on home and car insurance.

3. Lowering High-Interest Debt

Debts add to your liabilities and therefore lower your liquid net worth. Expensive debt also increases your monthly expenses in the form of interest. This gives you less money to put in the bank each month, making it harder to build your liquid net worth.

If you’re carrying credit card debt, you may want to start a debt reduction plan (such as the “debt snowball” or “debt avalanche” method) to get it paid down faster.

4. Increasing Investments

Investing money in the market for long-term savings goals, such as a child’s education, can increase your liquid net worth. While there is risk involved, you’ll have more time to ride out the ups and downs of the securities markets when saving for the longer term.

Recommended: Average Net Worth by Age

The Takeaway

Liquid net worth is the amount of money you have in cash or cash equivalents after you’ve deducted your liabilities from your liquid assets. It doesn’t account for non-liquid assets, such as real estate or retirement accounts.

Your liquid net worth can be a valuable measure of your financial health and stability because it shows how prepared you are to handle a change in plans, an unexpected expense, or a true emergency.

One easy way to boost your liquid net worth is to start building an emergency fund. If you’re looking for a good place to start saving, you may want to consider opening a high-interest bank account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Does a 401(k) count as liquid net worth?

When calculating liquid net worth, you typically do not include retirement accounts nor real estate. Liquid net worth’s meaning involves assets you can quickly tap without paying a large penalty.

How do you calculate liquid net worth?

To calculate your liquid net worth, add up your liquid assets (cash, money in the bank, stocks, bonds, and the like) and subtract your liabilities (credit card debt, student loans, car loan, etc.). When adding up your assets, do not include real estate or retirement accounts.

What is the average liquid net worth by age?

Figures for average liquid net worth are hard to come by. Rather, total net worth is what is typically tracked, which was recently found to be approximately $76,300 for those under age 35, $436,200 for those 35 to 44; $833,200 for those 45 to 54, and $1,175,900 for those 55 yo 64. It may be helpful to also consider the media values for these age brackets, which are significantly lower than the average.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://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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A demand deposit account (DDA) is a type of bank account that is payable on demand. In other words, you can withdraw funds whenever you like. The most recognizable type of demand deposit account is a checking account. That’s right: You probably already have a demand deposit account and didn’t even know it.

While some personal finance sites and experts may conversationally refer to savings accounts as demand deposit accounts, there are key differences that actually keep savings accounts from qualifying.

What Is a Demand Deposit Account?

So what is a demand deposit account (and what is it not)? The Federal Reserve categorizes demand deposit accounts as those that “are payable on demand, or a deposit issued with an original maturity or required notice period of less than seven days, or a deposit representing funds for which the depository institution does not reserve the right to require at least seven days’ written notice of intended withdrawal.”

Wait, what? Bank jargon can get confusing, so let’s break it down more simply. Demand deposit accounts:

•   Don’t have a maturity period.

•   Allow you to access your funds without notice (or less than seven days’ notice).

•   Can earn interest, like a high-yield checking account.

•   Cannot limit the number of withdrawals or transfers you can make.

Because checking accounts do not mature and give you immediate access to your funds (for example, through check writing, debit cards, and ATM withdrawals), these qualify as demand deposit accounts.

Recommended: What is High Interest Checking – and How Does it Work?

What Isn’t a Demand Deposit Account?

Checking accounts are a common type of DDA, but what about other types of bank accounts, like savings accounts, money market accounts, and certificates of deposit?

Savings Deposits

Some people consider savings accounts to be DDAs, but there’s a difference to note. The Federal Reserve’s Regulation D (Reg D) previously limited savings account withdrawals to six per month. In response to COVID-19, the Federal Reserve removed this requirement.

Even though the Federal Reserve has eliminated the six withdrawal limit requirement, savings accounts still do not technically qualify as a demand deposit. Because banks have the right to require at least seven days’ written notice for withdrawals on funds in savings accounts, the government instead classifies savings accounts (and money market accounts) as savings deposits.

