So, What Exactly Is an IRA?

No matter where you are in your career, you’re probably well aware that you should be saving for retirement. But for investing newbies, the alphabet soup of retirement account options can be overwhelming.

But IRAs are worth learning more about—and potentially investing in. This guide offers some ideas that could help you learn why and how to get started today.

IRA stands for individual retirement account. It’s a savings account that is used to put away money for retirement, potentially grow funds through investment, and often get tax breaks.

The most common types of IRAs are Traditional and Roth IRAs. Traditional IRAs let you deduct your contributions up front and pay taxes on distributions when you retire, while Roth IRAs don’t let you deduct contributions but allow you to withdraw money tax-free in retirement.

You can only contribute the maximum amount to a Roth IRA if you make less than a certain amount of money. Not sure? Use SoFi’s IRA Calculator to get some quick and easy guidelines.

Differences Between Traditional and Roth IRAs

The most basic difference between the Traditional IRA and the Roth IRA is when you’re taxed—because if there’s one thing that’s true in this world, it’s that you can’t escape death or taxes.

With a Traditional IRA, you get a tax break up front: The money you contribute to your IRA isn’t included in your taxable income the year you make the contribution. However, when it comes time to take the money out at retirement, you will pay taxes on the distributed amount and the will be deemed as income.

With a Roth IRA, on the other hand, you pay taxes on your contributions now in exchange for tax-free withdrawals at retirement later. However, there are some other important differences between these two types of retirement accounts to take into account.

For example, while both Traditional and Roth IRAs are subject to early withdrawal penalties, Roth IRAs give you more flexibility to withdraw in special circumstances—and since you’ve already paid taxes on your contributions, you can take them out (without any investment-related growth) almost any time.

Let’s dig into the differences between these two types of IRAs so you can figure out which version might work better for your needs.

Traditional IRAs

Along with the tax break up front, traditional IRAs also have the added benefit of allowing you to make contributions regardless of your income level—as long as you have earned income for the year and haven’t yet celebrated your 70.5th birthday. (Yes, half-birthdays are a thing in the world of the IRS.)

That said, there are limits to your ability to deduct your contributions if you (or your spouse) are also covered by a retirement plan at work, like a 401(k).

Furthermore, Traditional IRAs are subject to required minimum distributions (RMDs) . That is, you can’t just let the money sit in your account to grow indefinitely. Rather, you’ll need to start making withdrawals by April 1 of the year after you celebrate your 70.5th birthday, and by Dec. 31 of years thereafter.

Generally, you’ll be subject to an additional 10% tax penalty if you make withdrawals from your traditional IRA before you reach the age of 59.5, though there are certain exceptions that may qualify you to take penalty-free distributions. These include certain medical expenses and those related to a disability, as well as other demonstrated circumstances of financial hardship.

Roth IRAs

With a Roth IRA, you’ll be responsible to pay income taxes on the money you contribute to the fund today, but you’ll be able to make withdrawals tax-free once you reach age 59.5. Furthermore, because you’ve already paid taxes on the contributions themselves, you’re eligible to withdraw them at any time, and you can even make early withdrawals tax-free under certain qualified circumstances. These include:

•   Making payments toward your first home
•   Paying for qualified educational expenses
•   Paying for certain medical expenses, including health insurance if you’re unemployed

Furthermore, Roth IRAs, unlike Traditional IRAs, are not subject to RMDs, which is to say the account owner can leave them to grow indefinitely throughout their lifetime. This makes them an excellent vehicle for passing on assets to heirs or loved ones after death, which can be attractive to those who have other funds supporting their retirement and plan on bequeathing money to their families.

However, with all these special exceptions come stricter limitations. You can only contribute to a Roth IRA if you fall under certain adjusted gross income levels: for 2019, $137,000 for single filers and $203,000 for married couples filing jointly. (If your income is close to these income levels but doesn’t quite meet it, you may be able to make reduced contributions. Again, check out the nifty IRA Calculator to find out more.)

Which Type of IRA Works For Me?

Deciding which of these two types of IRAs to open might seem confusing, and indeed, which is better for your particular financial landscape will depend on your individual plans and preferences.

For example, if you’re looking for a way to pass tax-free assets to your family, or you want to be able to access your contributions without paying penalties, a Roth might be more attractive. That is, of course, if you’re eligible to open a Roth IRA.

On the other hand, if you’re busy paying down debts today and can benefit from every spare saved cent, the tax break offered by a traditional IRA might be appealing.

One common suggestion offered by some financial advisors? Try to guess what you expect your tax income bracket to look like at retirement.

If you think you’ll be in a lower bracket at retirement, it might make more sense to go with a Traditional IRA, since you’d pay more in taxes today than you would when you withdraw it later.

On the other hand, if you think you’ll be at a higher tax bracket at retirement—which can easily happen as your career and income grow and you experience lifestyle inflation—a Roth IRA gives you the opportunity to save on taxes in the long run.

