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You may think of your income as being your paycheck or your freelance earnings, but there are actually many different types of income. If you have stocks that are generating dividends, that’s income, as is interest you earn on any savings accounts. Do you own a rental property that has rent payments flowing your way? That’s income, too.

Here, you’ll learn about seven common types of income and how they may affect your financial life.

What Is Income?

Simply put, income is money that a person or business earns in return for labor, providing a product or service, or returns on investments. Individuals also often receive income from a pension, a government benefit, or a gift. Most income is taxable, but some is exempt from federal or state taxes.

Another way to think about income types is whether it is active (or earned) or passive (or unearned).

•  Active or earned income is just what it sounds like: money that you work for, whether you are providing goods or a service.

•  Passive or unearned income is money you receive even though you are not actively doing anything to get it. For instance, if you have a high-yield savings account that earns you interest, that is passive income. Government benefits, capital gains, rental income, royalties, and more are also considered passive income. (We’ll go through these variations in more detail in a minute.)

People who are paid a salary may tend to think that their annual paycheck earnings are their income, but in truth, it’s common for people to have multiple income streams. Granted, your salary may be by far the largest stream of income, but when considering your overall financial picture, don’t forget to think about the other ways that money comes to you.

Different Types of Income

Here’s a look at seven common types of income.

1. Earned Income

Earned income is the money you earn for work you do, either in a job or self-employed. Earned income includes wages, salaries, tips, and bonuses.

Earnings are taxed at varying rates by the federal and state governments. Taxes may be withheld by your employer. Self-employed workers often pay quarterly and annual taxes directly to the government. Lower-income workers may be eligible for the earned income tax credit.

2. Business Income

Business income is a term often used in tax reporting; you may sometimes also hear it referred to as profit income. It basically means income received for any products or services your business provides. It is usually considered ordinary income for tax purposes.

Expenses and losses associated with the business can be used to offset business income. Business income can be taxed under different rules, depending on what type of business structure is used, such as sole proprietorship, partnership, corporation, etc.

3. Interest Income

When you put money into various types of interest-bearing financial vehicles, the return is considered interest income. Retirees often rely on interest income to help fund their retirement. You can earn interest from a variety of sources including:

•  Certificates of deposit (CDs)

•  Government bonds

•  Treasury bonds and notes

•  Treasury bills (T-bills)

•  Corporate bonds

•  Interest-bearing checking accounts

•  Savings accounts

Interest income is typically taxed as ordinary income, though some types of interest are tax-exempt.

4. Dividend Income

Some companies pay stockholders dividends as a way of sharing profits. These are usually regular cash payments that investors can take as income or reinvest in the stock. Dividends from stocks held in a taxable brokerage account are considered taxable income. These funds may be taxed at your regular income-tax rate or at a lower long-term capital gains rate, depending on whether they are classified as “ordinary” or “qualified”.

5. Rental Income

Just as it sounds, rental income is income earned from rental payments on property you own. This could be as straightforward as renting a room in your house or as complicated as owning a multi-unit building with several tenants.

Rental income can provide a steady stream of passive vs. active income. It may enhance your livelihood or even be your main income. When your rental property increases in value, you may also gain from that appreciation and increase in equity. In addition, rental income qualifies for several tax advantages, including taking depreciation and some expense write-offs.

But there are downsides. Owning a rental property isn’t for the faint of heart. Unreliable tenants, decreasing property values, the cost of maintaining and repairing properties, as well as fees for rental property managers can all take a bite out of your rental income stream.

6. Capital Gains

Another important income stream can come from capital gains. You incur a capital gain when you sell an asset for more than what you originally paid for it. For the purposes of capital gains, an asset usually means an investment security such as a stock or bond. But it can also encompass possessions such as real estate, vehicles, or boats. You calculate a capital gain by subtracting the price you paid from the sale price.

There are two types of capital gains — short-term and long-term.

•  Short-term capital gains are realized on assets you’ve held for one year or less.

•  Long-term capital gains are earned on assets held for more than a year.

The tax consequences are different for each type of capital gain. Short-term gains are taxed as ordinary income, while long-term capital gains may be taxed at a lower rate.

Keep in mind, however, that capital losses can happen too. That’s when a capital asset is sold for less than its original purchase price. While it’s never pleasant to experience losses, there can be a small silver lining in this case. You may be able to claim a capital loss deduction from your annual capital gains.