However, consumers can typically access their savings funds without a required waiting period, so they can often utilize their savings accounts as if they were demand deposit accounts. A bonus is that savings accounts are usually interest-bearing. Just note that many banks still impose a monthly withdrawal limit, despite Federal Reserve changes, so you may wind up getting hit with fees if you make frequent withdrawals.

Recommended: How Do You Calculate Interest on a Savings Account?

Time Deposits

CDs, which have pre-set dates of maturity, are even less like demand deposits. A CD is a time deposit (sometimes called term deposit). They have set maturity dates and are subject to early withdrawal fees, meaning the funds are less liquid than a checking or savings account. Time deposits can be transferable or nontransferable and negotiable or nonnegotiable. In addition to CDs, time deposits can include club accounts (like Christmas and vacation club accounts).

A bit more on how CDs work: The principle for these accounts is that you, the account holder, commit to having your funds on deposit with a bank for a set period of time. Break that agreement, and you may pay penalties.

How Demand Deposits Work

Demand deposit accounts are designed for on-demand access to your funds. Thus, you should be able to withdraw money to cover purchases at any time.

If your demand deposit account is a traditional checking account, you can spend your money with a debit card, checkbook, transfers, or even peer-to-peer payment apps. Each bank will have its own terms and conditions, but some accounts may pay interest, some may charge fees, and some may grant you fee-free access at certain ATMs, so you can grab your money on the go. Research various accounts carefully before selecting a bank or credit union. This involves reading the fine print, but it’s important as it can help you avoid misunderstandings and various fees.

Types of Demand Deposit Accounts

Checking accounts may be the most obvious type of demand deposit account. Some savings accounts can be accessed on demand these days, as outlined above, but many still have restrictions regarding how often you can make withdrawals.

Money market accounts occupy a kind of middle ground: Some experts classify them as demand deposit accounts, but others do not.

How to Open a Demand Deposit Account

Opening a demand deposit account is equivalent to opening a checking account. Each financial institution will have its own processes for opening an account. Typically, you will need a government-issued photo ID, proof of your current residence (a utility bill, for instance), and often an opening deposit to initiate the account. Many banks allow you to complete this process quickly and easily online.

Advantages of Demand Deposit Accounts

Demand deposit accounts offer multiple benefits to consumers:

•   Easy and immediate access to funds: Whether through check writing, an ATM, or the swipe of a debit card, a demand deposit account enables consumers to spend their money as they see fit.

•   FDIC and NCUA insurance: Demand deposit accounts at banks are typically insured by the FDIC for up to $250,000; those held at credit unions are usually insured by the NCUA for the same amount. FDIC and NCUA insurance makes demand deposits safer than cash in your wallet or under the mattress.

•   Interest: Demand deposit accounts can be interest-bearing. The national average APY for checking accounts, according to the FDIC, is currently 0.03%. You can shop around for better returns (over 1%, for instance), largely at online banks. Because these don’t have the expense of bricks-and-mortar locations, they can pass those savings onto their clients.

Disadvantages of Demand Deposit Accounts

Consumers may find some drawbacks to demand deposit accounts as well:

•   Low earnings: Demand deposit accounts are not required to pay interest. While consumers have easy access to their funds, they are trading away higher earning opportunities they might find with a high-interest savings account, time deposits, or even investments in stocks and bonds.

•   Fees: Some demand deposits accounts charge fees, including monthly maintenance fees. Others require minimum balances that some consumers might not want to keep in the account.

The Takeaway

Demand deposit accounts are a type of bank account that give you immediate access to your funds. Checking accounts are the most common type of DDA. With these, you can withdraw money at will, by check, debit card, ATM, bank transfer, or P2P platforms. Demand deposit accounts are often the foundation of an individual’s financial life, allowing them to spend and manage their money seamlessly.