That said, all that depends on the tax code looking similar to how it looks today in however many years stand between you and retirement. Substantial edits to the tax code are made on occasion and may change the way taxes are assessed.

If you’re not sure which type of IRA will work best for you, it might help to talk to a financial specialist. The team at SoFi is happy to help you figure out which type of account will most behoove you.

Why Should I Open an IRA?

Anyone who is earning income can open an IRA. It’s a no-brainer if you don’t have access to an employee-sponsored plan, such as a 401(k) or a 403(b).

Almost everyone should be saving for retirement, and financial professionals generally recommend investing that cash so it has the opportunity to grow, rather than letting it sit around in a checking or savings account.

You could also open an IRA to supplement your retirement plan at work, especially if you’ve already contributed the annual maximum.

If you’re leaving your job, you could roll over funds from a 401(k) or 403(b) into an IRA. That may give you access to better investment options—not to mention consolidates all your accounts in one place.

If you’re self-employed, you might want to look into https://www.sofi.com/blog/sep-ira-self-employed-contribution/, which may allow you to contribute more each year than the Roth or Traditional IRAs, depending on how much you earn.

How Much Should I Contribute?

If you’re still a ways out from retirement, and if you can afford it, you could contribute up to the maximum limit—that’s $6,000 for 2019—every year. (When you’re older than 50, you can contribute more.) Even if you can’t afford that, you might want to throw in as much as you can.

Until you’re well on track for retirement, most financial professionals recommend prioritizing IRA contributions over saving for a down payment or for your kids’ college education.

Anything you put away early on has the opportunity to grow over time, thanks to compound interest. Of course, everyone’s circumstances are different, so it always pays to talk to a financial advisor. And with all matters tax related, be sure to talk to your tax advisor so that you can see what is most appropriate for your unique circumstances.

How Could I Use My IRA Funds?

If you’re decades away from retirement, you don’t want to let your retirement savings sit in cash or money-market accounts. Yes, they’re low risk, but you might pass on an opportunity to grow your savings through investment. The easiest way to invest is to choose a “target date fund,” which is a mutual fund geared toward the year you plan to retire.

These will automatically switch up your mix of stocks, bonds, and other investments so that you’re more aggressive when you’re younger and more conservative when you get closer to retirement. Try to choose funds that have an expense ratio—or annual fee—below around 0.4%. Not sure if you are on track for retirement? Use a retirement calculator to figure out where you stand.

How Do I Open an IRA?

IRAs are available from a wide range of investment brokerages, and you can choose between totally DIY options and automated investment products that can help you meet your retirement goals at a minimum effort.

SoFi Invest® makes opening an IRA easy. Sign up for an investment account online with SoFi, in less than five minutes. And if you have any questions or want personalized advice, you can set up a call with a SoFi financial planner—absolutely complimentary.

Want to find out how smart investments can help you meet your long-term financial goals? Learn more about SoFi Invest today.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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Using a Static versus Flexible Budget for Personal Finance

A great way to get a grip on your spending—and maybe improve your saving habits while you’re at it—is to create a budget.

Yeah, you’re probably groaning. We know for many people, the word budget equals boring, time-consuming, and stressful. But, really, it isn’t all that tough to put a plan together.

Thanks to books and websites designed specifically for “dummies,” software programs that can help you monitor your expenses by plugging in a few numbers, and apps that do most of the tracking work for you, building a budget is easier than ever.

Of course, living with that budget is another story. It can be especially difficult if your income, or your partner’s, is unpredictable (if you’re a freelance or contract worker, a commissioned salesperson, a student who gets money from home or loans, or someone who has flexible work hours, for example); but also if your expenses tend to vary from month to month (and that’s pretty common).

Which is why it can help to know about two different budget types often used in business accounting—a static budget and a flexible budget—and how you can apply them to your personal finances. Here’s how it might work:

A person with a static budget presets spending limits based on historical data and/or expectations for the coming year. Modifications aren’t made to allow for real-time events. (A slow month for a contract worker, perhaps. Or an unexpected car repair bill.) The amounts don’t change—even if circumstances do.

So let’s say, for example, based on what she made last year after taxes, a freelance graphic artist expects to make $60,000 this year.

And using what she spent last year, she decides to set aside $500 a month for transportation costs (car payment, fuel, insurance). No matter what happens, that’s the amount allotted for this particular expense, and it’s her goal not to exceed it.

A person with a flexible budget adjusts for outside factors. The amounts allocated to various categories aren’t set for the year, they flex from month to month, or even week to week.

So, if the graphic artist lost a client, she could rework her budget to accommodate the lost income until she picked up new work.

Or if she suddenly had to buy a new laptop, she could modify the budget for the next few months and pay the bill without pulling out her credit card.

There are pros and cons to both approaches.

Static vs Flexible Budgeting

A static budget is sometimes referred to as a master budget, and it can be a good way to start planning. You always know how much you have allotted to pay for certain expenses.