7. Royalty Income

Royalty income comes from an agreement allowing someone to use your property. These payments can come from the use of patents, copyrighted work, franchises, and more.

Some examples: Inventors who license their creations to a third party may receive royalties on the revenue their inventions generate. Celebrities often allow their name to be used to promote a product for royalty payments. Oil and gas companies may pay landowners royalties to extract natural resources from their property. Musicians may earn royalties from music streaming services.

Royalty payments are often a percentage of the revenues earned from the other party using the property. Many things impact how much royalty is paid, including exclusivity, the competition, and market demand. How royalty payments are taxed can also vary, depending on the type of agreement.

Recommended: 10 Personal Finance Basics

The Takeaway

Understanding the seven general income streams (such as earned, dividend, and rental income) can help you make the most of your financial planning. Earning income from any of these sources can provide stability and help you achieve long-term goals, such as saving for retirement. Because some types of income have unique tax implications, it can be important to check with your tax advisor about any tax consequences that may exist.

Aside from earned income, interest is a type of income many people receive. And seeking out the best possible interest rate can be a solid way to enhance your earnings; looking for a high-yield bank account may be a good place to start.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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.

FAQ

What are the seven common types of income?

The seven common types of income are: earned income (money earned for work); business income (money received for products or services sold); interest income (returns from interest-bearing financial accounts); dividend income (payments from companies to stockholders as a share of profits); rental income (income earned from rental payments on property owned); capital gains (profit incurred when selling an asset for more than its purchase price); and royalty income (payments from licensing property like patents or copyrighted work).

What are the three main types of income?

The three main types of income include: active income (earned from performing a service like a job), passive income (generated from ventures like rental properties where you are not actively involved) and portfolio income (derived from investments such as stocks and bonds). These categories are distinguished by how the money is generated and how the income is taxed.

What are the four main income categories?

From a personal finance perspective, the four main income categories are: active income (money earned directly from a job or services rendered), passive income (recurring income from ventures in which you are not actively involved), portfolio income (earnings from investments like stocks, bonds, and mutual funds), and government income assistance (financial aid from the government for those who qualify).

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SOBNK-Q425-028

When you’re married and are each other’s beneficiaries, it makes sense to create a single joint will, right? Not necessarily. Even if you plan to leave everything to your significant other upon death, creating this kind of legal document may lead to complications down the line.

Let’s take a closer look at the different kinds of wills married couples can create so you can decide what’s best for you.

What Is a Joint Will?

A joint will is a single shared legal document, signed by two or more people. It is relatively uncommon today, and many attorneys recommend against them. One of the motivations for a joint will is that, when one person dies, it’s nearly impossible for a surviving spouse to change the terms of the will. This can be problematic because circumstances change over time. What if the person mentioned to inherit property in the will has passed away?

That said, a joint will for a couple can seem desirable precisely because it’s not flexible. This can ensure that a child from a previous marriage, for example, inherits what is outlined in the will even if their parent dies before their new spouse does. But these sort of permanent clauses can be handled in a trust, a customized estate planning tool that can allow for complex, shifting situations.

How Do Joint Wills Work?

A joint will for a married couple is a single document, signed by two partners. When you’re both alive, changes can be made as long as you both agree. But once a partner dies, the will becomes binding.

For this reason, a joint will for a married couple can be binding, restrictive, and not necessarily optimal for the complexity of modern-day life.

Say that the will stipulates that the house the couple owns will be inherited by their three children upon the death of both spouses. But what if the surviving spouse has a financial emergency and wants to sell the house? Or simply wants to downsize to a smaller living space? Because of the will, they could be stuck in a difficult scenario.

Also consider that a joint will doesn’t always cover the what-ifs that can come up during life. From remarriage to family disputes to having more children, a joint will can lock assets in time, making it tough for the surviving spouse to move on.

How Do Mutual Wills Work?

Fortunately, there are options for those who worry about a joint will being too rigid. A more common option that offers flexibility is what’s known as a mutual will, or mirror will. In this case, two documents are created, one for each spouse. They may be identical, but because they are two documents, separately signed, the surviving spouse can then modify their own individual will when their partner passes away.

