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What is a Recession?

Just the very word “recession” itself can be unsettling, conjuring memories of the economic hardships during the Great Recession of 2007–2009 and maybe even sparking fears of personal financial troubles.

Recessions tend to have a wide-ranging economic impact, affecting businesses, jobs, everyday individuals, and investment returns. But what are recessions exactly and what kind of long-term repercussions do they tend to have on personal financial situations?

Here’s a deeper dive into these economic events and how to best prepare for recessions.

Definition of Recession

Generally speaking, a recession is a period of economic contraction. Recessions are typically accompanied by falling stock markets, a rise in unemployment, a drop in income and consumer spending, and increased business failures.

Usually, a recession is declared when U.S. gross domestic product (GDP)—which represents the total value of goods and services produced in the country—drops for at least two quarters in a row.

But this is not an official definition of recession, according to the National Bureau of Economic Research (NBER) . Instead, the NBER choose to define recession in terms of monthly indicators, including:

•  Employment. Job growth or job loss can be used to gauge the likelihood of a recession and serve as a litmus test of sorts for which way the economy is moving.
•  Personal income. Personal income can play a direct role in influencing recessionary environments. When consumers have more personal income to spend, that can fuel a growing economy but when personal income declines or purchasing power declines because of rising interest rates, that can be a recession indicator.
•  Industrial production. Manufacturing is a measure of supply and demand, both of which are central in promoting a healthy economy. If manufacturing begins to slow down that could suggest slumping demand and in turn, a shrinking economy.

These indicators aren then viewed against the backdrop of quarterly gross domestic product growth to determine if, in fact, a recession is in progress. For that reason, the NBER doesn’t follow the commonly accepted rule of two consecutive quarters of negative GDP growth, as that alone isn’t considered a reliable indicator of recessionary movements in the economy.

Recommended: Investing With the Business Cycle

History of Defining Recessions

The concept of using two negative quarters of GDP growth can be traced back to a definition of recession that first originated in the 1970s with Julius Shiskin, once commissioner of the Bureau of Labor Statistics. Shiskin defined recession as meaning:

•  Two consecutive quarters of negative gross national product (GNP) growth
•  1.5% decline in real GNP
•  1.5% decline in non-farm payroll employment
•  Unemployment reaching 6%
•  Six-months or more of job losses in more than 75% of industries
•  Six-months or more of decline in manufacturing

It’s important to note that Shiskin’s recession definition used GNP whereas modern definitions of recession use GDP instead. GNP or gross national product measures the value of goods and services produced by a country both domestically and internationally. Gross domestic product only measures the value of goods and services produced within the country itself.

How Often Do Recessions Occur?

While economic recessions aren’t common, they are a normal part of the business cycle. According to the NBER, the U.S. experienced 33 recessions prior to the coronavirus pandemic. The first recession occurred in 1857, and the last was the Great Recession in 2007, which lasted through June 2009. A recession occurs on average every 4.5 years, though the actual timing can and has varied.

For example, the most recent recession occurred nearly a decade on from the Great Recession. On June 8, 2020, the NBER determined that economic activity in the U.S. peaked in February 2020 and that the economy had entered a recession that same month. According to the data, the economic peak occurred in the fourth quarter of 2019 just before the pandemic began.

Recommended: U.S. Recession History

How Long Do Recessions Last?

According to the NBER, the shortest recession took place in the 1980s and only lasted six months while the longest went from 1873 to 1879, lasting 65 months. However, clocking in at 18 months, the Great Recession has been the longest recession since World War II.

If you consider the other 11 recessions since 1945, they have lasted on average about 10 months. Even if the Great Recession is included in calculating the average, it’s extended less than a month.

Statistically, periods of expansion tend to last longer than periods of recession. From 1945 to 2019, the average expansion lasted 65 months while the average recession lasted 11 months.

Between the 1850s and World War II, expansions lasted 26 months on average while recessions lasted 21 months on average. The most recent expansion, i.e. the one that occurred between 2009 and the beginning of 2020, lasted 128 months.

In terms of severity, the Great Recession that occurred between 2007 and 2009 was the most severe economic drawdown since the Great Depression of the 1930s. This recession was considered particularly damaging due to its duration, unemployment levels that peaked around 10% and the widespread impact on the housing market.

Recommended: A Brief History of the Stock Market

Common Causes of Recessions

No two recessions are exactly the same, and that goes for what causes them. But generally speaking, recessions happen when something causes a loss of confidence among businesses and consumers. The recession that occurred in 2020 could be considered an outlier, as it was sparked largely by an external global event, rather than internal economic causes.