Banking with SoFi can help smooth the path to smart money management. Enroll in our Checking and Savings with direct deposit, and you won’t pay any fees; you’ll have access to more than 55,000 fee-free ATMs via the Allpoint® Network; and you’ll earn an ultra competitive APY.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Is a DDA number the same as an account number?

A DDA (or demand deposit account) number is typically the same as your checking account number.

What is a personal DDA deposit?

You can fund your DDA directly with transfers from other accounts, check deposits (mobile, in-person, or ATM), or cash deposits. These are all types of personal DDA deposits.

Is a DDA account a checking account?

In most cases, a DDA account is a checking account. There is some debate about whether other types of accounts, such as a money market account, also qualify as a DDA.

What does DDA mean on a bank statement?

DDA stands for demand deposit account, which indicates that funds in the account are immediately available to the account holder.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://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.

Photo credit: iStock/jacoblund
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Am I financially stable? That’s an important question to ask if you’re wondering how your money management skills measure up.

Financial stability can mean different things to different people, and there’s no single way to measure whether someone is financially secure. There are, however, certain money behaviors that can indicate when you’re on the right track.

Knowing how to recognize the signs of being financially stable can help you to fine-tune your money plan.

What Is Financial Stability?

If you search online for a definition of financial stability, the results are usually geared toward organizations or governments, not individual people. For example, the Federal Reserve defines financial stability as “building a financial system that can function in good times and bad, and can absorb all the good and bad things that happen in the U.S. economy at any moment.”

That’s an institutional way to define financial stability, but it’s possible to adapt that to fit personal finance. For instance, creating a budget and adding money to an emergency fund can help you manage money wisely during the good times. It can also allow you to be prepared for the unexpected, such as a job layoff or an emergency expense.

The best way to define financial stability is in a way that has meaning for you. For instance, you might create a personal financial mission statement that outlines your ideal money vision for yourself. For some people, that vision might involve having six months’ worth of expenses in an emergency fund. For another, it might involve meeting savings goals for retirement.

Why Does Financial Stability Matter?

Being financially stable is important because it can influence your overall financial health. When you feel financially secure, it may be easier to pay bills without stress. Or you might have developed the discipline to save money and be excited about it, versus spending everything that you make.

In a nutshell, being financially stable can help you to:

•   Have the money that you need to cover day-to-day expenses while working toward financial goals

•   Avoid costly debt

•   Manage your money without it feeling like a chore or a cause for anxiety

If you’re interested in how to become financially free, then becoming stable with your money is likely an important first step.

Signs That You’re Financially Stable

We started off with this question: Am I financially stable? Now, we’ll answer it by sharing some of the most common indicators that you’re in good financial health.

Chances are, you might be doing some of the things on this list already. And if you’re not, then these moves could help you to overcome your personal financial challenges.

1. Following a Budget

A budget is the foundation for your financial plan. When you make a budget, you’re dictating where your money goes instead of simply spending without a plan. If you don’t have a budget yet, then making one should be a top priority.

There are a number of budgeting methods you can use, including:

•   Cash envelope budgeting

•   Zero-based budgeting

•   The 50/30/20 rule

Experimenting with different budget systems can help you find one that works for you.

2. Living Below Your Means

Here’s one of the secrets to how to have financial freedom: Live below your means. This simply means spending less than you earn. Making a budget is central to living below your means because without one, you may not have a clue how much you’re spending each month.

Tracking expenses can be a great way to determine if you’re living below your means. You can write each expense down in a notebook, use a spreadsheet, or link your bank account to a budgeting app. It’s a good idea to track expenses for at least one month to get a realistic idea of what you spend, which can help you to better define your budget.

3. Saving Money Is a Consistent Habit

You may have heard the expression “pay yourself first,” and it’s a wise move. This simply means that before you spend any money on payday, you first deposit some of your earnings into savings. Paying yourself first is a sign of financial stability as it suggests that you have money reserved for emergencies and are also saving for longer-term financial goals.

