Jan
13
2025

Paying Bills with a Prepaid Card

By | Budgeting & Goals, Debt Payoff, Financial Topics | Comments Off on Paying Bills with a Prepaid Card

Some people choose to pay their bills with a prepaid card, such as a gift card or a reloadable prepaid debit card. This can help with budgeting, since you can set a specific amount of money that goes on your prepaid card. In addition, you don’t have to worry about overdrawing your bank account and can avoid racking up high-interest credit card debt. However, these cards can come with fees and other downsides.

Here, learn how this financial product works so you can decide if paying bills with a prepaid card is right for you.

Key Points

•   Prepaid cards function like debit cards but use funds loaded onto the card vs. drawing on a checking account.

•   Non-reloadable prepaid gift cards and reloadable prepaid debit cards are available.

•   Prepaid cards aid in budgeting by allowing spending limits and help avoid overdraft fees.

•   Fees such as activation, inactivity, and monthly maintenance charges may apply to prepaid cards.

•   Prepaid cards are generally accepted where the card network is accepted, but some merchants may not accept them.

Understanding Prepaid Cards

There are a few different types of prepaid cards, and while they share some similarities, it’s important to understand how they differ.

What Are Prepaid Cards?

Prepaid cards are similar to debit cards, but rather than drawing on your checking account, they pull from funds loaded onto the card. These cards are typically issued by a major processing network without a credit check.

The fact that these cards often use Visa, Mastercard, or American Express processing networks and have the company’s logo on them is why you may sometimes hear them referred to as “prepaid credit cards,” but they don’t offer a line of credit or potentially accrue interest as standard credit cards do. Rather, using a prepaid card usually means that you can use your card anywhere that the processing network on your card is accepted, up to the balance available on the card.

How Prepaid Cards Work

There are a few different kinds of prepaid cards, and they work in slightly different ways.

•   Prepaid gift card: You can buy these prepaid gift cards online and in person at many major retailers. Prepaid gift cards come in different amounts, and usually have a small activation fee that you’ll have to pay in addition to the face value of the gift card. Once you purchase and activate your prepaid gift card, you can use it anywhere that the processing network (Visa, Mastercard, etc.) is accepted. Once you have used up the value of the gift card, it is considered empty and you can’t add funds to it.

•   Prepaid reloadable card: With a prepaid reloadable card (sometimes referred to as a reloadable or prepaid debit card), you can add money to your card at any time, either through a cash deposit, direct deposit of a paycheck or government check, a tax refund, or other ways. You may also be able to reload it by transferring funds from an online bank account or by adding cash at some banks, ATMs, or retail locations. Many prepaid reloadable cards also allow you to pay bills online in addition to using your prepaid card online or at a retailer.

Recommended: High-Yield Savings Account Calculator

Benefits of Paying Bills With a Prepaid Card

There are pros and cons of prepaid debit cards. Here’s a look at some of the benefits of paying bills with a prepaid card.

Budgeting and Spending Control

One of the best reasons to use a prepaid card to pay your bills is the ability to set limits which can help as you work to make a budget and stick to it. You control the amount of money that is on a prepaid card, which means that you can control how much you spend. Prepaid cards could also be part of a plan to avoid high-interest credit card debt because you are only spending the cash amount on the card vs. drawing against a line of credit.

Tip: One way to budget by using prepaid cards is to have several different prepaid cards, one for each category in your budget. That way you can more easily limit how much you spend in any one category.

No Credit Check or Approval Required

Unlike a traditional credit card, there is no credit check or approval required to buy a prepaid debit card. You simply buy the card, pay any activation fee that is required, and the card is available for use. That can make paying bills with a prepaid card an attractive option for people with no credit or those with poor credit.

It’s worth noting that activity on these prepaid debit cards isn’t reported to the credit bureaus, and you therefore cannot build credit with prepaid debit cards. However, they could help you avoid negative situations, such as increasing your credit utilization ratio, which might harm your score. (Secured credit cards, however, which require a down payment as collateral to borrow against, may help build credit.)

Avoiding Overdraft Fees

Another benefit of paying bills with a prepaid card is that you can avoid overdraft fees. Unlike a debit or credit card, with a prepaid card, the amount of money on your card is fixed. And if you try to make a purchase for an amount that is higher than is on your card, your purchase will likely not be approved.

While that can be frustrating, it does mean that you can avoid overdraft fees which can occur if, say, you have set up utility bill autopayments but don’t have enough cash to cover the amount one month. These fees can be as high as $35 or $40 a pop, so it can make good financial sense to dodge them.

Potential Drawbacks of Using Prepaid Cards

While there are benefits to paying your bills with prepaid cards, there are also some possible drawbacks as well.

Fees and Charges

While you can avoid overdraft fees by using prepaid cards, there are some fees and charges that you might incur. Many prepaid cards charge an activation fee that you pay when you purchase a card. These are often between $1 and $10. Also, some cards also charge an inactivity fee, if you don’t use the card in a certain time period, and/or a monthly maintenance fee. Make sure you understand any fees and charges on your prepaid card before buying and using one.

Limited Protections and Fraud Liability

Another potential downside of using a prepaid card as compared to a credit card is that credit cards typically have better purchase and fraud protection. When you use a prepaid card, you may be giving up some of those protections.