The mechanics behind a typical recession work something like this. As consumers lose confidence, they stop spending, driving down demand for goods and services. As a result, the economy shifts from growth to contraction. This can, in turn, lead to job losses, a slowdown in borrowing and a continued decline in consumer spending.

Here are some common characteristics of recessions:

High Interest Rates

High interest rates make borrowing money more expensive, and therefore limit the amount of money available to spend and invest. In the past, the Federal Reserve has raised interest rates to protect the value of the dollar or prevent the economy from overheating, which has at times resulted in recession.

For example, the 1970s saw a period of stagnant growth and inflation that came to be known as “stagflation.” In an attempt to fight it, the Fed raised interest rates throughout the decade, which created the recession of 1980–1982.

Falling Housing Prices

If demand for housing falls, so too does the value of people’s homes. Homeowners may no longer be able to tap the equity in the houses through vehicles such as second mortgages. As a result homeowners may have less money in their pockets to spend.

Stock Market Crash

A stock market crash occurs when a stock market index drops severely. If it falls by at least 20%, it enters what is known as a “bear market.” Stock market crashes can result in a recession, since the net worth of individual holdings also decline. It can also cut into confidence among people, causing them to spend and hire less.

As stock prices drop, businesses may also face less access to capital and may produce less. They may have to layoff workers, whose ability to spend is curtailed. As this pattern continues, the economy may contract into recession.

Reduction in Real Wages

Real wages describe how much income an individual makes when adjusted for inflation. In other words, it represents how far consumer income can go in terms of the goods and services it can purchase.

When real wages shrink, a recession can begin. Consumers can lose confidence when they realize their income isn’t keeping up with inflation, which can lead to less spending and economic slowdown.

Bursting Bubbles

Asset bubbles are to blame for some of the biggest recessions in U.S. history, including the stock market bubble in the 1920s, the tech bubble in the 1990s, and the housing bubble in the 2000s.

An asset bubble occurs when the price of an asset such as stock, bonds, commodities and real estate, quickly rises without actual value in the asset to justify the rise.

As prices rise, new investors jump in hoping to take advantage of the rapidly growing market. Yet, when the bubble bursts—for example, if demand runs out—the market can collapse, eventually leading to recession.

Deflation

Deflation is a drop in prices, which can be caused by oversupply of goods and services. This oversupply can result in consumers and businesses saving money rather than spending it. As demand falls and people spend less, recession can follow.

What are the Impacts of Recession?

When the economy begins to slow down, businesses may have fewer customers because consumers have less real income to spend. So they institute layoffs as a cost-cutting measure, which means unemployment rates rise.

As more people lose their jobs, they have less to spend on discretionary items, which means less sales and revenue for businesses. Individuals who are able to keep their jobs may choose to save their money rather than spending it, which again, leads to less revenue for business.

Investors may see the value of their portfolios shrink if a recession triggers stock market volatility. Homeowners may also see a decline in their home’s equity if home values drop because of a recession.

When consumer spending declines, corporate earnings start to shrink. If a business doesn’t have enough resources to weather the storm, it may have to file for bankruptcy.

Bear Market vs. Recession

Alongside a recession, the stock market often enters a bear market. For example, in response to the coronavirus outbreak in 2020, equity markets plunged, ending an 11-year bull market.

A bear market begins when the stock market drops 20% from its recent high. If you look at the benchmark S&P 500 index, there have been 12 bear markets since 1945. Yet, not all bear markets result in recession. During 1987’s infamous Black Monday, the S&P 500 lost 22% and the resulting bear market lasted four months. However, the economy did not dissolve into recession.

That’s happened three other times since 1947. Bear markets have lasted 14 months on average since World War II, and the biggest decline since then was the bear market of 2007–2009.

The first thing to understand is that the stock market is not the same thing as the economy, though they are related. Investors do react to changes in the economy, because what’s happening in the economy at large can have an effect on the companies in which investors own stock.

So, if investors think the economy is growing, they may be more willing to put money in the stock market. If they think it is contracting, they are likely to pull money out of the stock market. These reactions can function as a sort of prediction of recession.

Recession vs. Depression

A depression is a severe and prolonged downturn. While recessions are a normal part of the business cycle, depressions are outliers that can last for years. Consider that the Great Recession lasted for 18 months, while the Great Depression lasted for 10 years, beginning in 1929.

While there have been 34 recessions, the Great Depression is our only example of a depression. During that decade, as many as a quarter of American were unemployed and GDP was cut in half.

What Caused the Great Depression

What caused the Great Depression? In the months before the depression, the stock market doubled in value amid speculative investing. On October 29,1929, also known as Black Tuesday, that bubble burst.