Setting up direct deposit into savings or scheduling automatic transfers from your checking account each payday are easy ways to automatic savings. When the money is directed to savings automatically, there’s no opportunity for you to spend it.

4. Paying Down Debt Is a Priority

Debt can be a roadblock to reaching your financial goals and too much debt could make you financially unstable. Making an effort to pay down debt (or avoid it altogether) is a sign that you’re committed to living within your means instead of spending money unnecessarily.

If you have debt, consider the best ways to pay it off. For example, the debt snowball method involves paying off debts from smallest balance to highest. The debt avalanche, on the other hand, advocates paying off debts from highest APR to lowest in order to maximize interest savings.

When choosing a debt repayment method, consider how much of your budget you can commit to it. If you’re only able to pay the minimums to your debts, you may need to review your expenses to see where you can cut back or look into debt consolidation.

5. Bills Get Paid On Time

Paying bills late can trigger nasty late fees. What’s more, late payments can lower your credit scores.

A good credit score is a sign of financial stability because it means that you’re responsible with how you use credit. On-time payments can work in your favor while late payments can hurt your score.

If you’ve fallen behind, getting caught up on late payments as soon as possible can help you turn things around. From there, you can commit to paying on time each month. Scheduling automatic payments or setting up payment reminders is an easy way to keep track of due dates.

6. Financial Goals Are Clearly Defined

Setting financial goals can help you to make the most of your money. Financial goals can be short-term, like saving $10,000 for an emergency fund. Or they might be long-term, like saving $1 million for retirement.

Someone who’s financially stable understands the value and importance of setting goals and how to set them effectively. For example, they may follow the SMART rule for goal setting and create money goals which means they are:

•   Specific

•   Measurable

•   Actionable or achievable

•   Realistic

•   Time-bound

If you’re not setting financial goals yet, consider what you want to do with your money or what kind of lifestyle you’d like to have. If you created a personal financial mission statement that can be a good guide to deciding what kind of goals to set.

7. Regular Investing Is Part of Your Financial Routine

Investing money and saving it are two different things. When you invest money, you’re putting it into the stock market. Investing can help you grow your money faster and build a higher net worth thanks to the power of compounding interest.

There are different ways to invest. If you have a 401(k) or similar retirement plan at work, for example, you may defer 10%, 15%, or more of your income into it each year. At a minimum, it’s a good idea to contribute at least enough to get the full company match (which is akin to free money) if one is offered.

You might also open an Individual Retirement Account and a taxable investment account. With an IRA, you can save for retirement on a tax-advantaged basis. A taxable investment account, on the other hand, is useful for trading stocks, mutual funds, exchange-traded funds (ETFs), and other securities without restrictions on how much you can invest.

Recommended: A Beginner’s Guide to Investing in Your 20s

8. You Have the Right Insurance

Insurance is designed to protect you financially. There are different types of insurance a financially stable person might have, including:

•   Homeowners or renters insurance

•   Car insurance

•   Health insurance

•   Disability insurance

•   Life insurance

Having the right coverage in place can help to minimize financial losses in a worst-case scenario. If your home or apartment is damaged because of a fire, for instance, then your insurance policy could help you to rebuild or replace your belongings.

Life insurance is also important to have, especially if you have a family. Life insurance can pay out a death benefit to your loved ones if something should happen to you. That means they’re not in danger of becoming financially unstable after you’re gone.

9. FOMO Doesn’t Drive Decision-Making

FOMO, or fear of missing out, can be a threat to financial stability. It’s the modern-day equivalent of keeping up with the Joneses: What it means is that you make financial decisions out of peer pressure or societal pressure. Trying to mimic the lifestyle of social media influencers, for example, can wreck your finances if you’re going into debt buying things that you can’t afford.

Someone who’s financially stable, on the other hand, is immune to FOMO. They don’t buy things on impulse (or at least not often). And they don’t make financial decisions without considering the short- and long-term impacts.