It’s worth knowing that many prepaid debit cards, however, now offer protections similar to those of standard debit cards linked to a checking account. Check the card’s terms to see what coverage you may have. You may need to register the card to access these benefits.

You also need to be aware that there is not always a way to register a prepaid gift card or create an account. So if you lose your prepaid gift card, there may not be a way to get that money back. Guard your prepaid cards like you would cash.

Acceptance Issues

Most gift cards or prepaid debit cards are issued by a major processing network such as Mastercard or Visa. That means that those cards are usually accepted anywhere that network is accepted. However, you may find some situations where a store or online retailer may not accept a prepaid gift card as valid payment for some types of purchases. (For instance, if a merchant has had issues with declined transactions using this type of card, they may not accept them.) Consider checking with your retailer to see if your card will be accepted before planning on making a major or time-sensitive purchase with a prepaid card.

Recommended: Passive Income Ideas to Help You Make Money

Setting Up Bill Payments With a Prepaid Card

You can use some prepaid debit or prepaid credit cards to set up your bill payments. For example, your prepaid card typically will come with a 16-digit card number, similar to a debit or credit card. Simply use that number when you are setting up your bill payments. You’ll just want to make sure that you have enough money on your card to pay your bill. This is especially true if you are using a reloadable card for recurring payments.

Managing Your Finances With a Prepaid Card

It is possible to pay your bills and manage your finances using prepaid cards. This can be a good option for someone who doesn’t have a checking account or doesn’t want or can’t use credit cards. If you do decide to manage all (or most) of your finances using prepaid cards, you’ll likely want to get a reloadable prepaid card. That way you don’t have to continually buy new cards as your funds run out — instead, you can just add funds onto your existing reloadable card.

Recommended: How to Deposit a Check

The Takeaway

Prepaid cards are typically issued by one of the major card processing networks such as American Express, Mastercard, and Visa. You can either buy prepaid gift cards, which generally are loaded with a set amount and can’t be reloaded, or reloadable prepaid debit cards. Reloadable cards allow you to add additional funds to the card as needed. There are both advantages and disadvantages to using prepaid cards to pay bills, so make sure you understand both the pros and cons before deciding to pay bills with a prepaid card.

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 4.00% APY on SoFi Checking and Savings.

FAQ

Can I pay any type of bill with a prepaid card?

Most prepaid cards are processed by a card network such as Visa or Mastercard. So you can typically use your prepaid card anywhere that network is accepted. However, some bills are not payable with this kind of card, so you may have to make other arrangements. Check with the intended payee to see what options may be available.

Are prepaid card transactions secure and safe?

Prepaid card transactions are generally processed by the card processing network that is indicated on the card itself (usually Visa, Mastercard, or American Express). As such, these transactions are as safe as any other transactions that are on the same network. Just keep in mind that these cards may not have much protection if they are lost or stolen, so guard them carefully.

What happens if I run out of funds on my prepaid card?

What happens if you run out of funds on your prepaid card depends on what type of prepaid card that you have. Many prepaid cards work more like gift cards in that they have a certain amount of money loaded onto them, and when that money runs out, the card has no value. However, some prepaid cards are reloadable, meaning that you can add additional funds onto the card and continue to use it.

Photo credit: iStock/ArtistGNDphotography

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 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 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 4.00% 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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 .

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.

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Jan
13
2025

How To Grow Your Savings Account

By | Budgeting & Goals, Financial Topics | Comments Off on How To Grow Your Savings Account

Saving might not seem as fun as spending, but it comes with a host of rewards. Growing your savings account can help reach your goals, cover unexpected expenses without relying on credit cards, and feel less stressed about your finances and your future. Plus, the more you save, the easier it is to grow your savings. This is thanks to compounding interest — when you earn interest on the money you’ve saved, plus the interest you’ve earned along the way.

If you’re sold on saving more, read on. What follows are six (relatively painless) ways to build your savings account and make your money work harder for you.

Key Points

•   Set clear savings goals with specific dollar amounts and time frames to effectively grow your savings account.

•   Automate savings contributions to ensure consistent growth without the temptation to spend.

•   Choose the right savings account type, considering interest rates, fees, and accessibility.

•   Cut expenses by rethinking housing, food, and subscriptions to free up more funds for savings.

•   Use budgeting techniques like the 50/30/20 rule to balance needs, wants, and savings effectively.

Setting Clear Savings Goals

The first step toward growing your savings account is to set clear goals. Simply saying “I need to save more” probably won’t do the trick. In fact, it might even be counterproductive because it feels overwhelming and amorphous. Instead, try to be specific about your financial goals. Some examples of goals that can help you stay focused include:

•   Paying down debt

•   Saving for the down payment on a house

•   Buying a new (or used) car

•   Funding your retirement

•   Getting together enough money for a wedding or vacation

•   Building an emergency fund

•   Saving for a child’s college education

Once you’ve honed in on a few specific goals, you can then put a dollar amount and a time frame on each. For instance, if you want to have $24,000 in your emergency fund two years from now, that would mean you need to funnel $1,000 a month into your bank account (though compounding interest can help you reach your goal sooner).

Recommended: How to Deposit a Check

Get up to $1,000 in stock when you fund a new Active Invest account.*

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*Probability of Member receiving $1,000 is a probability of 0.028%.

Creating a Realistic Budget for Saving

Next, you’ll want to build a basic budget that can help you grow your savings account and ultimately achieve your goals. While that might sound like a painful exercise, a budget is really nothing more than a plan for spending your money. It helps ensure that your spending aligns with your priorities and helps you do more with the money you have.