Throughout the depression, actions by the federal government seem to have exacerbated the problem. First, in 1928 and continuing through 1929, the Fed tightened its monetary policy, raising interest rates. Second, at the time, the U.S. backed its currency with the gold standard.

In 1931, gold speculation in the U.S. sparked a panic in the U.S. banking system after speculators started trading dollars for gold. In 1932, the Fed refused to reduce interest rates to increase the national supply of money, despite the fact that ongoing deflation meant borrowing was very expensive.

Finally, the Fed neglected to address ongoing problems in the banking sector. As a result runs on banks continued, banks closed in droves and Americans turned to hoarding cash.

What is a Stimulus Plan?

Governments and central banks will often do what they can to head off recession through monetary or fiscal stimulus in an effort to boost employment and spending.

Central banks, like the Federal Reserve, can provide monetary policy stimulus. The Fedcan lower interest rates, which reduces the cost of borrowing. As more people borrow, there’s more money in circulation and more incentive to spend and invest.

Fiscal stimulus can come in the form of tax breaks or incentives that increase outputs and incomes in the short term. Governments may put together stimulus packages in an effort to boost economic growth.

For example, stock market volatility increased wildly amid fears of the coronavirus pandemic and its economic fallout. In an effort to ward off recession, the U.S. government put together trillions in Covid-19 stimulus packages that included direct payments to citizens, suspended student loan payments, a boost to unemployment benefits and a lending program for businesses and state and local governments.

How to Invest During Recession

Recessions can be worrying to say the least. And watching stock prices fall can lead investors to panic and pull their money out of the market. However, this behavior can be counterproductive and possibly derail investors’ financial plans.

Stocks are an important part of a long-term investment plan, which means staying invested when markets are down. If investors can hang on to their stocks for the long run, they have a good chance of yielding a return. Selling when stocks are down ensures that investors lock in their losses and means they will miss out on gains when markets rebound.

The Takeaway

Investment plans are usually created with an eye toward meeting long-term goals. The resulting portfolio likely holds a balanced mix of assets that accounts for an investor’s time horizon and risk tolerance.

The inevitability of market downturns and recessions is already built into this type of portfolio. Panic selling can threaten to throw off these carefully laid plans. It is possible during down markets that portfolios will need to be rebalanced. For example, an investor is often recommended to have an asset allocation in their portfolio that consists of 70% stocks and 30% bonds.

The key to riding out a recession is for investors to stick to their long-term plans, only rebalancing when it will help them reach their long-term goals. Investors who have questions about their portfolio during an economic downturn may find comfort in getting advice from a professional. At SoFi, members have access to Certified Financial Planners, who can provide personalized insights for investors.

Download the SoFi Invest mobile app today.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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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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Comparing the Different Types of Deposit Accounts

Maybe you’re saving money for a down payment on a home, or perhaps you’re planning a trip to France to see, once and for all, just how many croissants you can eat in one day.

But where are you going to put that cash as you sock it away? After all, you probably want to earn interest on that money while you’re waiting to use it.

That’s where interest-bearing accounts can come into play. There are actually many different types of interest-bearing accounts to choose from, and they all have differences in terms of ease of access to your cash, the annual percentage yields (APY) offered fees, and terms.

If you’re feeling confused or overwhelmed by all the different account options that are available these days, not to worry. Below we break down some of the most common types of deposit accounts, including the advantages and disadvantages of each.

Recommended: APY vs. Interest Rate

Basic Checking and Savings Accounts

A checking account usually has very low monthly account fees or no monthly account fees. It allows you to write checks and get an ATM card or debit card. You might get access to online and mobile banking apps so that you can mobile deposit money and pay your bills.

These basic checking accounts rarely pay you interest, which means that it may not make sense to keep significant amounts of money in them.

You may be better off using them just as an account to deposit your paycheck into before you either use that money to pay bills or transfer your cash into other accounts to save it.

On the other hand, most savings accounts don’t charge account fees, although some require that you have a certain minimum balance and if you go below that amount they will charge you a fee.

With savings accounts, you can’t usually write checks or get a debit card. You may, however, be able to get an ATM card that could be used to make transactions at any ATM within the bank’s network.

Savings accounts typically pay more in interest than a checking account, but they typically still don’t pay a lot. You may also be limited to making no more than six transfers or withdrawals from a savings deposit account per statement cycle, or pay extra if you go over your allowed transactions. While the Federal Reserve has lifted the six-transaction limitation on savings accounts due to the pandemic, many banks still impose some transfer and withdrawal limitations on savings accounts.

Other Interest-Bearing Deposit Account Options

High-Interest Savings Accounts

Some banks offer special, high-interest savings accounts that can offer much higher rates than traditional savings accounts. Some institutions don’t charge monthly fees for these accounts while others do but will waive them if you meet a balance minimum.