And because the numbers are constant, it may be easier to predict what you can and cannot do from month to month. It also can cut down on the amount of time you spend working on your budget.

A static budget also can help with setting priorities. If you’re able to stick to it, you’ll use the money that comes in every month to pay the bills that need to be paid, and you won’t spend more than you earn.
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The potential problem with a static budget is that it isn’t based on what’s happening now. The bridal shower you want to throw for your best friend, and the dress you have to buy for the wedding.

The co-pay on your chiropractor’s bills when you hurt your back. Or the added rent you have to pay because your roommate relocated for a new job and you can’t find someone to take her place.

This is why a flexible budget may be a better fit for many people—especially those who can’t pinpoint exactly what their monthly income will be.

What is a flexible budget? It relies on current information. You can review the data—what’s coming in and what’s going out—and adjust accordingly. So if a client doesn’t pay his bill in July as you expected, or an unexpected expense pops up, you can juggle things around a bit.

You might temporarily cut some discretionary expenses, such as entertainment or clothing, for example.

A flexible budget also can allow you to jump on an opportunity, like a chance to go to London for half-price when you find a killer deal online. And it can offer a clearer path to problem-solving.

That doesn’t mean a flexible budget is right for everyone. Because it changes to suit what’s happening now, it may take more effort to draw up a new plan every month and more discipline to stick to prioritizing needs over wants. If that’s not for you, a static budget may be a better choice.

Or a hybrid approach might be appropriate. That could include setting up a master budget at the beginning of the year based on projections and using it as a guide, tracking costs as the year progresses and making adjustments when necessary, and then using that information to better inform next year’s plan.

Starting the Budgeting Process

The point of a budget—whether you’re a freelancer or a full-time employee—is to spend less than you earn. Here are a few steps that could help you get started:

Figuring out What You Spend

If you aren’t already tracking your spending, that may be a good place to begin. There are several ways to do this, from carrying around a small notebook and writing down every expense, to using a spreadsheet, to downloading an app on your phone.

Once you’ve tracked your spending for a few months, you can determine your average spending in various recurring categories. Some of this will be fairly easy, because the costs are often the same (housing, car payment, student loans, etc.). Others will vary from month to month or at different times of year.

Utility costs may go up or down, for instance, depending on the season. Or your travel costs may go up if you take a summer vacation. And some costs, such as clothing, entertainment, and household goods, will be more discretionary than others.

If you’re self-employed, you may want to consider taxes, retirement savings, insurance, and other expenses that others might have automatically withdrawn from their paychecks every month.

Determining What You’ll Earn

Pinning down how much you can expect to earn is often much easier for those with regular paychecks. If you’re self-employed but have steady clients who pay on time, or your job is a mix of paychecks and tips or commissions, you may be able to come up with a fairly accurate estimate.

But if you’re a freelancer or contractor whose work and pay varies widely from month to month, it can be a challenge to set this amount.

Again, you can use your spreadsheet or tracking app to determine an average amount earned ($4,000 in July + $5,000 in August + $3,000 in September would be $4,000 a month, for example)—which may give you a more realistic number on which to base your budget calculations than guessing (or hoping) that you’ll make a certain amount.

Creating a Budget Using What You’ve Found

Here’s where you can determine the type of budget you want to use. With a static budget, you would set spending limits and stick with them throughout the year. With a flexible budget formula, you would set spending limits, but adjust when necessary: If you make less than expected, you spend less than you planned.

If you see that you’re spending more in one category than expected, you can shift allocations or find ways to cut recurring costs like your cable bill, haircuts or pedicures, or gym membership.

If it looks as if you’re headed for a long-term shortfall, and you just can’t cut it any tighter, you may have to find a way to earn extra money by taking on a side gig or perhaps raising your freelance rates. What’s important is setting a realistic budget, so you can stick with it.

Considering the 50/30/20 Plan

Looking for flexibility, but don’t want a budget you have to rework every month? You may be a candidate for the 50/30/20 budgeting method made popular by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi.

The plan suggests putting 50% of after-tax income toward essentials like rent and food, 30% toward discretionary spending, and 20% toward savings.

This method also makes sense for people who don’t have a steady income, because it’s based on percentages. And those percentages are just a guideline for getting started, so you can shift the amounts to make it work for your finances.

You can save more or less, depending on what you’re earning or what long-term debts you have. Or you might move a few percentage points from discretionary spending to cover essentials if you live in a city with higher housing or transportation costs.

Building a Backup Fund

If possible, consider making an emergency savings account a priority. Life has unexpected ups and downs for everyone, but for freelancers and other self-employed workers, things can be particularly unpredictable. If you get sick or hurt, you could lose income—or worse, lose clients—while you recover.

A payment could be late or disputed. Or you may want to take a vacation, which means you’ll be spending but not earning. Many people typically recommend having three to six months of essential living expenses in an account that’s easy to access, such as an interest-bearing online cash management account.