But what if you are concerned that you might die first and your surviving spouse could, say, omit a child or other loved one from their inheritance? (Yes, that may sound odd, but life contains many complicated family situations!) In this case, lawyers may recommend a trust as an option to ensure that your own personal wishes are carried out when it comes to your property. The trust can also make sure that your directives are followed when it comes to joint property mutually owned, like real estate.

Recommended: Important Estate Planning Documents to Know

Joint Will vs Individual Will: Pros and Cons

So, what are the pros and cons of joint wills versus individual (separate) wills? In general, the biggest con against a joint will may be the lack of flexibility. But for some people with relatively simple estates, this can seem like a positive.

Pros of a joint will:

•   Simplicity. It’s a one-and-done proposition!

•   Clarity. It ensures that both partners’ wishes, as written, will be respected, even after death.

Cons of a joint will:

•   Rigidity. If a partner gets remarried or has more children, it will be complicated if not impossible to change the original will.

Pros of an individual will:

•   Flexibility. Yes, this is a double-edged sword. These wills aren’t carved in stone, which can be a good or bad thing. But with individual wills, the wishes of the partner who dies first may not be fully honored. These concerns may be solved by the creation of a trust.

•   Simplicity. You can create one document and each sign it separately. Each individual is then free to amend their own will.

Cons of an individual will:

•   Flexibility. Yes, this is a double-edged sword. These wills aren’t “carved in stone” which can be a good or bad thing. Here’s the latter: With individual wills, the wishes of the partner who dies first may not be fully honored. These concerns may be solved by the creation of a trust.

•   Maintenance-intensive. A surviving partner may want to rewrite their will over time as their life circumstances change.

Do Husbands and Wives Need Individual Wills?

In most cases, yes, it’s beneficial if spouses have separate wills. The wills can be identical, but having two distinct documents that are individually signed can help protect against what-ifs in the future. Having individual wills can give the surviving spouse flexibility.

Let’s say that a joint will stipulates that a house owned jointly by a married couple will go to children upon the death of both spouses. That means if one spouse dies, the other spouse may not be able to sell the house that he or she lives in, even in the case of financial hardship. A joint will can lock a surviving spouse in time, despite evolving circumstances.

Instead, a couple may prefer individual wills. These can mirror each other, but the surviving spouse retains flexibility in case their needs or circumstances change after the spouse dies.

Worth noting: For some, the lack of flexibility of a joint will may be seen as positive. For example, some couples may want a joint will to ensure their children receive an inheritance, even if the surviving spouse remarries. However, some legal experts believe this goal can better be achieved through the creation of a trust.

As you think about making your will, it can be helpful to consider the pros and cons of a joint will. Getting an expert opinion can also be a smart move.

What Happens to a Joint Will When Someone Dies?

A joint will is essentially frozen in time when someone dies. The will becomes “irrevocable,” and property must be divided according to the terms of the will. If it says all assets are to be inherited by the surviving spouse, then the surviving spouse will inherit assets. But confusion may occur if and when both spouses pass away. A joint will then makes it hard, if not impossible, to reallocate property.

Let’s consider another scenario to see why a joint will can be problematic. Perhaps a joint will specifies that a certain sum of money is to go to a charity upon death. If the charity no longer exists after one spouse passes away, this may lead to complications and a legal headache.

In short: A joint will is similar to a time capsule. While its contents may make sense now, it can be helpful to consider what-ifs that may happen ten, 20, or 50 years in the future. This can lead some couples to decide that individual wills will work better.

Recommended: Life Insurance Guide

Can You Make a Joint Will Online?

It is possible to make a joint will online. But because not every state recognizes a joint will, it’s important to make sure you live in a state that does before you move forward.

The Takeaway

End-of-life planning is an important way to express your wishes and protect those closest to you. A will is one key component of that, but married couples have an important choice to make when deciding whether to have joint or individual wills. Even if you and your spouse are the ultimate joined-at-the-hip lovebirds, having separate wills may be a good idea. It can often provide more flexibility and family peace in the years ahead.

When you want to make things easier on your loved ones in the future, SoFi can help. We partnered with Trust & Will, the leading online estate planning platform, to give our members 20% off their trust, will, or guardianship. The forms are fast, secure, and easy to use.

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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.