There are many different types of budgets — the best one is the one you’ll stick with. One popular approach is the 50/30/20 budget. This involves putting 50% of your take-home earnings toward needs, 30% towards wants, and 20% towards savings and debt payments beyond the minimum. If you live in an area with a high cost of living, you may need to juggle the percentages — and that’s okay. The idea is that you build savings into your monthly spending plan.

You can set up a budget using plain old pencil and paper or an Excel budget spreadsheet. Or, you might take advantage of one of the many budgeting apps available. These tools can do the math for you and share visual renderings of where your money (including your savings) stands. You might start with your financial institution and see what they offer to help you track and manage your income, spending, and saving. Or you could use a third-party app for this process.

Finding the right fit may take a bit of experimentation. Don’t be concerned if one method doesn’t work well for you and you need to pivot. You may also find that a budget that worked when you were a single recent grad doesn’t suit you when you’re a 30-year-old expecting your first child.

Automating Your Savings Contributions

It’s one thing to decide how much you want to save each month; it’s another to actually do it. Many of us are well-intentioned about socking away cash, but when real life intervenes — the temptation of a cheap flight to the Caribbean, a special gift for your parents’ big anniversary — it can be hard to actually build your funds.

That’s where automating savings comes in. By setting up recurring transfers from your checking account (perhaps right after payday) into your savings, you can make the process seamless. No need to remember to move the money. Plus, you won’t see the money sitting in your checking account, where it can entice you to go shopping.

Another idea: If you get paid by direct deposit, you may be able to set it up so that most of the money goes into your checking account and a certain percentage gets deposited right into your savings account, where you’ll be less tempted to touch it.

Choosing the Right Type of Savings Account

The type of savings account you choose can also play a role in growing your savings. Here are some factors to consider:

•   Accessibility: With a traditional savings account at a brick-and-mortar bank, you have the option of in-person services. If you never plan on visiting a branch, however, you might consider a savings account at an online bank.

•   Interest rate and fees: Interest allows your money to grow just by sitting in the bank. A high-yield or growth savings account typically offers a higher interest rate than a traditional savings account. Bank fees, on the other hand, can eat into your savings. It’s worth shopping around to compare annual percentage yield (APYs), as well as fee structures, to find the best deal.

•   Minimum requirements: A savings account may have a minimum opening deposit and a minimum required balance to avoid fees. Depending on your particular situation, this may or may not work well for you.

•   Transaction limits: At some institutions, the way a savings account works is that you are restricted to a certain number of transactions (such as six or nine) per month. If you exceed the stated limit, the bank may charge you a fee. If you exceed the limit multiple times, they may convert the account into checking or even close it.

High-Yield Savings Options

One of the benefits of savings accounts is that they typically pay more interest on your deposits than you can get in a checking account (which typically offer little to no interest). As noted above, some savings accounts pay a higher rate of interest than others. To maximize growth, you might consider the following options:

•   High-yield savings account: Typically offered by online banks, high-yield savings accounts can offer interest rates that are several times that of traditional banks.

•   Money market account: A money market account, or MMA, is a hybrid checking and savings account that can offer features of both, such as check-writing privileges and a debit card, as well as a competitive interest rate. They may, however, require a larger initial deposit and a higher ongoing balance.

•   Certificate of deposit: Certificate of deposits (CDs) typically require you to leave your funds untouched for a set period of time, or term, which could be a few months to several years. When you open the CD, you typically lock in a certain APY — it won’t go up or down during the term of the CD. If you withdraw the money early, however, you’ll usually pay a penalty which could undercut the interest you’ve earned.

Recommended: Savings Account Calculator

Strategies for Cutting Expenses to Save More

Another important way to build your savings account is to cut your expenses, freeing up additional funds to stash away toward your goals. Of course, the best way to do this will depend on your particular situation, but here are some ideas:

•   Cut back on food spending. According to the USDA, Americans spend around 11% of their disposable incomes on food. Some ways to trim back include: planning your meals to save on groceries and avoid impulse buys; shopping less expensively at warehouse stores (split the bounty with a friend if you have a small household); and curbing your takeout or fancy coffee habit.

•   Knock down credit card debt. Credit card debt is typically high-interest debt, and you can save a bundle by paying it down. You might investigate the avalanche and snowball pay-off methods for starters, or consider a personal loan to consolidate the debt at what is likely a more affordable interest rate.

•   Bundle your insurance. You could get a nice discount by having, say, your home/renters insurance and car insurance with the same provider. It can also be worth shopping around to see if you can get a better deal from a different insurer.

•   Reduce your subscriptions. Whether that means lowering the number of streaming platforms, “of the month” clubs, or other accounts/services that you don’t really use, slashing these costs can reap real rewards. Review your credit card bill carefully to see just what you’re paying for.

•   Find cheaper fun. No criticism if you splashed out on Taylor Swift tickets, but there are plenty of free concerts, gallery/museum nights, movie screenings, and readings in many communities. Plus hiking and biking can be a good alternative to big-ticket Pilates and yoga classes. This doesn’t have to be a forever move. Even making some swaps for three or six months can help pad your savings.