If you decide to save even more for extra security, you may wish to invest that amount—although it may be more difficult to get your hands on that money when you need it. And if saving anything at all seems daunting at this point, don’t worry—starting small, with $100 or $200–can be better than never starting at all.

Splurging Responsibly

You may have heard about foreign governments using austerity measures to avoid or relieve a debt crisis. You also may have heard they make people miserable, and rarely work.

With a personal budget, cost-cutting measures can be a sign of fiscal responsibility, but if you can’t splurge every once in a while, it may make it harder to stick to your overall plan.

So how can you splurge responsibly? You might choose to put your bonuses, unexpected earnings, and tax refunds straight into the bank with a trip or some other big spend in mind.

Or you could build the extravagance into your budget, with a category specifically for vacations or travel, or one for home renovations, and deposit that amount into a separate account just for that purpose.

Thinking About Tomorrow

Many experts recommend signing up ASAP if your employer offers a 401k or some other retirement plan—especially if there’s a matching contribution involved. If an employer plan isn’t available to you, you may still want to make it a goal to invest something each month in a traditional IRA, Roth IRA, or Simplified Employee Pension (SEP) IRA.

With a traditional IRA or SEP, you can defer paying taxes on the money you invest until you take withdrawals in retirement, which can keep you in a lower tax bracket.

Or, if you’re nervous about tying up the money that long, you could go with an after-tax Roth account, which allows you to withdraw contributions (but not earnings) at any time. You can open an IRA at a brokerage, bank, or other financial services provider, including SoFi Invest®.

With SoFi, you can open your account online and transfer money electronically. You’ll also have free access to financial advice.

And if you’ve left a 401k behind at a past employer, you have the option of doing a rollover that puts that money into your new account. Since the tax laws regarding IRAs can be fairly intricate, it’s recommended that you speak with a tax professional.

Reining in Spending, Reaching Your Goals

If the idea of using a budget—static or flexible—seems like pure drudgery, it may help to think of it primarily as tracking your expenses. With a SoFi Money® cash management account, you can track your spending in your weekly dashboard within the app.

Once you get a handle on what you’re spending every month, you may have a better idea of how you might be able to cut some costs and how you can avoid outspending your income.

If your goal is always to have enough money for the things that are important to you—whether it’s a car, a house, or a new pair of shoes—a budget can help get you there.

Plus, with SoFi Money vaults you can easily create different vaults within your SoFi Money account for different savings goals. For example, you can create a vault for an upcoming vacation or one for emergencies or both.

Get started with SoFi Money.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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4 Tips for When You Are Expecting an Inheritance

Receiving an inheritance can be bittersweet. Of course, coming into a valuable asset can have a positive impact on your financial life. But this type of gift often comes as a consequence of a loved one passing away.

The circumstances around getting an inheritance can mean that you already have a lot on your mind. You might be in shock, grieving, or figuring out the logistics of arranging a funeral or dealing with an estate.

It may not be easy, but it’s important to plan ahead for the windfall and think about your next steps carefully. In some circumstances, you may even find out in advance what types of assets you stand to receive and their value. Here are some tips for those expecting an inheritance:

1. Tempering Your Expectations

According to a recent survey, one in three Americans are counting on an inheritance in order to achieve financial stability. Among young people, relying on a future windfall is even more common, with nearly 70% of millennials anticipating inheriting money from grandparents or parents.

However, only 40% of millennials’ parents report planning to leave assets to their children, meaning there is a huge gap between expectations and reality. Even if you do end up getting something, the lack of certainty about what the assets will be worth and when you’ll get them means it’s not a replacement for saving and investing.

In many cases, it’s a good idea to consider an inheritance a nice-to-have-bonus, not a foundation for financial well-being.

2. Preparing Emotionally

Getting an inheritance isn’t always a smooth process. A recent poll by one wealth management firm revealed that 44% of estate planning professionals reported that family squabbles were the biggest threat they dealt with.

Hopefully, you won’t encounter drama, but it may be worthwhile to prepare yourself emotionally for this possibility.

One way to prevent issues from emerging is by checking in with older relatives to make sure they have a clear estate plan and keeping the lines of communication open with other family members.

3. Learning How Inheritance Works

Closing someone’s estate can be a long process. The first step is locating the deceased person’s estate planning documents, such as their will and any revocable living trusts, as well as other important records, such as bank statements and life insurance policies.

Then, the estate may need to go to probate, which is the process, overseen by a court, of authenticating the will, figuring out the value of the deceased person’s assets, paying any debts or taxes, and then distributing the remainder to beneficiaries.

In a simple situation, this process can take just a few months. But if things get complicated, you could be waiting a year or more to get your inheritance.

4. Not Making Rash Decisions

When a valuable asset falls into your lap, you may feel pressure to decide what to do with it right away.

But taking it slow may be a better path. Emotions are likely to be running high, so it can be a good idea to wait until you can think clearly.

It can also make sense to review your current financial plan before figuring out what to do with the inheritance.