SOPRO-Q425-015

Whether you’re purchasing a new pair of eyeglasses, stocking up on over-the-counter medications, or paying for your child’s daycare, there may be certain expenses your health insurance plan doesn’t cover.

In those cases, having a flexible spending account, or FSA, could help you save money. This special savings account lets you set aside pretax dollars to pay for eligible out-of-pocket healthcare expenses, which in turn can lower your taxable income.

Let’s take a look at how these accounts work.

What Is an FSA?

An FSA is an employer-sponsored savings account you can use to pay for certain health care and dependent costs. It’s commonly included as part of a benefits package, so if you purchased a plan on the Health Insurance Marketplace, or have Medicaid or Medicare, you may no longer qualify for a FSA.

There are three types of FSA accounts:

•   Health care FSAs, which can be used to pay for eligible medical and dental expenses.

•   Dependent care FSAs, which can be used to pay for eligible child and adult care expenses, such as preschool, summer camp, and home health care.

•   Limited expense health care FSA, which can be used to pay for dental and vision expenses. This type of account is available to those who have a high-deductible health plan with a health savings account.

How Do You Fund an FSA?

If you opt into an FSA, you’ll need to decide on how much to regularly contribute throughout the year. Those contribution amounts will be automatically deducted from your paychecks and placed into the account. Whatever money you put into an FSA isn’t taxed, which means you can keep more of what you earn.

Your employer may also throw some money into your FSA account, but they are under no legal obligation to do so.

You can use your FSA throughout the year to either reimburse yourself or to help pay for eligible expenses for you, your spouse, and your dependents (more on that in a minute). Typically, you’ll be required to submit a claim through your employer and include proof of the expense (usually a receipt), along with a statement that says that your regular health insurance does not cover that cost.

Some employers offer an FSA debit card or checkbook, which you can use to pay for qualifying medical purchases without having to file a reimbursement claim through your employer.


💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

What Items Qualify for FSA Reimbursement?

The IRS decides which expenses qualify for FSA reimbursement, and the list is extensive. Here’s a look at some of what’s included — you can see the full list on the IRS’ website.

•   Health plan co-payments and deductibles (but not insurance premiums)

•   Prescription eyeglasses or contact lenses

•   Dental and vision expenses

•   Prescription medications

•   Over-the-counter medicines

•   First aid supplies

•   Menstrual care items

•   Birth control

•   Sunscreen

•   Home health care items, like thermometers, crutches, and medical alert devices

•   Medical diagnostic products, like cholesterol monitors, home EKG devices, and home blood pressure monitors

•   Home health care

•   Day care

•   Summer camp

Are There Any FSA Limits?

For 2025, health care FSA and limited health care FSA contributions are limited to $3,300 per year, per employer. Your spouse can also contribute $3,300 to their FSA account, as well.

Meanwhile, dependent care FSA contributions will be increased to $7,500 per household, or $3,750 if you’re married and filing separately, on January 1, 2026.

Does an FSA Roll Over Each Year?

In general, you’ll need to use the money in an FSA within a plan year. Any unspent money will be lost. However, the IRS has changed the use-it-or-lose-it rule to allow a little more flexibility.

Now, your employer may be able to offer you a couple of options to use up any unspent money in an FSA:

•   A “grace period” of no more than 2½ extra months to spend whatever is left in your account

•   Rolling over up to $660 from 2025 to use in the 2026 plan.

Note that your employer may be able to offer one of these options, but not both.

One way to avoid scrambling to spend down your FSA before the end of the year or the grace period is to plan ahead. Calculate all deductibles, copayments, coinsurance, prescription drugs, and other possible costs for the coming year, and only contribute what you think you’ll actually need.

Recommended: Flexible Spending Accounts: Rules, Regulations, and Uses

How Can You Use Up Your FSA?

You can consider some of these strategies to get the most out of your FSA:

•   Buy non-prescription items. Certain items are FSA-eligible without needing a prescription (but save your receipt for the paperwork!). These items may include first-aid kits, bandages, thermometers, blood pressure monitors, ice packs, and heating pads.

•   Get your glasses (or contacts). You may be able to use your FSA to cover the cost of prescription eyeglasses, contact lenses, and sunglasses as well as reading glasses. Contact lens solution and eye drops may also be covered.