•   Make the most of windfalls. A work bonus, tax refund, or inheritance may make you think it’s time for a shopping spree or last-minute travel, but why not save some or all of it instead? One of the best things to do with a windfall can be to use it to pump up a savings account.

•   Rethink your housing. To supercharge your savings, you might reconsider your housing situation. If you live alone, you might get a roommate to dramatically reduce your costs. Or if you live in a pricey neighborhood, you might decide to move to one nearby where the costs are lower and you can save a bundle for a year or two. For instance, you might move 20 minutes further outside a city and reap major savings.

The Takeaway

Having a robust savings plan can help you reach your financial goals and reduce money stress. Moves like pinpointing your savings needs and goals, developing a budget, automating the process, boosting the interest you earn on your savings, and cutting your expenses can all contribute to growing your wealth.
If you’re looking for a bank account with a competitive interest rate, see what SoFi offers.

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 4.00% APY on SoFi Checking and Savings.

FAQ

How much should I aim to save each month?

According to the popular 50/30/20 budget rule, you should aim to put 20% of your take-home pay towards savings and/or additional debt payments. If that figure seems too lofty, it is fine to save less. What tends to be most important is to save regularly, even if it’s only, say, $25 per paycheck or per month.

Are there apps that can help me save money?

Yes, there are a variety of apps that can help you save money. Whether offered by your financial institution or a third party, these tools can help you track, automate, and grow your savings. Some apps offer handy tools like “round-ups,” which rounds purchase prices up to the next dollar and puts the difference in savings. There are also coupon apps that help find discounts on purchases (or free shipping) to help you cut back on spending.

Should I prioritize saving or paying off debt?

It depends on your situation. If you’re carrying high-interest credit card debt, you’re generally better off paying down debt over saving, since the interest you can earn in the bank is likely lower than what you’re paying on your credit card debt. For other types of debts, however, the best approach is often a combination of the two — putting some money toward saving each month while also chipping away at your debt. If, however, you don’t have an emergency fund, financial experts typically recommend you prioritize saving for that over paying down debt.

Photo credit: iStock/Calvin Chan Wai Meng

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 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 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 4.00% 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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

SOBNK-Q424-002

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Jan
13
2025

How To Make a DIY Budget Planner Book

By | Budgeting & Goals, Financial Topics | Comments Off on How To Make a DIY Budget Planner Book

Making a DIY budget planner book can require just a bit of time and be a motivating way to take control of your finances. With your own budget planner, you can track your spending, save for big expenses, and come up with a plan to pay off debt. Plus, you can exercise your creativity as you design a book that works for you.

Read on to learn DIY budget planner ideas that can empower you to reach your financial goals.

Key Points

•   A DIY budget planner book helps track income and expenses, offering a tangible alternative to digital tools and aiding in achieving financial goals like saving or debt repayment.

•   Various budgeting methods, such as the 50/30/20 rule and zero-based budgeting, can be incorporated to allocate income effectively.

•   Customization with binders, dividers, and templates allows for personalized sections for income, expenses, and goal tracking, enhancing organization.

•   Regular updates and setting SMART goals are crucial for effective budgeting and maintaining motivation.

•   Creative decoration with markers, stickers, and illustrations personalizes the planner, making it engaging and functional.

Why Make a Budget Planner Book?

A budget planner book is an effective tool for tracking your income and expenses.

•   It gives you a big-picture overview of your cash flow while also helping you track your daily spending. That means you’ll likely gain a better understanding of the money flowing into and out of your checking account.

•   With a budget planner book, you can monitor your progress toward both short- and long-term financial goals. For instance, you might use a budget planner to save for a vacation or pay off credit card debt.

•   You can tailor the pages, rows, and columns to suit your particular lifestyle and financial situation. For instance, if you have a full-time job and also a side hustle, you can manage those two income streams and related expenses in a way that works just for you.

•   You’ll have a tangible budget tracker in your hands, which you might prefer to a digital tool such as a budgeting app. Rather than staring at numbers on a screen, you can play around with colorful dividers, stickers, and other materials that suit your tastes.

In these ways, a DIY budget planner book can be a highly useful tool to organize and manage your financial life.

Recommended: 7 Tips for Managing Your Money Better

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Review the Essentials of Budgeting

Although budgeting may sound tedious, it can actually be the key to financial freedom. Your earnings and expenses will no longer be a mysterious matter of guesswork. Instead, you’ll have a clear understanding of where your money is going each and every month.

Here are a few tips on how to make a budget that will help you build your planner.

1. Write Down Your Income

Your first step is to determine your monthly income. If you receive regular biweekly paychecks, write down the amount you get and when payday is. Calculate your take-home pay for the month. Note any additional income sources, such as a side hustle, freelance work, or a passive income stream.

2. Track Your Expenses

Next, figure out where your money is going each month.

•   Start by listing out fixed expenses, such as rent or your mortgage payment, subscriptions, and car insurance.

•   Then, estimate your spending on variable expenses, such as groceries, utilities, and transportation. You may need to adjust these amounts occasionally — for instance, your heating bill will probably be a lot higher in the winter than in the summer.

•   As you’re listing out expenses, look for hidden recurring costs, such as a streaming subscription you’re no longer using or a gym membership that’s going to waste. Review your bank account and credit card statements for regular expenses you might have forgotten about.

Along the way, you might identify areas where you’re overspending and can cut back.