Recommended: Guide to Practicing Financial Self-Care

10. There’s No Worrying About Money

Worries about money can keep you up at night if you’re fretting over the bills or debt. Financially stable people don’t have stress over money because they know that they’re in control of their situation. They approach money with a calm, confident attitude.

So how do you reach that zen state with your finances? Again, it all comes down to making smart money decisions like sticking to a budget, saving, and avoiding debt. The more proactive you are about making your money work for you, the faster money worries may fade away.

If You’re Struggling to Become Financially Stable

If you recognize that your financial situation isn’t as stable as you’d like it to be, it’s important to consider how you can improve it. Working your way through this list of action items is a good starting point but what if you’re overwhelmed by debt or struggle to make a budget?

In that case, you may benefit from talking to a nonprofit credit counselor or a financial advisor. A credit counselor can help you come up with a plan for budgeting, paying down debt, and getting into a savings routine. And once you begin to gain some stability, you can think about things like investing or insurance.

In addition, you can consult these government sources for more insight:

•   Making a budget

•   Sticking to a budget

•   Dealing with debt

•   How to save and invest

•   How to save for retirement

The Takeaway

Achieving financial stability can take time, but it’s possible if you’re using the right approach to managing money. Taking small steps, such as setting one or two money goals or changing bank accounts, can add up to a big difference in your situation over time.

If you’re tired of throwing money away on banking fees, for instance, you might consider opening a bank account with SoFi. You can get checking and savings in one convenient place and easily manage your accounts online or through the SoFi mobile app. When you open an account with direct deposit, SoFi doesn’t charge any fees, and you can earn a competitive APY, which can help your money grow faster. A bonus for qualifying accounts: You can get paycheck access up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How much money is considered financially stable?

The amount of money needed to be considered financially stable is subjective and depends on a person’s individual situation. But generally, having a net worth of $1 million or more can indicate that someone is financially stable or secure and has a good grasp of money management.

What are the signs of a financially stable person?

The most common signs of a financially stable person include having little to no debt, being able to make and stick to a budget, having a healthy amount of money in savings, and having a good credit score. Financially stable people tend to see their net worth increase year over year. What’s more, money generally isn’t a source of stress or worry.

At what point are you financially stable?

Someone could be considered financially stable when money is no longer a cause for anxiety or frustration. A financially stable person isn’t necessarily measured by how much money they have. Instead, their stability is based on their overall financial situation and their approach to managing money. They are likely to have savings for emergencies, as well as short- and long-term goals.

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Photo credit: iStock/AsiaVision

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.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

SOBK0922010

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If you’re wondering whether to get a new or used car in the year ahead, sorry: Neither is bound to be a bargain. Car prices have been high lately, thanks to inflation, semiconductor shortages, and other forces. Unfortunately, prices aren’t likely to drop in 2024, but they may stabilize vs. creeping higher still. That fact may push some shoppers towards more affordable used cars vs. chasing that new car smell.

But each car shopper’s situation is likely to vary, and you need to make the decision that best suits you and only you. To help you decide where to spend your cash if you do plan to buy some wheels, read on. You’ll learn the pros and cons of new and used cars, plus learn about some other options.

Benefits of Buying a New Car

For some people, there’s nothing that can compete with the allure of a bright and shiny new car. Consider the benefits of buying brand new as you answer the question, “Should I buy a new or used car?”:

Pristine Condition

With a new car, you don’t have to kick as many tires. New vehicles arrive on dealer showroom floors (and at online auto sales platforms) in pristine condition with very few miles on the odometer, so you don’t have to spend time checking for vehicle inefficiencies and maintenance or repair issues.

Multiple Auto Financing Choices

It’s often easier to get a good financing deal with a new car vs. a used car. That’s because the vehicle hasn’t been driven, has no structural problems, maintenance, or repair issues, and should hold its value if the new owner takes good care of the vehicle. That’s important to auto loan financers, who place a premium on avoiding risk.