That way, you can see where you stand on the path to your goals and how the new addition fits in.

Ideas for What You Can Do with Inherited Money

When you’ve finally gotten your inheritance and are emotionally ready, it’s time to figure out what to do with it.

You may be tempted to blow it all on clothing, a nice car, or a dream vacation. Before you do, consider these options for where to put money after receiving an inheritance:

Building an Emergency Fund

According to a recent study, 40% of Americans can’t afford to cover an unexpected expense of just $400. And emergencies do happen, from car trouble to unforeseen medical bills.

If you don’t already have one, an inheritance can help you build or beef up an emergency fund. Ideally, your emergency fund will have three to six months of living expenses.

Paying Off “Bad” Debt

If you have outstanding debt, such as credit card balances or personal loans, you may consider using your inheritance to pay it off. Debt with an interest rate greater than 7% is considered bad debt, and the interest you pay over time will really add up.

Targeting bad debt with an inheritance is a great way to improve your financial picture. It may be tempting to pay off all of your debt with an inheritance, but you should consider investing the money before paying off good debt such as mortgages or student loans.

These types of debt typically come with low interest rates, that over the long run has been less than the return of investing in the stock market.

Having Fun—Responsibly

If you’re in good shape financially, you may be toying with the idea of spending some of your inheritance money. Your loved one left the money to you, probably in hopes that it would make your life better. Financial security is important, but that doesn’t mean you can’t use some of the money to enjoy yourself or invest in your dreams.

That might mean taking a trip around the world or turning a life-long side hustle into a small business. If you’re planning to spend your inheritance, the key is to do so in moderation, and only once you are financially secure.

Investing It

Investing allows you to take advantage of the power of compound interest to grow your wealth. The longer your money is in the market, generally speaking, the more of an impact compounding interest may have on your financial life.

If you’re focused on retirement investing, you can do this through an employer-sponsored 401(k), if one is available to you.

Otherwise, you can invest through an IRA, Roth IRA, or if you’re self-employed, a SEP IRA. All of these funds allow you to invest in a mix of assets, including stocks and bonds, based on your tolerance for risk and your target retirement age.

An online retirement calculator can help you figure out whether you’re on track. If you have other goals, you can consider investing through a 529 college savings plan for your children or opening a brokerage account.

Confused about your inheritance? Consider SoFi Invest®, which provides you complimentary access to our licensed financial advisors.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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Tips to Save a Million Dollars

Ever think about what you’d do with a million dollars? Travel? Buy a vacation property? Finally get that boat you’ve always wanted? It’s a lot of money, and the options are seemingly endless.

In rare circumstances, you might find yourself with an unexpected sum of money (say you win the lottery or stumble into an unexpected inheritance). In most cases, you likely won’t become a millionaire overnight.

But what if you were to save a million dollars? It might sound like a tall order, but it’s totally possible. Exactly how to save a million dollars might change depending on your personal financial circumstances.

There are plenty of reasons to save, maybe you want to buy a house, save for your child’s education, have big vacation dreams on the horizon, or want to boost your nest egg.

On the surface, a million dollars sounds like an exorbitant amount of money, but it might not be that far off from what you’d want to live comfortably in retirement.

A variety of factors will influence how much you’ll want to save for retirement, including income, lifestyle, and when you plan to stop working. Everyone’s lifestyle is different, and as such, retirement savings goals will vary too.

On the bright side, ideas for saving a million dollars can be used to save more or less depending on your circumstances.

Getting Started: The Journey to a Million

With the hustle and bustle of life, creating a financial plan for the future can sometimes fall to the bottom of the priority list. Budgeting might seem tedious, investing can be confusing, and sometimes at the end of the day, the last thing you want to do is look at financial statements.

If you’re not in tune with your current finances, now could be a good time to check in. Think of your spending habits and current financial situation as the baseline. These factors will likely inform how you start (or continue) saving for the future.

Getting a Handle on Your Spending

If you’re not sure exactly what’s going on with your money, tracking your spending could be a good place to begin.

Budgeting and money management gets a bad rap. At its worst, it can feel restrictive and limiting. You might want to consider a new perspective.

Instead of looking at a budget like it’s telling you what you can’t spend, you could think of it as a tool that’s helping you spend money on what’s important to you. Sure, you might have to skimp or skip a few things now, but just imagine the feeling of accomplishment you’ll likely have when you reach that financial milestone.

As you continue living your life, circumstances might change and so should your budget. You might want to set aside time for regular checkups so you can make adjustments to whatever isn’t working for you.

Setting Financial Goals

If you’re socking money away for an unspecified, foggy future, it can be easy to get off track. Setting financial goals could help you define your financial plan and keep you on track by giving you something to work toward.

Saving a million dollars is an admirable goal, but the sum is so large that it can feel lofty and unattainable. Instead, you might consider setting smaller, incremental goals so you can easily track your progress. Plus, reaching small milestones can give you cause to celebrate (within reason, of course).