3. Make Note of Your Debts

Write down all your debts and monthly bills, such as credit card, student loan, mortgage, or personal loan payments. If you’re motivated to pay off debt faster, you could start sending extra payments to the loan with the highest interest rate.

4. Set Financial Goals

Once you’ve recorded all your income and expenses, take some time to set financial goals. Maybe you want to build an emergency fund, pay off credit card debt, or save for a down payment for a home. If, say, you want to have $10,000 in an emergency fund in two years, you can divide that amount to see that you need to stash $416.67 a month to hit that goal (not including any interest gains). You could then figure out how to finance that: Could you have a staycation vs. a vacation this year? Or give up your gym membership for a while to help pump up that emergency fund?

You can list your goals within your DIY budget planner and track your progress toward them. You might also create some pages for self-reflection, where you can write about your progress and challenges along the way.

5. Choose a Budgeting Strategy

Next, you will probably want to pick a system to help you wrangle this financial information and your aspirations. Here are a few types of budgeting methods to consider as you make your DIY budget planner:

•   50/30/20 rule of budgeting: With this approach, you allocate 50% of your income toward needs, 30% toward wants, and 20% for savings and paying off debt.

•   Zero-based budgeting: With zero-based budgeting, you assign a purpose to every dollar you earn each month until you’re down to zero dollars. For instance, some dollars may go into savings, others may go into debt repayment, and others will go toward living expenses.

•   Envelope budget system: This strategy can be useful for people who prefer to spend in cash or want to curb their credit card use. It involves setting aside cash into envelopes for each item in your budget so you never spend beyond a set amount. You could attach these envelopes to your DIY budget planner. (Note: You can adapt this system for debit card use if spending cash isn’t convenient for you.)

Recommended: 50/30/20 Budget Calculator

Design Your Budget Planner Layout

The beauty of making your own budget planner book is that you can customize it to your preferences. You’ll need the following materials to get started:

•   A binder with dividers

•   Monthly budget calendars and/or templates, which you can find online and print out for free

•   Writing utensils

•   Other materials for color coding or organization, such as sticky notes, markers, and highlighters

Once you have the components of your budget planner gathered, you can determine how to structure it. You’ll need a designated space for your income and expenses, as well as an expense tracker for each month. You can organize this section however works best for you.

•   Perhaps you want to divide your budget planner’s monthly expenses by category, such as household, food, healthcare, transportation, and entertainment expenses.

•   Or you might prefer thinking in terms of fixed vs. variable expenses.

•   You might want to add sections for gift spending at the holidays and in months which contain birthdays of the favorite people in your life.

It’s all about finding out what suits you and will keep you engaged in managing your money.

Some other ideas:

•   You might also create some pages to set goals (and include imagery to motivate you of, say, the new car you’re saving for), journal about your progress, or record other notes that are meaningful for you.

•   If you want to save paper receipts or bills (or use the envelope system of budgeting), you could attach envelopes or extra folders to different pages in your budget planner.

Tips for Consistently Using Your DIY Budget Planner

Designing your DIY budget planner book is only the first step — you also need to use it regularly to stick to your spending plan. Here are a few tips for staying consistent:

•   Set aside time to budget: Your budget planner isn’t going to fill itself out. Consider setting aside a specific time each week to use it. Sunday evenings, for instance, can be a good time to set goals for the week ahead.

•   Make adjustments along the way: Your budget planner may reveal hidden expenses or blind spots. Don’t be afraid to revise your work along the way as circumstances change. For instance, if you overspend during the holidays, you may want to try some tips for living on a budget to recover, such as dining out less or putting your gym membership on hold and trying free classes on YouTube. You can track your progress in your planner and write in motivational messages or mantras, if you like.

•   Look for ways to increase your income: After a certain point, you can only cut expenses so much. If you want to speed up progress toward your financial goals, you might consider ways to make more money, such as working a side hustle, applying for a promotion, or training for a new, more lucrative job.

•   Set SMART goals: One of the most common budgeting mistakes is setting vague, uninspiring goals. Use the SMART framework to set meaningful goals. This acronym means your goals must be specific, measurable, achievable, relevant, and time-bound. For that last one, it can be helpful to set both short- and longer-term goals. You’ll likely feel a sense of pride and accomplishment as you check off the near-term ones, which can fuel your progress on ones that are farther out.

As you get used to working consistently with your DIY budget planner book, it can be a helpful and satisfying ritual that anchors your financial life and progress.

The Takeaway

Creating a DIY budget planner can help you manage your finances in a way that works best for you. You’ll have a tangible tool for tracking your monthly income and expenses, as well as setting goals and tracking your progress. Plus, you’ll have full control over the design, layout, and organization of your budget, which can help you adapt and stay motivated along your financial journey.

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 4.00% APY on SoFi Checking and Savings.

FAQ

How often should I update my DIY budget planner?

Update your DIY budget planner frequently at the beginning to ensure it aligns with your spending and savings habits. You might want to check in with it weekly or at least monthly to track your finances, and then see how often suits you going forward. You’ll also want to update it whenever you have a change in your status, savings goals, expenses, or income (say, if you get married or divorced, have a baby, buy a house, or get a raise).

Can I use a digital template for my DIY budget planner?

You can use a digital template for your DIY budget planner, customize it to meet your needs, and then print it out. Some tools that offer free templates include Google Docs and Canva. You can also purchase budget planner templates on a site like Etsy.

What are some creative ways to decorate my budget planner?