•   Keep family planning in mind. FSA-eligible items can include condoms, pregnancy tests, baby monitors, and fertility kits. If you have a prescription for them, female contraceptives may also be covered.

•   Don’t forget your dentist. Unfortunately, toothpaste and cosmetic procedures are not covered by your FSA, but dental checkups and associated costs might be. These could include copays, deductibles, cleanings, fillings, X-rays, and even braces. Mouthguards and cleaning solutions for your retainers and dentures may be FSA-eligible as well.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

Flexible Savings Account (FSA) vs. Health Savings Account (HSA)

When it comes to managing healthcare costs, another popular option is a health savings account (HSA). Both FSAs and HSAs offer tax advantages, but they differ in terms of eligibility, contribution limits, and how the funds can be used.

Both types of accounts:

•   Offer some tax advantages

•   Can be used to pay for co-payments, deductibles, and eligible medical expenses

•   Can be funded through employee-payroll deductions, employer contributions, or individual deductions

•   Have a maximum contribution amount. In 2025, people with individual coverage can contribute up to $4,300 per year, while those with family coverage can set aside up to $8,550 per year.

That said, there are some key differences between HSAs and FSAs:

•   You must be enrolled in a high deductible health plan in order to qualify for an HSA.

•   HSAs do not have a use-it-or-lose-it rule. Once you put money in the account, it’s yours.

•   If you quit or are fired from your job, your HSA can go with you. This happens even if your employer contributed money to the account.

•   If you’re 55 or older, you can contribute an additional $1,000 to your HSA as a catch-up contribution — similar to the catch-up contributions allowed with an IRA.

•   If you withdraw money from your HSA for a non-qualified expense before the age of 65, you’ll pay taxes on it plus a 20% penalty.

•   If you withdraw money from your HSA for any type of expense after age 65, you don’t pay a penalty. However, the withdrawal will be taxed like regular income.

Recommended: Benefits of Health Savings Accounts

The Takeaway

Flexible spending accounts are offered by employers and can be a useful tool for paying for health care or dependent-related expenses. Notably, you fund the account with pretax dollars taken from your paycheck, which can lower your taxable income and help you save money.

You typically need to spend your FSA money within a plan year, though your employer may give you the option to either roll over a portion of the balance into the next year or use it during a grace period. There are also guidelines around what you can spend the FSA funds on and how much you can contribute to your account.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How does a flexible spending account work?

A flexible spending account (FSA) lets you set aside pretax money from your paycheck to cover eligible medical, dental, vision, or dependent care expenses. Because contributions reduce your taxable income, you save on taxes.

What is the difference between an FSA and an HSA?

The main difference between an FSA and an HSA is ownership and eligibility. FSAs are employer-owned and require you to spend funds within the plan year, while HSAs are individually owned, available only with high-deductible health plans, and allow funds to roll over and grow tax-free year after year.

Can I withdraw money from my flexible spending account?

Yes, you can withdraw money from your flexible spending account (FSA) to pay for eligible medical expenses such as copays, prescriptions, and medical supplies. However, withdrawals must be for qualified expenses.

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.

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

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

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.

SORL-Q425-005

The United States is more than a little dog crazy: The percentage of households with a canine stands at 45.5%, meaning almost one out of two have a pooch. Owning a dog can be one of life’s great pleasures, whether you choose a tiny Chihuahua puppy or a mega, full-grown Great Dane as your new best friend.

But amid imagining all the cuddles and sloppy kisses, many prospective dog parents aren’t fully prepared for the expense of owning a pet.

This can be an important consideration, given that dog ownership generally requires a significant upfront and ongoing financial investment. Start-up costs tend to run around $2,127, while ongoing annual expenses average $2,489, according to the American Kennel Club.

If you’re considering bringing home a new pooch, here’s key information to know about budgeting for a dog.

8 Costs of Owning a Dog

It’s easy to fall in love with an adorable dog and feel as if you just must make it yours ASAP. But it’s wise to do a little research first about potential bills before you bring home a new pooch. Read on for eight costs that are likely to crop up.