Navigating Your Way to a Million

By creating a budget and setting financial goals, you’ve filled in a few critical pieces of the financial puzzle. You might consider outlining a financial roadmap that you can use to help guide your financial decisions. Life is full of competing (and frequently changing) priorities, and having a plan in place could help keep you and your financials on track.

This map doesn’t have to be set in stone. Instead, you could consider it a flexible guideline that is readily adaptable to life’s curveballs. Here are a few suggestions for causes worthy of inclusion in your overall financial plan.

Preparing for the Unexpected

Uncertainty is (unfortunately) one of life’s certainties. Even our best-laid plans sometimes get thrown off course.

But being prepared for unexpected expenses can help you get through uncertain waters.

You may want to consider saving an emergency fund that you can rely on in the event that urgent unexpected expenses come up. Common knowledge suggests saving anywhere between three and six months’ worth of expenses.

Having this financial buffer could help protect you in the event of a financial emergency. If you are suddenly laid off or are faced with unexpected medical bills, an emergency fund might help you stay afloat while you find your footing again.

Instead of relying on credit cards or other alternatives, your emergency fund might give you a safety net to help you be better able to take care of yourself and your family without falling into debt.

Creating a Debt Repayment Plan

Not all debt is created equal. Some debt, like student loans or a mortgage, can help you further your goals. Other types, like high-interest credit card debt, might constrict your financial independence.

Creating a strategy to control and repay your debt could be a helpful step on your journey to save a million dollars. Having a plan in place for eliminating debt might help you keep your finances on track and allow you to continue working toward your savings goals.

There are a few schools of thought when it comes to creating a debt pay-off strategy. The fireball method combines debt repayment strategies and suggests prioritizing bad debt while actively making the minimum payments on all of your debts.

This way, you can focus your energy on the high-interest debt that isn’t serving you while simultaneously working toward other financial goals.

Investing for the Future

You might consider taking your million-dollar savings plan one step further through investing. When you save, you’re incrementally adding money to a bank account. This strategy is often used for short-term financial goals. When you invest, you buy assets, like stocks or mutual funds, with the goal of growing your wealth.

The main difference between saving and investing is that saving is less risky. Your money is in an FDIC-insured account, but generally earning a relatively low interest rate that might not outpace inflation.

Investing offers the potential to earn a greater return than a traditional savings account, but there is no guarantee that the investment will pay off. Even considering the inherent risk, investing could be a great way to grow your wealth in the long-term.

And it’s worth noting that it’s never too early to get started. When it comes to investing, time in the market can be advantageous.

One of the most impactful predictors of an investor’s returns is the length of time they’ve been invested in the market. The stock market fluctuates, which is completely normal but unpredictable. Giving your investments time means they have a chance to weather some of the ups and downs of the market.

One way to start investing is through an employer-sponsored 401(k). This is a tax-advantaged account that allows both you and your employer to contribute. Many employers offer matching contributions up to a certain dollar amount or percentage. It can make financial sense to participate in the 401(k), at least up to the matching limit.

Another savings vehicle is an individual retirement account, or IRA. There are two types, Traditional and Roth, that differ mostly based on when the account holder pays taxes.

For a Traditional IRA, the contributions are typically made pre-tax, which reduces the current taxes paid, and are taxed at the time of withdrawal. For a Roth, contributions are made post-tax, which means they do not reduce current taxes paid but are withdrawn tax-free assuming certain criteria are met.

Both 401(k) accounts and IRAs have limits on contributions and regulations on when withdrawals can be made. For investments you might need or want to access before retirement, you could consider a brokerage account.

Staying on Track

Saving a million dollars will likely take some dedication and will power. Sure, you’re feeling inspired now, but what about in a month, a year, 10 years?

Staying committed to your savings goal can be difficult. You might want to be mindful of what you’re working toward. Does envisioning retired life at your lake house help you stay on track? Whatever it is, you could keep that picture front and center so you can easily remember why you’re working so hard to save.

You could consider automating contributions to your savings and investment accounts—instead of having to remember to transfer money each month, the process will happen automatically.

Another move? Automate bill payments. Consistently paying your bills on time can help you avoid pesky late fees (which slowly eat away at your million-dollar goal).

As you work toward saving a million dollars, you might want to remember to be kind to yourself. One treat-yourself dinner isn’t going to ruin your budget. A month of dining out might. Finding balance could allow you to enjoy your life while also saving money for the future. Here are a few ideas that could help you maintain your savings goals:

Paying Attention to Small Expenses

When it comes to finances, attention to detail matters. You might want to pay attention to the small expenses, which can quickly add up.

Tracking your expenses and budgeting could help give you insight into your spending vices, so it can be helpful to maintain an accurate record. Empowered with that information you might be able to trim your expenses as needed.

Earning More Money

Want to boost your savings without cutting your expenses? You could consider taking on a side hustle. According to a 2017 report, nearly 44 million Americans have added a side hustle to boost their income.