As with all savings accounts, you may be limited in terms of the number of withdrawals or transfers you can make each month.

One good place to look for this type of account is at an online bank. Because these institutions typically have lower operating expenses than brick-and-mortar banks, they can often offer rates that can be considerably higher than traditional banks, and may also be less likely to charge monthly fees.

Money Market Accounts

A money market account is a type of deposit account that pays interest on deposits and allows withdrawals.

Money market accounts are similar to standard savings and checking accounts, except that they typically pay higher interest rates, require higher initial deposits, and may also require minimum balances, which can run anywhere from $100 to $10,000.

Some money market accounts require a minimum of $25,000 to earn the best interest rates.

Unlike standard savings accounts, some money market accounts also come with a debit card and checks, although institutions may require that they not be used more than six times per month.

You may want to keep in mind that a money market account is very different from a money market fund. A money market account is a federally insured banking instrument, whereas a money market fund is an investment account.

Typically, money market funds invest in cash and cash-equivalent securities. It is considered low risk but doesn’t have a guaranteed return.

Certificates of Deposits (CDs)

A certificate of deposit (CD) is a product offered by consumer financial institutions, including banks and credit unions, that provides a premium interest rate in exchange for leaving a lump-sum deposit untouched for a certain period of time.

The bank determines the terms of a CD, including the duration (or term) of the CD, how much higher the rate will be compared to the bank’s savings and money market products, and what penalties will be applied for early withdrawal.

CDs offer different term lengths that can range from one month to 20 years. Interest rates tend to be higher for longer terms. Some CDs have a minimum deposit amount that can be over $1,000 or more, though there are banks that offer CDs in any amount.

Sounds good? Well, it is if you know you won’t be touching that money for the entire term length. If you suddenly need the money, then you will likely have to pay a penalty to withdraw money early from your CD.

While you can get no-penalty CDs or early withdrawal CDs, it’s a good idea to make sure to read the fine print, as many of these accounts only have no penalties or withdrawal fees if you take money out during the first few weeks after you invest. In return for that withdrawal window, you often give up a significant amount in APY.

If ease of access is a concern, it might make sense to invest in CDs that feature fewer restrictions around withdrawals. Or, you could set up a CD ladder strategy where you buy CDs that have different maturity dates, ensuring access to funds as your CDs mature at staggered intervals.

High-Yield Checking Accounts

Though interest is normally associated with savings, and not checking, accounts, many financial institutions offer high-yield checking accounts.

These interest-bearing accounts, sometimes called rewards checking, work like regular checking accounts and come with checks and an ATM or debit card.

In return for getting a higher interest rate, these accounts often come with rules and restrictions. You may, for example, only earn the higher rate on money up to a certain limit. Any money over that amount would then earn a significantly lower rate.

You may also be required to make a certain number of debit card purchases per month and sign up for direct deposit in order to earn the higher (or rewards) rate and to avoid a monthly fee.

The benefit of an interest-bearing checking account is that you’ll always have access to your money and you may have fewer limitations on how you can use your account than you might with a savings account, all while still earning a bit of interest.

Cash Management Accounts

A cash management account is a cash account offered by a financial institution other than a bank or credit union, such as a brokerage firm. These accounts are designed for managing cash, making payments, and earning interest all in one place.

Cash management accounts often allow you to get checks, an ATM card, and online or mobile banking access in order to pay your bills. They also typically pay interest that is higher than standard savings accounts.

Cash management accounts also generally don’t have as many fees or restrictions as traditional savings accounts, but it’s important to read the fine print.

Before opening a cash management account, you may want to ask about monthly account fees and minimum balance requirements.

Some brokerage firms require a sizable opening deposit and/or charge monthly fees if your account falls below a certain minimum. Others will have no monthly fees and no minimums.

The Takeaway

If you’re looking for a safe, convenient place to keep your money and also earn some interest while you’re at it, there are a number of great options to pick from.

You might consider opening a high-interest checking or savings account at a traditional or online bank, or, if you don’t need to access the money every day, you may also want to look into a money market account or CD.

Looking for Something Different?

Another option is to open a cash management account, such as SoFi Money®. With SoFi Money, you can earn a competitive interest rate, spend, and save–all in one account.

You can also write checks, set up bill pay, and have access to 55,000+ (fee-free) ATMs worldwide.

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



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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How to Read a Credit Report

How to Read a Credit Report

Your credit report contains a large amount of information about your financial life and payment history. If you have credit cards or loans, for instance, those accounts and how you pay them are included in your credit report.