1. Adoption Costs

The cost to adopt a dog varies depending on the organization, dog’s age, and breed, but fees from shelters can range anywhere from $50 to $500. The adoption fee helps cover some of the cost of holding the dog and getting them ready for adoption. At some pet rescues, adoption fees also cover the cost of veterinary services, like a pet physical exam, deworming, spaying or neutering, microchipping, and common vaccinations.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

Adoption vs Buying

Buying a dog from a breeder costs considerably more than adopting one from a shelter. Depending on the type of breed and the location of the breeder, you can expect to pay anywhere from $775 to $4,750.

The purchase price through a breeder typically includes the dog’s first round of shots and deworming. However, other medical costs — such as spaying or neutering and microchipping — are not typically covered by the breeder’s fee.

Recommended: 9 Cheapest Pets to Own

2. Food and Treats

Once you bring home your furbaby, you’ll also need to factor dog food and treats into your spending budget. The cost of feeding a dog can run anywhere from $200 per year for a small dog to $720 per year for a large dog. If you decide to serve your dog premium brands, freshly made food, or a specialized diet, your food costs could be significantly higher — as much as $3,000, possibly more, per year.

3. Toys

Toys may seem like a silly little add-on, but they can play an important role in puppy development and adult dogs’ mental stimulation. Toys can help dogs fight boredom when they are left at home alone and comfort them if they’re agitated. And with toys to gnaw on, dogs may be less likely to turn to shoes for a midday distraction.

One way to save money on pet costs is to keep toys simple. For example, a basic tennis ball will satisfy many dogs. And you can grab a can of three, fun-to-chase tennis balls for about $4. However, you may want to offer your new companion a range of fun things to play with. If so, you might set aside around $100 a year for doggie toys.

4. Pet Sitters or Walkers

If you work outside the home or plan to travel without Fido, it may be a good idea to factor in the cost of a dog walker or pet sitter. You can expect to pay between $24 and $34 for a 30-minute dog walking service. Hourly pet sitter rates can run anywhere $12 to $20 per hour, while the average cost to board a dog is around $40 per night.

It may be helpful to estimate how much outside care you’ll need for your new dog and add it to your budget.

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5. Medical Visits

Dogs need regular medical care, so health expenses are another cost to consider when setting up your budget. Just like humans, dogs need blood drawn to check for diseases, routine vaccinations to prevent disease, and a general physical exam once a year to make sure their health is in working order.

The cost of healthcare for a dog varies widely depending on the type of dog, care provider, and where you live. On average, an annual vet visit can run $50 to $250, but that doesn’t include vaccinations (around $20–$80 per vaccine); medications and supplements ($10-$150 annually), and dental cleanings ($300-$1,500 annually).

6. Pet Insurance

While pet insurance won’t cover routine veterinary visits, it could come in handy if an emergency occurs with the pup. For example, a new dog could eat something that causes it to get sick or develop a bacterial or viral infection.

Many pet insurance plans will cover a portion of medicines, treatments (including surgeries), and medical interventions that aren’t tied to a pre-existing condition. The cost of pet insurance can vary significantly by your pet’s breed, age, and health history. On average, pet insurance for a dog runs around $62 a month.

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7. Incidentals

A lot of smaller expenses can come when you own a dog, such as doggy waste bags and cleaning supplies for pet-related messes. The ASPCA estimates that miscellaneous costs can average around $35 for small dogs, $45 for medium dogs, and $65 for large dogs annually.

8. Emergency Fund

It can be wise to save up an emergency fund for pet-related expenses. Having a financial cushion helps ensure you can make fast decisions about your pet’s care without worrying about how you’ll afford the bill.

You might set up a dedicated savings account to cover unexpected pet-related costs, with a goal saving between $500 and $1,000 to start. Or you could simply add to your general emergency saving fund. Either way, it’s a good idea to keep your emergency funds in a dedicated savings account, such as a high-yield savings account or money market account, so you’re not tempted to dip into it for everyday expenses.

The Takeaway

More than 45% of US households have dogs as pets, which shows how beloved they are. But before you get a pet, it’s important to know the costs involved (which can add up to thousands per year) and budget wisely. Saving in advance can make adopting and then caring for a dog easier. You might look for a high-yield savings account to help your money grow for this purpose.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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.

FAQ

How much does it cost to buy a new dog?

The cost to buy a dog can vary widely depending on whether you adopt from a shelter or purchase from a breeder. Adoption is generally the more affordable option, with fees running anywhere from $50 to $500. The price for a puppy from a reputable breeder can run $775 to $4,750, depending on the breed’s popularity and rarity.