You could take a look at your skill set and see if there is any side hustle potential. Is there a market for freelancers with your skills?

Are you a certified lifeguard who could take on a part-time job? Can you rent out a spare room in your house?

When you find the right side hustle, you could consider directing that money directly to your million-dollar savings goal.

Living Within Your Means

As you continue in your career, you’ll likely get plenty of raises and promotions. Earning more money is exciting, but it can also lead to increased spending, also referred to as lifestyle creep. The more money you earn, the more tempting it can be to spend.

Before you splurge on new furniture or move into a more expensive apartment, ask yourself: Is it worth having the added expense affect your goals? Then you might check in with your financial goals and plan accordingly. You could adjust your budget and see what is sustainable in the long-term.

Reevaluating Your Financial Goals

As you age and life changes, you might want to check in with your goals. Did you just welcome a grandchild? How are they going to factor into your plans. Going through a divorce?

That might affect your financial plan too. You could adjust your goals and financial strategy so it fits the life you are living in the present, not the life you were living 10 years ago.

Refining Your Financial Plan

Sometimes, life can be overwhelming. If your finances are anxiety-inducing, know you don’t have to go it alone. There are plenty of resources out there to help you understand and manage your finances.

SoFi Invest® gains you access to the opportunity to chat one-on-one with a qualified financial planner who can help you refine your financial goals and clarify your financial plan all at no cost.

Learn more about how SoFi Invest can help you set and track your financial goals.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
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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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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Building Flexibility Into a Budget

Budgeting can sound difficult, with lots of spreadsheets and number crunching. Maybe that’s why so many of us don’t make a personal budget.

According to the National Foundation for Credit Counseling, only two in five adults in America say they maintain a budget and track their spending. But, budgeting can be a beneficial tool, potentially making you less likely to overspend and more likely to save money.

There are a number of reasons sticking to a budget can be difficult. It might be due to inaccurate estimates or unrealistic spending limits. Or it could be because the budget is too rigid and overly complicated. This is where a flexible budget could help.

The important thing is to create a budget you can actually follow. That’s the purpose of a flexible budget: to give yourself enough flexibility you’ll actually be able to stick to your goals and spend your money on what you really want to spend your money on.

What is a Flexible Budget?

A personal budget is basically a budget for your life and personal expenses. Just like you’d have a budget for a business, you can make one for your life too.

A flexible budget is a personal budget that builds in room for adjustments. That means instead of setting very specific goals for each expense category, you have a broader overall spending target.

A spending target provides flexibility, because it doesn’t matter if you’re over or under budget by a few dollars in one category v. another category. A flexible budget looks at what you spend as a whole with both your discretionary income and your financial obligations.

A flexible budget can be as complicated or as simple as you want. If you build a budget with some flexibility in it, then you’ll also have more room to deal with any emergency expenses that come up.

And if you leave a little room for extra things here and there in your budget, then it might be easier to actually stick to it. A survey by Debt.com found that while 67% of people said they had some kind of budget, 22% feel that budgeting is too time-consuming to do. This where flexibility can help.

To make a flexible personal budget, you first want to look at your income and expenses, then allocate a rough range of money towards your various goals and spending categories, and plan ahead.

Building a Flexible Budget

If the purpose of a flexible budget is to help you organize your spending and achieve your financial goals, then simplicity is key. If you have too many spending categories, then you’re less likely to actually track all those categories and stick to your budget.

Likewise, a spending target could be easier to manage than a line item budget because it has room for flexibility built into it. With a spending target you have a set amount to spend per month and you then spend it however you please. Here are some tips for creating a better flexible budget.

Tracking Spending

A good first step to creating a flexible budget is to track your current spending. It’s hard to build any kind of a budget if you don’t know where your money is going in the first place.

When you track your current spending, you might spot areas where you’re spending more than you realized. You’ll also have a starting point to see how things change from here—and to plan savings into your flexible budget.

There are different ways to track spending. You can track it manually by gathering account information and going through last month or the past few month’s worth of expenses. Don’t forget one-time expenses that might not have occurred in the previous month, like annual insurance payments.

You could also consider a budgeting or personal spending app, like SoFi Relay, that allow you to easily track your bank accounts and credit cards. After a few months of tracking what you’re spending your money on, you should be able to see what categories your expenses are in—food, transportation, entertainment, etc.

Tracking Your Income

The other half of tracking where you’re at is to figure out how much income you really have to work with. This can also involve gathering up all your account and income information—bank accounts, Paypal, credit cards, any other ways you make money. You can start with the last month’s spending and income.

One option is to download all the statements from your bank’s website and sit down with them. (Yes, this might be more work, but the manual aspect of actually looking at each transaction can be helpful to start. Then you can always switch to a budgeting app.)

While you can choose to count either after-tax or pre-tax income, it could be helpful to build a budget around after-tax income—since you can’t budget money you don’t actually have. If you do count pre-tax income instead, one thing to remember is to budget in your tax payments.