State-of-the-Art Features

Some people may feel “the newer the car, the better.” Here’s why: The auto industry is doing wonders with new vehicle construction, with features like better gas mileage and technological advancements that improve vehicle performance. Those upgrades come most notably in car safety, cleaner emissions, and digital dashboards that improve driving enjoyment.

Warranty and Service Benefits

New car owners are typically offered a manufacturer’s warranty when they buy a new car, which typically grades out better than third-party warranty coverage on a used car. Additionally, extended car warranties may be available, and auto dealers are more likely to offer services like free roadside assistance or free satellite radio to lock down a new car sale. Those services and features are harder to get with used vehicles.

Drawbacks of Buying a New Car

Some disadvantages of a new car purchase might sway a buyer’s decision.

Immediate Depreciation

The moment you drive a new car off the dealer lot, it loses several thousand dollars and an estimated 20% in the first year of ownership and then 15% annually for the next few years afterward, which is not a fun fact when you are making car payments at the same level month after month.

Price

Saving up for a car is a big undertaking, and you may owe a lot of money on a new vehicle. The average price for a new car is currently $48,000, which is a significant figure.

Higher Insurance Costs

Auto insurers typically deem new cars as being more valuable than used cars and assign auto insurance premiums accordingly. Research recently found that the average cost of minimum auto insurance was $622 per year and full coverage was $2,014. Since new cars cost more, auto insurers prefer to see new auto drivers get full coverage and not minimum coverage.

Recommended: 10 Personal Finance Basics

Benefits of Buying a Used Car

Used cars offer buyers value and savings, which are attractive benefits to drivers who may not have a big budget, but still want to drive a quality vehicle.

Lower Price

No doubt about it, most used cars sell for significantly less than a new car with the same make and model. You learned above that the average new car is retailing for just under $50,000. How about used cars? The average is currently about $30,000, a considerable saving.

Slower Depreciation Rate

New cars tend to lose value quickly, as noted above, especially if they’re not properly cared for. But used cars tend to depreciate more slowly, especially if they’ve had regular maintenance, and their sustained value makes them a good resale candidate if the owner wants another vehicle, but still wants to make a good deal when selling the vehicle.

Your Down Payment May Go Further

Buyers who can manage a robust down payment on a used vehicle can bypass a good chunk of the debt incurred in purchasing the vehicle. It comes down to simple math — if a buyer purchases a $30,000 used vehicle with a down payment of $15,000, there’s only $15,000 left to pay on the vehicle. If a buyer purchases a new vehicle for $48,000, and puts $15,000 down, that buyer still owes $33,000 on the auto loan.

Drawbacks of Buying a Used Car

When deciding whether to buy a used car or not, these issues may be worth considering.

Reliability Can Be an Issue

With a used car, an owner may be getting a quality vehicle — or maybe not. A used car may have spent years on the roads and highways, incurring a fair share of dings, dents, and general wear and tear that may have aged it prematurely, particularly if it hasn’t been maintained well.

Less Choice

You may not get the exact make and model you want. The options can dwindle when it comes to buying a used car. Whereas auto dealers can offer a wide range of makes, models, and colors for a new vehicle, those choices can be significantly limited with a used car, truck, or SUV. That could mean that a used vehicle buyer may have to compromise on different factors, in contrast to someone who is buying new and can often get their dream car, down to the last detail.

Maintenance Costs

You may pay more for vehicle maintenance. Auto repairs often cost more over time and become more frequent too as a car ages. So you may well pay more for maintenance and repairs with a used car. With a very old car, finding parts to complete repairs may also be a challenge.

Top Considerations When Choosing to Buy a New or Used Car

As you make your decision between buying a new or used car, you likely will have your own set of needs and preferences. However, these are among the key concerns to think over:

•   Budget: How much can you afford?