What is the monthly cost of owning a dog?

The average monthly cost of owning a dog ranges from approximately $64 to $248, depending on factors like size, breed, and location. These costs include food, toys and accessories, pet insurance, and grooming.

Can pet insurance save me money?

Buying pet insurance can be worth it if your pet is young and healthy or you don’t have enough savings to cover an expensive vet bill. However, it may not be a good deal if your pet is older or has health issues and/or you would be able to manage a hefty vet bill if it came up.

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SOBNK-Q425-031

Once you’ve decided it’s time to buy life insurance, the big question is whether a term or whole life insurance policy is right for you.

Both achieve the same goal: protecting your loved ones from financial hardship when you aren’t there to provide for them. But they go about doing this in very different ways. To decide which one to buy, a little knowledge is an important thing.

Let’s take a look at what each policy offers and highlight some considerations. By the end of this article, you should have a good idea of whether buying term or whole life insurance is right for you.

What Is Term Life Insurance?

Just as the name implies, term life insurance provides coverage for a set term or number of years. What that means is, if you die during the term of the policy, your beneficiaries receive a lump sum payment.

Here’s an example of how that works. Let’s say you take out $500,000 of term life insurance for 20 years. If you, the policy holder, were to die at year 19, your beneficiaries would receive the half-million dollars. But if the policy ends after 20 years, and you were to die a few months later, there’s no benefit at all.

What’s good about term life insurance is that it can offer coverage when you may need it most. With terms typically running between 10 and 30 years (though other variations are available), this kind of policy can give you the reassurance that, even in the worst-case scenario of your death, expenses like tuition, housing, and daily living costs can still be covered.

Many people purchase a term that will see them through the end of a mortgage or a child’s graduation from college. Some insurance providers offer the option of extending a policy as it comes to its conclusion. This is known as renewable term life insurance; check prices in advance as these extensions can be for a brief time period and tend to be costly.

It’s worth noting that if you buy, say, a 30-year term life insurance policy and are alive at the end of that time period, you don’t get a refund of the funds you’ve doled out. You have paid for protection but you didn’t use it. This may strike some people as “throwing away” their money.

For people who have that sentiment, there are options like “return-of-premium” policies that could help you recoup costs. This kind of life insurance is usually considerably more affordable than whole life, which we’ll explore in a minute. Because you are only buying protection for a specific time period, the premiums (the monthly fee you pay for coverage) are typically lower and are fixed.

What Is Whole Life Insurance?

Whole life insurance is a popular type of permanent life insurance that offers coverage for a lifetime.

Generally speaking, once you get a policy, it stays in effect for the rest of your life, unless you cancel it. When the policy owner passes away, their beneficiaries receive a lump sum payment. This can offer peace of mind and may feel like a necessity if, say, you have a loved one who has a chronic health condition and/or cannot live independently.

Whole life insurance is a more complex financial product than term life insurance. It’s essentially a bundled insurance policy plus a savings account. What’s known as “cash value” is built into the policy so you are building equity. Part of your premium is usually diverted into a separate account; that account can earn interest and may be tapped, as a loan.

This is not the only kind of life insurance policy with a cash account attached to it. For those who want their cash account to grow in different ways, there are also these kinds of permanent life insurance:

•   Universal life insurance, which earns interest on the cash value account and may allow for flexible monthly payments.

•   Variable life insurance, which allows you to invest the cash part of your policy in stocks, bonds, and mutual funds. While these can grow your money faster, they also bring some degree of financial risk if the market drops.

•   Variable universal life, which gives you the ability to invest your savings account in stocks, bonds, and the like, as well as flexible premiums depending on how your cash value performs.

•   Indexed universal life, in which your cash account is linked to a stock market index. It earns interest based on this index, but often there is a minimum rate of return (as well as a limit on how high the interest can go), which makes it less risky than a variable universal life plan.

In general, whole life and the other kinds of permanent life insurance usually have higher initial premiums than term life insurance (its cost may even be a multiple of what you would pay for term insurance). This is due to its lifelong “in effect” status and the way it can help you grow the money in your cash value account.

Recommended: 8 Popular Types of Life Insurance for Any Age

How Do Term and Whole Life Insurance Differ?