With a DIY budget planner, you can organize and decorate it however you like. You could use colorful markers, dividers, stamps, illustrations, stickers, or other materials to jazz it up. Another DIY budget planner idea might be to include a journaling section where you can reflect on your goals and your spending and saving habits. Make sure to keep your budget planner functional, however, as organizing and tracking your expenses is the top priority.

Photo credit: iStock/tacojim

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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 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 4.00% 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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

SOBNK-Q424-001

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Jan
13
2025

Budgeting for Buying a House

By | Budgeting & Goals, Home Ownership, mortgage | Comments Off on Budgeting for Buying a House

Buying a house is a major step, and planning to purchase a home can be a lot of fun. You get to figure out where you’d hang your favorite artwork, plant a vegetable garden, put the PlayStation — and maybe contemplate taking on some DIY projects yourself.

But there’s another, more nuts-and-bolts aspect to your pursuit of the American Dream: how to budget for a house. Most people in the U.S. are homeowners, with the latest Census data revealing that 65.6% had attained this status in the second quarter of 2024. So that’s a good indicator that buying your own home is within reach.

Doing so will likely require you to be smart about your finances, both as you save and then take on the responsibility of owning a home. To help you be successful in this pursuit, read on for the intel you need, such as:

•   How do I know how much house I can afford?

•   What are the costs/fees to consider?

•   What will my ongoing costs be?

•   How can I budget for a house?

Up-front Expenses

First, consider how much you would have to fork over if you find that perfect center-hall Colonial or loft-style condo. Once an offer on a new home is accepted, there are certain costs the buyer needs to pay right off the bat and, in most cases, out of their own pocket. These are called up-front expenses. Here are a few to prepare for as you consider how to budget for a house:

Down Payment

You may have heard of the traditional 20% down payment guideline, which helps you avoid paying private mortgage insurance (PMI) on applicable loan programs. Additionally, a higher down payment can sometimes result in better mortgage loan terms (such as a lower interest rate) which may translate into lower monthly mortgage payments.

Yep, it’s a lot of money to try to save, but if you can swing it, in the long run, applying a 20% down payment will likely save you from paying thousands of dollars in additional mortgage interest over the life of the loan. Can’t pull together that big a chunk of change? Look into your options for a mortgage lender with lower or no down payment. Some options:

•   The minimum down payment for a first-time homebuyer on a conventional loan can be as low as 3%. You may also need a certain credit score of, say, 620, to qualify for this kind of mortgage.

•   An FHA government loan that is open to everyone typically requires a down payment of at least 3.5%.

•   Veteran VA loans or government USDA loans may allow eligible borrowers to finance up to 100% of their home’s cost. In other words, no down payment is required.

It’s worth noting that, regardless of the size of your down payment, buying may still significantly reduce your overall monthly expenses, compared to your current rent and real-estate market conditions.

3% to 5% Closing Costs

You can likely expect to pay an estimated 3% to 5% of your home price for closing costs, and should save accordingly. For example, if you buy a home that costs $300,000, you may be required to pay between $9,000 and $15,000 in closing costs.

Worth noting: Some costs are fixed and not tied to the price. In these cases, the percentage can be higher for the lower range and lower for the higher purchase price range.

What exactly comprises closing costs? This can be bank charges like origination fees and any points you may have purchased to buy down your interest rate. There are also costs like the appraisal fee, a title search, and others.

Keep in mind that there are alternatives to paying the closing costs out-of-pocket, such as requesting a seller credit, requesting a lender credit, or tapping an applicable down payment assistance program. These can help you minimize this expense.

Moving Costs

Don’t forget when budgeting for buying a house that you will need funds to actually move in. Unless you’re lucky enough to have a generous pal with a van, you are probably going to have to hire a moving company when it’s time to get settled in your new home. The average cost of moving the contents of a three-bedroom home 1,000 miles is $4,800 according to research by U.S. News & World Report.

These costs can vary widely, of course. If you are moving with just a bedroom’s worth of furniture versus a whole house, your price tag will be lower. It’s wise to comparison-shop for moving companies and factor this expense into your own budgeting for a home move.

If you are moving for work reasons, check with your company to see if it offers a relocation package to help cover some or all of the moving costs.

New Furniture and Appliances

Your new house may not have the same dimensions and style of your old house. That could mean that you need to buy new furniture and appliances. When budgeting for buying a house, you might want to talk to friends or relatives who have moved recently and inquire about unexpected expenses as well. For example, it’s not uncommon when you move to have to purchase such items as new locks, shower rods, and window treatments. These can add up quickly.

You might want to start a savings account for these types of purchases — some of them may be unexpected and costlier than you imagined.

Recommended: First-Time Homebuyer Guide

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.

Ongoing Expenses

Now that you’ve figured out the details related to the actual purchase, consider the expenses that will accrue once you are a homeowner. This is a very important step when budgeting for buying a house. These recurring charges are a vital part of the calculations of how much home you can afford.

Monthly Charges

First, consider how much you’ll be spending every month on your monthly mortgage payment and related costs. PITIA (principal, interest, property taxes, homeowners insurance, and other assessments) is an acronym describing all the components of a mortgage payment. Here’s how it breaks down:

•   P: The principal is the “meat” of the monthly payment amount — paying down the principal will reduce the loan balance.

•   I: Interest is what you are charged for borrowing the money.