•   Which model car you truly want: If you really need a vehicle with a third row of seats but can’t afford one brand new, that may lead you to a used car.

•   Financing options: You want to feel certain that you’ll be able to get the car you want with affordable terms, so thinking about how to get a car loan makes sense.

•   Maintenance profile: Factors such as vehicle reputation and repair history matter as well.

By weighing your choices on these fronts, you will likely be able to make the right move, both in terms of the car you buy and how well it fits into your household budget.

Recommended: How to Automate Your Finances

Other Car Purchasing Options

Auto consumers don’t have to be limited to a “buy new or used car” purchase decision. There are other valid options that go beyond the question of “should I buy a new or used car”: buying a pre-owned car or leasing a vehicle.

Certified Pre-Owned Cars

Car buyers who want to know that a vehicle is ship-shape, but who don’t want to spend a great deal of cash on a new set of wheels can compromise with a certified pre-owned vehicle.

A certified pre-owned vehicle means just what it says — it provides buyers with a vehicle that has low mileage, has no significant damage, has passed a battery of auto shop maintenance and performance tests, offers a new warranty, and likely costs thousands of dollars less than a new car. While you won’t be getting a brand-new car, you are likely getting a vetted and trustworthy vehicle at a decent price, which fits the bill for legions of would-be car owners.

Leased Cars

By leasing a car, you’re not buying it, you’re just renting it for a fixed period of time, usually with the option to buy the vehicle at the end of the lease.

Most auto leases average three or four years, and upfront costs are typically less than purchasing a new car (lease owners pay an upfront fee plus regular monthly payments for the duration of the lease period.)

Car leases do come with restrictions on key performance elements like mileage, and also require that the vehicle is returned in top condition when the lease period ends. Ignoring those issues can lead to hefty fees charged by the lease provider and owed by the leasing customer.

About 20% of all new cars are leased in the US, with the average lease being $487 per month vs. the average of $548 for a new car payment.

The Takeaway

Are you wondering, “Should I buy a new or used car?” Like any major purchase decision, prospective auto buyers are advised to shop around, check the book value of favored vehicles, and look at the car’s maintenance and repair history to ensure it’s in good condition, and (if it’s a used car) make sure it’s inspected by a trusted mechanic.

By doing these things, the choice between a new and used car can get easier and enhance your chances of driving away in the vehicle that best fits your auto needs and your financial needs. As you think about the latter, you may want to make sure that your banking partner is the right one, too, and is helping your money work harder for you.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Do used cars require more maintenance vs. new cars?

You may pay more for maintenance on a used car vs. a new one. Typically, older cars need more work than their younger counterparts.

Are used cars a better deal than new cars?

Used cars can be more affordable than new ones, from the sticker price to the insurance costs.

What should be expected from new and used car prices in 2024?

Car prices have been high, and currently they are expected to stabilize, but not drop, in 2024.

Photo credit: iStock/Ivanko_Brnjakovic

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://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, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBK1023017

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You’ve landed your dream job — and your dream salary. Or maybe you’ve started your own business or taken up a side hustle. Along with the happiness of earning more comes the responsibility of making sure your money is working as hard as you are.

You may be wondering, is it worth hiring a personal accountant to help with things like self-employment taxes and investing for the future? Or should you try to handle them on your own?

The answer may depend on a number of factors, including your financial acumen, money-management needs, and whether you’re the hands-on type or not.

The types of accountants out there are as varied as the kinds of services they offer. Here’s how to determine if you need a personal accountant, and if so, how to find the best one for your specific situation.

What Type of Accountant Do I Need?

The term “accountant” is sometimes used as a catch-all phrase to refer to any professional who deals with financial transactions or taxes, but there are different types of accountants. For instance, there are bookkeepers, accountants, and Certified Public Accountants (CPAs), to name a few, and they all have different skill sets and varying limits on what they can and can’t do. Choosing the right professional could help you achieve financial security, whether you’re running a business or investing money for your future.