Credit reports are created by three national credit reporting agencies: Equifax, TransUnion, and Experian. Credit card issuers and lenders can pull these reports and review them in order to determine your creditworthiness.

These reports can also be accessed by consumers (like you). The Fair Credit Reporting Act requires each of the credit reporting companies to provide you with a free copy of your credit report, at your request, once every 12 months. In response to the coronavirus pandemic, however, you can now get a free credit report weekly through April 2022.

It can be a good idea to request your credit reports using Annual Credit Report.com at least once a year. This can help you ensure that the information is used to calculate your credit scores is accurate and up to date. It can also alert you to fraud or identity theft.

Unfortunately, reading your credit reports can sometimes be confusing, especially if it’s the first time. Below, we explain how to read a credit report, as well as common credit report errors to look out for.

Recommended: TransUnion vs. Equifax: How They Differ

Who Can See Your Credit Report?

Your credit report is accessed whenever a lender (or an employer or landlord) does what’s known as a hard credit inquiry. This is when a business will access your credit report to make decisions about your creditworthiness.

Hard credit inquiries will appear on your credit report, so you should recognize any credit inquiries that appear.

They may also subtly affect your credit score. Multiple inquiries in a short period of time may signify to lenders that you’re seeking multiple loans, which may bring up concerns about your financial stability.

However, your credit score will not be impacted when you request a copy of your own credit report.

Reading Your Credit Report

When you get your credit reports, it’s a good idea to closely read each section. These sections typically include:

Personally Identifiable Information (PII)

This section of the report is used to identify you. It contains basic information like your name, address, and place of employment. You may also find previous addresses and employer history.

Your current and previous salaries will not be included though. Also, your employment history doesn’t affect your credit score. It’s included on your credit report only to verify your identity.

When scanning this area you’ll want to make sure that your name, address, and employer match up. Any incorrect or unfamiliar personally identifiable information (like company names you don’t recognize or employers you never worked for) may be a sign of identity fraud.

Credit Summary

This section summarizes information about the different types of accounts you have, including credit cards and lines of credit, mortgages and other loans, and any accounts that have been sent to collections.

For each account, it will include the date opened, balance, highest balance, credit limit or loan amount, payment status, and payment history.

As you read this section, you’ll want to make sure that all the information looks familiar. It’s not unusual for a credit report to have slightly dated information, such as a higher balance because you just paid off a bill this month, but all information should seem recognizable. In particular, you’re looking for:

•   Unfamiliar accounts
•   Late payments that do not align with your records
•   Balances that do not match your records

Public Records

The information in this section is pulled from public records and may include debt collections or bankruptcy information.

If you have any debt collections and bankruptcy on your record, it’s important to remember that they aren’t permanent and there’s a statute of limitations that the information is on your credit report.

•   Chapter 13 bankruptcy — deleted from your credit report seven years after filing date.
•   Chapter 7 bankruptcy — deleted from your credit report ten years after filing date.
•   Late payments — deleted from your credit report seven years after they occur.
•   Payment defaults — deleted from your credit report seven years after they occur.

If you see information that’s not familiar, you’ll want to flag it, since this could be a sign of identity theft. You may also want to flag any information that is still on your credit report after the statute of limitations has expired.

Credit Inquiries

Credit inquiries list all parties who have accessed your credit report within the past two years.

Credit inquiries can be a red flag for identity theft, so it’s a good idea to make sure you recognize any recent credit inquiries. These could be from lines of credit you opened, such as applying for a credit card, or from applying for a loan.

What To Do If You Find Errors on Your Credit Report

None of the information on your credit report should look unfamiliar. One of the main reasons why you want to read your credit report is to make sure that your credit report matches your records.

But sometimes there can be discrepancies. If you detect an error on your report, such as a payment incorrectly reported as late, you’ll want to file a formal dispute with the credit reporting company, as well as the entity that provided the information (such as a credit card company)

When writing a dispute letter, you’ll want to include:

•   A clear explanation of what is wrong in the credit report.
•   Supporting documentation showing that the information is inaccurate (such as a copy of a paid bill).
•   Request for the information to be fixed.

By law, the credit reporting company must investigate your dispute and notify you of their findings.

If you notice an error that suggests identity theft (such as unknown accounts or unfamiliar debt), it’s a good idea to sign up with the Federal Trade Commission’s (FTC’s) IdentityTheft.gov site in addition to alerting the credit bureaus.

The FTC’s tool can help users create a recovery plan and figure out the next steps, which may include placing a security freeze on your accounts.

The Takeaway

It’s easy and free to gain access to your credit reports from the three major bureaus. Taking advantage of this service can help you maintain good credit, and good overall financial health.