•   T: Taxes refer to your property taxes.

•   I: This “I” refers to insurance. This includes both your homeowners and mortgage insurance, if applicable.

•   A: The other assessments refer to things that may be applicable to the home you purchase such as homeowners association dues, flood or earthquake insurance, and more.

HOA Dues

HOA stands for homeowners association. These dues usually apply to a condo, co-op, or property owned in a planned community.

The charge is usually monthly (but it could also be charged quarterly or annually), and it typically goes to maintaining the community (landscaping, garbage collection, repairs, and upgrades).

Before purchasing a property with HOA dues, it can be important to ask the Homeowners Association for a complete HOA questionnaire. With this in hand, you can view how healthy the association is, whether there is any outstanding litigation due to structural or other issues, etc. These could mean increased costs down the road.

Maintenance and Lawn Care

Your budgeting probably won’t stop once you’ve moved and settled into your new home. Expenses will likely continue to knock on your door — landscaping, roof repair, and water heater replacement are just a few items that might require ongoing financial consideration.

You may want to budget for 1% to 4% of the cost of your home in maintenance each year to pay for these expenses. However, deferred maintenance costs may require more funding, depending on the age, quality of construction, where you live, and more.

Pest Control, Security, Utilities

The cost of electricity, gas, water, and internet services differ from market to market. This is also true with pest control, and services that help ensure your home is secure and safe. You could find yourself paying more (or even less) for these services in your new home.

How Much House Can You Afford Quiz

Planning Ahead

So now that you understand the costs associated with homeownership, whether they are one-time or ongoing, you can get to work on how to budget for a house.

Ideally, you want to cover the homebuying costs and then be able to afford your monthly carrying costs without racking up debt. The standard advice is that your monthly housing expenses should account for up to 28% of your monthly pre-tax income. Given how expensive some housing markets can be, it’s not uncommon to find people spending more than that right now.

Here, some advice on figuring out what you can afford.

Target Mortgage Costs

Do your research on the different types of mortgage loan programs. Determine what your price range is given the current interest rates. Find the programs that may best suit you, so you’ll feel confident you can bid and afford a home once you have your down payment saved. Don’t forget to factor in those other PITIA expenses mentioned above as you think about your own monthly income and cash outflow when you’re a homeowner.

Build a Budget

Once you have these costs calculated, you can then start budgeting for buying a house. You’ll want to accumulate your down payment, while taking care of current bills and other financial obligations, of course.

•   Create a line item budget. You’ll want to note how much money you have coming in and how much goes out toward your needs (housing, food, medical expenses, debt repayment). Then you’ll see what’s left for your wants (think travel, dining out, clothes, entertainment) and start saving it, whether for your future home or retirement.

   Don’t skimp, though, on establishing an emergency fund. In a pinch, these funds can keep you from using your credit card and running up even more debt.

•   Assess where you can save more. To ramp up your savings for your house, look for ways to economize. Could you drop a subscription or two to streaming channels, or perhaps eat out less often?

   Also see what you can do to avoid high-interest credit card debt, which can take a bite out of anyone’s budget. You might want to take advantage of a zero-interest balance transfer credit card offer, or investigate whether a lower-interest personal loan could help you pay off your debt and save money.

•   Use automatic transfers. Help yourself hit your savings goals by automating payday transfers from checking to savings. That way, you won’t see the cash in your account and be tempted to spend more.

•   Bring in more moolah. If the numbers aren’t adding up to bring your homebuying plans within reach fast enough, consider using windfalls (a tax refund, a bonus at work, a birthday gift of cash from a relative) to plump up your savings. Also think about ways to bring in more income, whether by asking for a raise or pursuing a side hustle.

The Takeaway

Budgeting for buying a house requires thinking about both short-term costs, such as a down payment, closing costs, and moving expenses, as well as long-term costs such as homeowner’s insurance and maintenance expenses. It’s wise to look at both before you pursue a mortgage preapproval or make an offer on a home.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much money should you save before buying a house?

If possible, you should save enough money for a down payment on a house in the price range you’re thinking about. But you don’t need to make a 20% down payment — many homebuyers put down less, and some government programs will allow you to buy with no down payment at all. You’ll also want to have closing costs on hand (3% to 6% of the home’s price). And it’s wise to always have an emergency fund in case of an unexpected setback.

How much do I need to earn to afford a house?

How much you need to earn to afford a house depends on the housing market you’re looking in and the area’s overall cost of living. The national average salary is $63,795 and at that salary you may be able to afford a home priced at $180,000. Use a home affordability calculator to explore the numbers for your specific situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Jan
13
2025
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How Often Can You Refinance Your Home?

By | Budgeting & Goals, Home Ownership, mortgage | Comments Off on How Often Can You Refinance Your Home?

Other than possible lender-imposed waiting periods after a mortgage loan closes, you can generally refinance your home as many times as you like. But you’ll want to do the math first.

Homeowners choose to refinance for a number of reasons: to lower monthly payments, take advantage of lower interest rates, get better terms, pay the loan off more quickly, or eliminate private mortgage insurance.

Refinancing involves paying off the current mortgage with a second loan that has (hopefully) better terms. Borrowers don’t have to stay with the same lender—it’s possible to shop around for the best deals.