A CPA is certified to do everything a general accountant or bookkeeper can do, along with one important addition — government permission to file taxes on a client’s behalf and represent them in case of a tax audit.

Becoming a licensed CPA requires passing the Uniform CPA Exam and completing continuing education hours each year in order to maintain their certification. CPA fees can range anywhere from approximately $33 to $500 an hour.

An accountant without CPA certification cannot sign tax returns on behalf of a client, but they can prepare them. An accountant also can record and report detailed financial transactions and provide analysis.

Most accountants hold an undergrad degree — although it doesn’t necessarily have to be in accounting — and many pursue additional certifications such as Certified Management Accountant (CMA) and Chartered Accountant (CA) . Like CPAs, their hourly rates can vary widely depending on location and expertise.

Finally, a bookkeeper is someone who can help keep your books if you’re running a business. Their responsibilities can include paying bills, keeping track of account balances, recording transactions and providing reports throughout the year.

Bookkeepers aren’t required to hold an accounting degree, but some organizations and businesses do offer certification, including a Certified Public Bookkeeper (CPB) certification, which means the bookkeeper has passed an advanced skills exam and is required to take continuing education.

Bookkeepers might also handle payroll and other business taxes, although they aren’t allowed to sign tax returns or provide audit representation. Bookkeeper fees can vary widely.

💡 Quick Tip: Help your money earn more money! Opening a high-yield bank account online often gets you higher-than-average rates.

What Financial Issues Can a Personal Accountant Handle?

Accountants can be experts in money-management topics across the board, including taxes and helping navigate complicated financial situations.

Beyond that, how an accountant can help depends on your individual financial needs. Here are some details on which type of accountant is best for specific needs.

For Independent Contractors and Solo entrepreneurs

There are many benefits to being an entrepreneur. But finances can get complicated for independent contractors and solo entrepreneurs, from managing invoices to tracking inventory to keeping one eye on the big business picture. In short, an accountant can assist with most things money-related so that the business owner can focus on the business.

Although a non-certified accountant can’t file your taxes on your behalf, they can help you with business issues like tracking your deductions, including payroll deductions; calculating estimated tax payments; and ensuring that you reap the most benefit from your tax deductions (which include hiring an accountant). An accountant is also more likely to be on top of the latest changes in the tax law.

Another way an accountant could help independent contractors is by handling all the organizational factors that come with running a business. Tasks such as invoicing, tracking sales, and tracking receipts, can feel overwhelming to someone who’s never taken business classes.

For Small Businesses

For businesses with more than one employee, an accountant with small business expertise can help with everything from determining the right business structure to filing taxes.

If you’re just starting out as a small business owner, an accountant could help with the financial segments of your business plan. During day-to-day operations, a good accountant can help with everything from opening a business bank account to payroll to providing guidance regarding government regulations or any changes in tax law.

And if you hire a CPA, they can even file business taxes on your behalf.

💡 Quick Tip: If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.

For Individuals

If you have a lot of financial issues to handle, a personal accountant can help you manage them.

Perhaps the biggest reason an individual might hire an accountant is to help with taxes, especially if they’re facing complicated tax situations like receiving an inheritance, filing taxes for rental property, or navigating capital gains taxes.

But even for everyday life, a personal accountant can help turn your personal finance knowledge into action. It’s one thing to understand that you need to cut spending, but it’s another thing to actually put that knowledge into practice.

The same goes for paying down debt. An accountant can help keep you on track to repay what you owe.

Recommended: How Many Bank Accounts Should I Have?

The Takeaway

A personal accountant may be helpful if you’re an entrepreneur or you have a lot of personal financial issues to deal with. However, if going the DIY accounting route is more your style, you could enroll in a course to learn more about money management, do research online, or use a money-management app. Whichever method you choose, make sure you feel comfortable with the decisions you’re making for your money — and your future.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://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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