Some people hear the differences between term and whole life insurance policies and know in an instant which one is right for them. Other people have to mull the options for a while and maybe want to make a “pros vs. cons” list. If you fall into the latter camp, don’t worry. Let us help by summarizing some of the key differences right here.

Difference 1: Policy Features

Difference 2: Costs

The cost of a policy is undoubtedly a huge factor in your decision. So let’s cut to the chase: Whole life insurance costs up to 15 times more than term life for the same amount of coverage.

That’s because whole life insurance provides lifelong coverage and also includes that “cash value” savings component. It’s a more complex financial product, while term insurance is just straightforward coverage for a certain number of years.

Also know that while the cash value portion of a whole life policy can be tax-deferred over the life of the policy, when you redeem the cash value, there are usually tax implications due to the interest accrued.

Recommended: How to Buy Life Insurance in 9 Steps

How to Choose Between Term and Whole Life Insurance

When deciding which kind of policy to buy, there is no hard and fast rule. All that matters is what’s right for you. Consider these questions to help figure out your best option.

1. How long do you need coverage to last?

Do you need coverage to last your entire life, perhaps to fuel a trust for your children or provide a death benefit for a family member with a disability? Then you may be happiest with whole life insurance, meaning a death benefit will be paid, even if you live well past age 100.

If, however, you only need to know that a certain time frame is covered (say, the length of your mortgage or until your youngest graduates from college), then term life may work best for you. A policy can usually be purchased in various increments between 10 and 30 years.

2. Do you want just coverage or savings too?

Some people are just shopping for a policy that offers protection and peace of mind. They want to know that, should they die within a certain time frame, their loved ones would receive money to help cover expenses. For this insurance shopper, a term policy may make sense. It will pay a lump sum benefit if the policy holder dies within the term.

But if you are looking for a product that doesn’t just offer coverage but also helps you save, then a whole life plan may be a good move. These policies also have a cash value account that can grow over the years.

3. How much can you spend on life insurance?

There’s a pretty big disparity in the price of the two main kinds of life insurance. Whole life policies, which deliver ongoing, permanent coverage, typically cost much more than term insurance, which is only active for a limited number of years. Estimates say that a person will have to spend anywhere up to 15 times more for whole life versus term insurance. Also, the interest on the cash value of a whole life policy is usually subject
to taxes as well.

4. Does my age determine whether I should get term or whole life insurance?

In general, your age doesn’t determine whether you should buy term or whole life insurance. For instance, people often purchase a policy when they marry or are expecting their first child. These milestone events mean you have people depending on you, and you may well think now is the time to get life insurance coverage. However, deciding on term insurance that runs until your child’s 21st birthday or whole life insurance which delivers permanent coverage is a matter of personal preference and finances.

There are some cases in which term insurance is likely to be the better bet. For instance, if you and your partner took out a mortgage together, you might want term insurance that covers the length of your home loan. That way, if anything were to happen to you, your spouse doesn’t wind up being solely liable for all that debt.

Another scenario is buying life insurance when you are quite old and want to get coverage. In this case, term life insurance is likely to again be a good bet. You could buy a term of 10 or 20 years if you are in good health.

For those with medical issues, what’s called simplified issue or guaranteed issue term insurance may be best. These are typically small policies that cover end-of-life expenses, and they require no medical exams.

5. What if I Already Have Life Insurance and Want to Change My Policy?

It’s human to change your mind. No matter how much research you do, time and circumstances can make you rethink your purchase. Some term life insurance policies can be turned into whole life or other types of permanent insurance. This may have to occur within a certain time window, and it’s likely to trigger pricier premiums. Talk to your insurance company about your options. Your term may also be renewable or extendable.

With whole life insurance, changes to the policy may result in surrender charges, since the policy is a permanent one. Check with the policy provider to know what to expect.

The Takeaway

While no one wants to think about their death, the silver lining to life insurance shopping is you know you’ll secure a way to provide for your loved ones when you’re no longer here.

To recap the two different approaches: Term life insurance has a time limit on coverage, and tends to be considerably more affordable. Whole life is a form of permanent life insurance that offers lifelong protection and an additional cash account, but tends to cost much more than term. As you weigh your needs and options, don’t be swayed by what others buy. This is an important financial decision that should be tailored to your specific situation, finances, and aspirations.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

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

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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