Reviewing your credit report can give you a chance to correct any errors and make sure your credit report is an accurate representation of your financial situation. It can also alert you to any fraudulent activity.

In addition, reading your credit report can help you understand how creditors see you as a borrower and cue you into any potentially problematic information that may manifest into a lower credit score than you would like.

For example, if you have high utilization (the amount of debt you carry) across your cards, it may be beneficial to focus on paying down some of your debt.

Managing your money carefully and paying all of your bills on time can also help you protect your credit.

If you’re looking to take better control of your finances, SoFi Money® can be a good place to start.

SoFi Money is a cash management account that allows you to track your spending right in your mobile dashboard, and makes paying bills easy with electronic bill pay.

Learn how SoFi Money can help you manage your finances.



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 has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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7 Steps That Can Help Get Your Financial House in Order_780x440

7 Steps That Can Help Get Your Financial House in Order

Just like having your home in order can help make life easier and less stressful, having your financial house in order can save you time and worry. It can also help you spend less, save more, and work more effectively towards your financial goals

Your “financial house” refers to all the aspects that go into your financial wellness, including the information found on your financial statements, any debt you have, your budget, and your retirement planning and accounts.

Getting your financial house in order typically involves taking stock of what you have, getting rid of things (or accounts) you don’t need, creating a budget, and setting up a few systems to make it easy to achieve your financial goals.

Below is a simple step-by-step for doing a financial clean-up.

1. Taking Stock

A person can’t organize what they don’t know they have, so a good first step to organizing your finances is to track down all of your financial statements and accounts, or access them online.

If the password or log-in is long forgotten, you can reset your accounts or call customer service lines to get access.

You can then make a master list organized by category. This might include:

•   Assets: This includes bank accounts, retirement savings, and other investments.
•   Liabilities: These are loans, such as mortgages, credit card debt, student loans, or other forms of personal debt.
•   Income: This would include all sources of income, such as salary, investments, and alimony.
•   Fixed expenses: These are bills you pay every month, such as rent, mortgage, and utilities.

This step can help people discover unpaid bills, as well as savings accounts or retirement accounts they may have forgotten about.

2. Going Paperless

Electing to go paperless on bills and bank statements can not only be good for the planet, but can also help you keep your finances in order by creating less physical mess.

Getting bills in the mail and seeing them pile up can also evoke a sense of dread. When you go paperless, you can designate a day for tackling monthly expenses.

Then, on that day only, you can open those emails and pay them. If you prefer a paper trail, you can print out your receipts and file them away.

Some banks even offer benefits to customers who sign up for paperless billing.

3. Consolidating Accounts

Having abandoned 401(k) accounts or multiple saving accounts across different banks can be confusing and hard to keep track of. If this is the case, it might be time to consolidate and simplify.

You can move old savings into more frequently used accounts by transferring money from one account to another.

You may also be able to roll over your 401(k) from a former employer into a new employer’s retirement plan.

While this step isn’t necessary, tidying up accounts can save you the hassle of dealing with statements and notifications from several different financial institutions.

Recommended: How to Transfer Money From One Bank to Another

4. Tackling Debt

Once you’ve taken stock of your overall financial picture, you will likely have a better sense of how much money you owe. This can feel overwhelming, but also empowering. Once you know the numbers, you can deal with them head on, and come up with a debt reduction plan.

You may want to first determine good debt, such as student loans and mortgages vs. bad debt, like high-interest credit card debt and personal loans. When paying off debt, it can be a good idea to prioritize bad debt first.

There are a number of different ways to make paying off debt feel manageable, such as the snowball method or avalanche method. The key is to find an approach you feel you can stick with and to simply get started.

As you knock off debts, you’ll have fewer minimum payments to juggle. What’s more, you’ll be able to funnel the money you once spent on interest towards your financial goals.

5. Creating a Budget

After you’ve taken stock of all of your accounts and bills, you may want to go one step further and set up a monthly budget.

To do this, it can be helpful to pull out the last three months or so of your bank statements. You can then use them to figure out how much is coming in each month (your average monthly income after taxes are taken out) and how much is going out each month (your average monthly spending).

If the numbers are tight (meaning there’s little or nothing left over to put into savings), or you see you are actually going backwards, you may next want to create a plan to cut your spending.

This might include getting rid of certain monthly bills, such as streaming services you no longer really care about or quitting the gym and working out at home.

You may also want to set monthly spending targets, such as how much you will spend on nonessential categories, such as clothing, eating out, and entertainment, each month.

6. Setting Goals

Setting some financial goals can help motivate you to stick to your budget and put money into savings each month.

If you’re saving up for something fun (like, say, a vacation), you might be more inclined to cook at home instead of ordering in. Money goals can function like a compass that guides the direction of spending.