Mortgage rates seem to be constantly in flux, moving mostly in parallel with the federal interest rate. In 2021, the average rate of a 30-year fixed mortgage was 2.96%. In 2022, as the Federal Reserve raised interest rates to try to tame inflation, mortgage rates began to rise and jumped to more than 7%. By mid-June 2023, the average rate of a 30-year fixed mortgage was 6.69%.

So is now the right time for you to refinance? Here are some things to consider before taking the plunge.

The Basics of Mortgage Refinancing

Because a homeowner who chooses to refinance is essentially taking out a new loan, the cost of acquiring the new loan must be compared with potential savings. It could take years to recoup the cost of refinancing.

As with the initial mortgage loan, a refinance requires a number of steps, including credit checks, underwriting, and possibly an appraisal.

Typically, however, many homeowners start with an online search for the rates they qualify for. (A lower average mortgage rate doesn’t necessarily translate to an individual offer—creditworthiness, debt-to-income ratio, income, and other factors similar to what’s required for an initial mortgage will matter.)

The secret sauce that makes up a mortgage refinance rate might seem like a mystery, but there are some common factors that can affect your offer:

•  Credit score: As a general rule, higher credit scores translate to lower interest rates. A number of financial institutions and credit card companies will give account holders access to their credit scores for free, and a number of independent sites offer a free peek, too.
•  Loan term/type: Is the loan a 30-year fixed? A 15-year? Variable rate? The selected loan repayment terms are likely to affect the interest rate.
•  Down payment: A refinance doesn’t typically require cash upfront, as a first-time mortgage usually does, but any cash that can be put toward the value of a loan can help reduce payments.
•  Home value vs. loan amount: If a home loan is extra large (or extra small), interest rates could be higher. But generally speaking, the less the mortgage amount is compared with the value of the home, the lower the interest rates may be.
•  Points: Some refinance offers come with the option to take “points” in exchange for a lower interest rate. In simplest terms, points are discounts in the form of a fee that’s paid upfront in exchange for a lower interest rate.
•  Location, location, location: Where the property is physically located matters not only in its value but in the interest rate you might receive.

What Types of Refinance Loans Are Out There?

As with first-time home loans, consumers have a number of refinance mortgage options available to them. The two most common types involve either changing the terms of the original loan or taking out cash based on the home’s equity.

A rate-and-term refinance changes the interest rate, repayment term, or sometimes both at once. Homeowners might seek out this type of refinance loan when there’s a drop in interest rates, and it could save them money for both the short term and the life of the loan.

A cash-out refinance can also change the terms or interest rate, but it includes cash back to the homeowner based on the home’s equity.

Within those two basic types of refinance options, conventional mortgages from traditional lenders are the most common. But refinancing can also happen through a number of government programs.

Some, like USDA-backed loans , require the initial mortgage to be a part of the program as well, but others, such as the VA, have a VA-to-VA refinance loan called an interest rate reduction refinance loan and a non-VA loan to a VA-backed refinance , so it’s important to shop around to find the best option.

How Early Can I Refinance My Home?

If a home purchase comes with immediate equity—it was purchased as a foreclosure or short sale, for example—the temptation to cash out immediately with a refinance may be strong. The same could be true if interest rates fall dramatically soon after the ink is dry on a mortgage. Especially for conventional loans, it may be possible to refinance right away. Others may require a waiting period.

For example, there can be a six-month waiting period for a cash-out refinance. Or, refinancing via government programs like the FHA streamline refinance or VA’s interest rate reduction refinance loan can require waiting periods of 210 days.

Lenders can require a waiting period (also called a “seasoning period”) until they refinance their own loans for a number of reasons, including assurance insurance that the original loan is in good standing.

For a cash-out refinance, some lenders may also require that the home has at least 20% equity.

Questions to Ask Before You Refinance

Just because you can refinance doesn’t necessarily mean you should. First, ask yourself these questions.

What Is the Goal?

Identifying the endgame of a mortgage refinance can help determine whether now is the right time. If a lower monthly payment is the goal, it can be wise to play around with a refinance calculator to see just how much a lower interest rate will help.

For years, it has been a general rule that a refinance should lower the interest rate by at least 2 percentage points to be worth it. Some lenders believe 1 percentage point is still beneficial (each percentage point amounts to roughly $100 a month in payment reduction), but anything less than that and the savings could be eaten up by closing costs.

What Is the Total Repayment Amount?

It’s important to remember that a lower monthly payment—even if it’s significantly less—doesn’t necessarily equal savings in the long run.

If a mortgage with 20 years remaining is refinanced to lower the monthly payment, for example, the most affordable option could be a 30-year mortgage. But is the lower monthly payment worth it if you’ll be paying it off for 10 additional years?

Will I Need Cash to Close?

One of the biggest differences between a first-time mortgage and a refinance is the amount it costs to close the loan. Many times, closing costs for a refinance can be rolled into the loan, requiring no cash at the outset.

Closing costs typically come in at 2% to 5% of the loan amount, and although they can be rolled into the loan and paid off over time, that could mean the new monthly payment isn’t as low as planned.

One way to make sure the investment is worth the cost is to consider how long it would take you to reach the break-even point, which is when you recoup the costs of refinancing. For instance, if it takes you 24 months to reach the break-even point, and you plan on living in your home for at least that long, refinancing may make sense for you.

Considering refinancing your home? SoFi offers mortgage refinance loans with competitive interest rates.

Whenever you’re ready to refinance, SoFi is here to help.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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.

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