Set Spending Targets

Once you track current income and spending, you should have a good idea of what your general spending categories and targets are. Then you can set some financial goals. Setting goals is at the crux of making a budget.

What do you want to spend money on? What are your debt obligations and recurring expenses? And what are your long-term and short-term financial goals?

Setting spending targets means setting broad targets for how much you want to spend per month, as opposed to setting specific line items for how much you want to spend in each category, such as gas or food.

When you do this, you should consider your recurring expenses, like student loan payments and rent, and then leave yourself a spending target for your discretionary income and a savings target for your longer term goals.

One option is a general 50/30/20 rule, which means 50% of after-tax income goes towards essential expenses, 30% goes towards discretionary expenses, and 20% goes towards savings goals. While the 50/30/20 rule has been around for years, it was popularized in Elizabeth Warren’s book, All Your Worth: The Ultimate Lifetime Money Plan .

A general spending target like the 50/30/20 rule, as opposed to a specific line item budget, gives you flexibility for any emergencies that might come up each month.

Once you set spending targets, write them down and write down your financial goals—ie. how much you want to set aside each month towards saving for a house v. how much you want to spend on non-recurring expenses. Actually writing down goals increases the odds of achieving them. And then at the end of the month you can evaluate how you did and adjust as necessary.

Trim the Excess

Once you create a budget and flexible spending targets, then you can see where you’re spending more than you want and where you might be able to trim any fat. Here are a few tips for cutting down on extra expenses: from riding your bike to work to picking non-brand items at the grocery store.

Of course, the benefit of a flexible budget is you don’t have to trim every single bit of fat, as long as you’re in the overall spending range. For example, if 30% of your income is going towards discretionary spending, then you can decide within that 30% of what you want to spend it on.

But if you’re going over your target, whether that’s 30% of your income towards discretionary spending or a different goal, then you may want to look at where you’re spending too much: eating out v. buying groceries, for example.

Little expenses can add up quickly and budgeting can help control unnecessary spending. Check in on your budget from time to time to make sure you are on track for your spending targets and make adjustments as necessary.

Tips for Following a Flexible Budget

If you’re having trouble sticking with your budget, ask yourself why. Where’s the extra money going? Are your spending targets realistic?

•   Aim for simplicity. Yes, you can track dozens and dozens of spending categories and set strict budget line items for each expense, but a flexible budget gives you more room within categories such as essential expenses for things like housing and utilities, discretionary spending for stuff like travel, and savings for emergency funds and long-term goals. Keeping it simple also cuts down on the time it takes to track your spending.

•   A good thing to do is to continue tracking your spending and income in order to stay on budget. That lets you know how it’s going. And being accurate is important for feedback. This is where an app like SoFi Relay or one of the other personal budgeting apps out there, can come in handy.

•   Aligning your goals and spending targets can also be important for sticking to your budget. If you want to spend more on travel, then plan that in to your budget. If paying off your credit card debt is important to you, then you may want to allocate accordingly.

•   Plan ahead for the things you know are coming. Tax Day is always on April 15 and Christmas always comes at the end of December. A perk of a flexible budget is it lets you shift your spending in these months and if you plan ahead then you can adjust accordingly.

•   Talking to your significant other about individual and joint financial goals, even planning a weekly or monthly budget meeting, can help with setting a budget as a couple or a family. If you’re not on the same page, then it’ll be hard to stay within your spending targets.

•   One last option if you’re having a hard time sticking to a budget is to only spend what you can see. ie. If you only want to spend $500 this month on discretionary expenses, then it could be an option to put $500 on a prepaid debit card or withdraw that cash and limit yourself.

What is the Purpose of a Flexible Budget?

The whole point of a flexible budget is to give yourself enough flexibility that you can make adjustments and still be within your goals. A spending target means you don’t have to worry about spending $5 more in one category compared to another.

The point is how much you spend overall. So if you need to, you can then spend less in one place and more in another.

For example, having room in your budget to withstand financial setbacks or emergency costs means if your car needs a $300 repair this month, then you aren’t necessarily thrown totally off-budget.

One option is to spend the money on the repair and then cut back your spending somewhere else.

Additionally, having flexibility in your budget can make it a little more fun to stick with. If you spend less than one month and have some room for an extra cup of coffee or a drink out with a friend, then that’s a little more enjoyable than a super strict budget. That makes it more likely you’ll actually stick to your overall spending targets.

SoFi Money

Even if it seems complicated, having a budget can potentially help you save money, stick your spending targets, and ultimately create a path to help you achieve your financial goals. It could even help you build credit by allowing you to plan credit card payments and bills into your budget.

This is where a cash management account that allows you to track your spending may come in handy. With SoFi Money® you can see your weekly spending within your dashboard right in the SoFi app.

Plus, all SoFi members have complimentary access to talk to a financial advisor, one-on-one, if you need some additional guidance.

Ready to build a flexible budget you can stick to? Find out more about tracking your spending with SoFi Money.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
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
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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
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