Not sure of a goal? Here are some common financial goals you may want to consider working toward:

•   Creating an emergency fund.
•   Paying down debt.
•   Increasing retirement savings.
•   Saving for a downpayment on a home.
•   Putting money towards something fun, like a vacation or new wardrobe.

Goals won’t always look the same person to person, but having one (or two) can help guide your financial plan, making it easier to spend and save with confidence.

7. Automating

Saving, spending, and paying bills doesn’t have to mean reinventing the wheel every month. You can significantly reduce the amount of work involved in money management simply by relying more on automation.

One of the benefits of automating your finances is always paying your bills on time. This can save you money by avoiding late fees. Having a history of on-time payments can also help boost your credit score.

In addition to setting up autopay for your regular bills, you may also want to automate savings. This means having a portion of your paycheck (and it’s fine to start small) automatically transferred from your checking account into your savings or retirement account after you get paid.

This ensures that saving will happen each and every month, since the money will be taken out before you have a chance to see it–or spend it.

Automation won’t take all the work out of keeping your financial house in order, but it can eliminate many of the chores–and many of the choices–you have to deal with each month.

Setting and forgetting bills and transfers can make money moves less hectic each month.

The Takeaway

Getting your financial house in order isn’t as complicated or time consuming as many people assume. And, you don’t have to do it all at once.

You may want to set aside an hour or so one day a week to focus on financial house-cleaning, and just take it one step at a time.

Tidying up your financial home can take work, but you don’t have to go at it alone. A cash management account like SoFi Money® can make the complicated a little easier.

SoFi Money allows you to earn, spend, and save–all in one account. With SoFi Money’s “vaults” feature, you can separate your savings from your spending and also set up recurring transfers to help you meet your savings goals faster.

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



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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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9 Cheapest Pets to Own_780x440

9 Cheapest Pets to Own

Pets can bring love, companionship, stimulation, and fun into your life. But they can also bring a lot of added expenses.

In fact, the lifetime cost of owning a dog is estimated to run around $15,000. Cats are not far behind, ringing up at roughly $12,000 over the course of their lives.

If you’re yearning for a furry companion, but the high cost of owning a pet gives you worry, you don’t necessarily have to give up on the idea. There are actually a number of cheap pet options out there, and many are also low maintenance and adapt quickly to their new homes.

From small birds to bunny rabbits, here are nine cheap, easy-to-care-for pets you may want to consider adding to the family.

Recommended: How Much Is Pet Insurance?

Guinea Pigs

If you’re looking for something cuddly that’s easier on the wallet than a puppy, you may want to consider a guinea pig. These entertaining creatures live about five to seven years, so they also typically require less of a time commitment than a cat or a dog.

A guinea pig can cost anywhere from $10 and $70. If you go for an exotic guinea pig from a local breeder, you can pay up to $120.

In addition to the guinea pig, owners will need to make sure they have a cage that has enough room for it to move around and some bedding that will get changed fairly often.

Guinea pig food is relatively cheap– less than $10 for a bag. But these affordable pets can also live off leftover vegetable and fruit scraps.

Guinea pigs thrive as social creatures, so you may want to purchase more than one guinea pig or ensure you’re spending ample time with your furry companion.

Hermit Crabs

While hermit crabs aren’t cuddly, they can make great pets if you’re looking for a low-key companion that doesn’t require much supervision.

The cost of owning a hermit crab is pretty low (a crab runs around $6 at pet stores). Owners will also need to get a tank with a vented lid, drinking and humidity sponges, a water dish, climbing wood and a humidity gauge.

Once crabs have outgrown one shell you’ll need to buy their next, larger shell, which is a small cost.

Hermit crabs need humidity levels between 70 and 80 percent, which means owners will need to mist their pets and their tanks at least once a day to keep these creatures happy and healthy. It’s also important to clean their quarters and change their water often.

Being small creatures, crabs don’t cost much to feed. You can feed these little cheap pets vegetable scraps, fruit, or pellet food.

Sea Monkeys

Sea Monkeys are a novelty pet marketed as “instant pets.” They’re actually a type of brine shrimp sold in kits, usually targeted to children.

Developed in a lab in the 1950s, sea monkeys are sold as packets of eggs that hatch when you add water. These small pets will hatch in a few days and stay alive for about two years. They also reproduce, so you could have a steady supply for some time.

Sea monkey kits, which include the eggs and an aquarium, only run around $28. To keep your Sea Monkeys alive, all you need to do is to top up water levels occasionally and feed them once a week (a bag of food costs about $6).

Dwarf Frogs

African dwarf frogs are small, completely aquatic, and among the easiest types of frogs to keep as pets. This species can be a good beginner frog for owners who are content to look only–handling them is not a good idea.

Dwarf frogs grow to around one-and-a-half inches and live up to five years with good care. They can live in an aquarium alongside docile fish like tetras if you want to own a few creatures.

Besides the frog, which typically only costs a few dollars, owners of these low-cost pets will need to purchase a tank with a tight-fitting lid (which you may be able to find second hand), gravel or sand for the bottom, and some decorative hiding spots, such as live or silk plants and small terra cotta plant pots placed on their sides.

Keeping dwarf frogs healthy is really just a matter of making sure that their aquarium water is clean and offering them a proper dwarf frog diet–they like to munch on frozen mysis shrimp, bloodworms, food pellets, and brine shrimp.

Goldfish

Goldfish can add interest to any room, are fun to watch, and pretty low maintenance. The fish themselves usually only run a couple of dollars.

While you may picture this fish living in a classic goldfish bowl, these days many experts recommend investing in a filtered tank in order to keep their habitat clean.

While aquariums aren’t cheap, the only additional cost after that is the food. Purchasing fish pellets or flakes will set you back a few bucks.

To save some money, you may want to search for used equipment at yard sales, thrift stores, or websites such as Craigslist or Offer Up. One you’ve invested in a tank and the decorative bits, these items will last indefinitely and can be re-used for future fish..

Leopard Geckos

These tiny lizards are friendly and fun to have around, and don’t require a lot of upkeep. As with goldfish, the biggest cost is likely to be a habitat. You may be able to save here by buying one-second hand from an online marketplace.

The cost of a leopard gecko runs anywhere from $20 to $70. In addition to the tank, leopard gecko owners will need to get some type of lighting (with an incandescent bulb), a hide-out, and possibly a heat pad, depending on temperatures in your home.

Other than that, you’ll need to regularly feed them a diet of insects, including crickets and waxworms, as well as fresh vegetables and clean water.

Ants

If you’re looking for one of the cheapest pets, that is also low-maintenance, an ant farm may fit the bill. While ants don’t provide bonding or cuddling opportunities, it can be fun and fascinating to watch an ant farm grow, particularly for kids.

Depending on the kit, ant farms will set you back less than $40 and some include ants (you can also purchase live ants online or at your local pet store).

While kits have traditionally been made from sand, modern ant farms are now often made with a clear, edible gel that lets you watch your ants tunnel much more closely.

After you get the farm and the ants, there isn’t much to do other than making sure you provide water and the occasional bits of food.

Canaries

Canaries can be great pets that offer companionship and melodies, and can even learn to do little tricks like playing with a ball or stepping onto your hand. These types of birds live around 10 years and aren’t as expensive as more exotic breeds.

Costs include a cage, small toys, food, and the occasional veterinary visit (if they’re sick). You can purchase canaries from pet stores or breeders — the latter may offer more options depending on where you live.

You could pay as much anywhere from $100 to $400 for a bird, so it’s not necessarily the cheapest pet on the list. However, it’s still considered a low-cost pet compared to a dog or cat.

Rabbit

While rabbits are as large as some cat and dog breeds, they qualify as a cheap, low-maintenance pet. You can expect to pay only around $25 for a non-pedigreed rabbit. You may even be able to adopt a rescue through the Humane Society or ASPCA.

Rabbits also have a small appetite–owners will typically only need to buy a large bag of food every few months (around $20). These fluffy companions will also need a rabbit hutch, but you may be able to find one cheaply through a second-hand marketplace. Or, you can build one yourself.

Rabbits are happy to live outside or in (they can actually be potty trained). If you opt for indoors, you may want to keep in mind that they can chew on wires and furniture legs if allowed to roam free. Some breeds, such as angora rabbits, also require grooming.

These furry friends live about seven to 10 years.

Recommended: Should You Consider Pet Insurance?

The Takeaway

Whether furry, feathered or reptilian, owning a pet doesn’t need to cost a small fortune. As you can see from the list here, there are plenty of cheap pets that are easy to care for and waiting for you to take them home.

Before you make a commitment to a pet, however, you may want to make sure your little companion will fit into your lifestyle and that you have time to take care of it.

And, since even an Inexpensive pet will add to your household expenses, you may also want to make sure that the start-up costs for the animal and equipment, as well as on-going expenses involved in the care and feeding of your new pet will fit into your budget comfortably.

Want to start setting some money aside for a new pet? Consider opening a SoFi Money® cash management account.

SoFi Money offers a special “vaults” feature where you separate your savings from your spending, while still earning competitive interest on all your money. You can even set up a vault for your future little companion.

Start saving up for a new pet with SoFi Money.



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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