The Bottom Up Investing Approach

The types of strategies or philosophies investors use to grow their portfolios might be as varied as the types of investments they have to pick from—growth vs. value stocks, conscience-based investing or industry trends, to name a few.

More or less, however, stocks are commonly analyzed two different ways: top-down vs. bottom-up investing.
The top-down strategy starts with researching the big investing picture, including world economic news, market trends and other macroeconomic indicators.

Stocks are chosen based on how investors believe the market as a whole will perform. Individual stocks might play a role, but they aren’t the central focus. Mutual funds and exchange-traded funds (ETFs), that choose a group of stocks based on common factors, are more popular with top-down investors.

The bottom-up strategy focuses on microeconomic factors that influence individual businesses.

Investors research individual companies they believe to be good investments by digging deep into their financial reports, historical trends, profit margins and customer base.

Although industry trends and market factors do play some role, bottom-up investing is about picking companies that an investor believes will perform well no matter what the market does.

Theoretically, bottom-up investing is the notion that a handful of solid, handpicked companies will bring better returns over the long run than jumping on bandwagons or trying to time the market.

Strategically, it’s a long-term, buy-and-hold proposition. And philosophically, it’s making a well-educated bet on a company’s future profits based on thorough research of its inner workings and history.

How Bottom-Up Investing Works

A bottom-up investment strategy starts with research into individual companies, but that’s a lot easier than it sounds when there are around 630,000 publicly traded companies around the world.

To narrow down that field, some investors begin with public companies that either have long and successful track records or that they already know and love. From there—and thanks to the web—the amount of information they can gather is virtually limitless.

Useful Documents for Investment Research

In the United States, companies who trade on the stock exchanges must file a number of documents with the U.S. Securities and Exchange Commission (and the public) that outline a number of financial benchmarks, such as profit margin, cash flow, and income. All public documents held by the SEC are searchable via its EDGAR database .

Here are some of the most common:

•   Registration Statements: These documents are the first to be filed when a company wants to undergo an initial public offering (IPO), or “go public.” They include a prospectus, which summarizes the organization’s planned share quantity, size and price, and details on the company’s history, management, operations, current financial state and any insight into future risk.
•   10K Report: This is a company’s official (and lengthy) annual report , and it’s due to the SEC within 90 days of the end of its fiscal year. It lays out the company’s financial growth and change over the previous 12 months, as well as information about products or services, operations reviews, major markets or headlines. Often they’re accompanied by an earnings call, where the business’ top financial executive gives more details about the reports and takes questions from business reporters.
•   10Q Report: This truncated version of the 10K is filed quarterly, so it fills in the gaps between annual reports. They’re a bit less formal than the 10K reports and often review not only what’s happened in a company during the past three months.
•   Forms 3, 4 and 5: Company executives who become “insiders”—directors, officers, or anyone who holds more than 10% of any class of a company’s securities, for example—are required to report any transactions they make regarding their company’s own stock. Form 3 is for new insiders and must be filed within 10 days of the appointment, Form 4 documents actual securities transactions, and Form 5 catches any transactions that didn’t meet the threshold for Form 4. For some investors, these forms give good insight into how the company’s executives feel about their own position in the market.
•   Proxy Statements: This form is how investors get an inside look at a company’s executive and management salaries, potential conflicts of interest, and other perks of life in the C-suite. Shareholders aren’t allowed to vote on members of the board or approve other company actions until it’s filed with the SEC.
•   Schedule 13D: If any individual or entity acquires more than 5% of a company’s shares, this form introduces them to investors and includes information like the major shareholder’s contact information, background (including criminal), the type of securities they purchased, how they purchased them, and their relationship to the company. Sometimes a 13G, an abbreviated version of the 13D form, can be filed instead, but this depends on specific circumstances.

Crunching the Numbers

An annual report is pages and pages (and pages) of pie charts, graphs, equations, and numbers, all in small font. It can be dizzying just to look at, much less to decipher.

To separate the most important information, investors employ a number of investment ratios and key indicators when evaluating a stock.

Some key ratios and values include:

•   Price-to-Earnings (P/E) Ratio: The company’s market price divided by its earnings per share. It can predict how many years it will take for a company to have enough value to buy back its stock.
•   Price-to-Sales (P/S) Ratio: A company’s market capitalization (the dollar value of all the company’s outstanding stock) divided by its revenue. Ideally, the P/S ratio should be one, or as close to one as possible. If the value is lower than one, that indicates an even stronger P/S ratio.
•   Earnings per Share (EPS): Net income, minus any preferred stock dividends, divided by the total number of outstanding shares of common stock. An EPS on the rise over time means the company might have more money to either distribute to its shareholders or re-invest into the business.
•   Return on Equity (ROE): Find this number by dividing the company’s net income by shareholder equity, times 100. For many analysts, ROE is a major indicator of a company’s growth in profit over time.
•   Profit Margins: These come in three varieties: gross, operating, and net. Each measure the company’s profitability based on whether certain figures, such as operating costs and overhead expenses, are considered. These numbers give insight into a company’s efficiency and how it uses its resources.
•   Future Expected Earnings: This formula which considers annual dividends and their growth rates, can’t predict the future, but it can create an educated guess on where a company’s stock might go, especially one that has historical data to draw from.
•   Financial Statements: Analyzing financial statements can provide important insight into how a company operates. Common documents included in a company’s financial statements are; a balance sheet, which provides a snapshot of assets, liabilities and shareholder equity as they currently stand; a profit-and-loss statement (P&L), which looks at money coming in vs. money going out; and a cash-flow statement, which is a key indicator of whether the company is over or undervalued (a high valuation with little cash flow is a red flag.)

Yep—that’s a lot of math. But taken together, the numbers can paint a solid picture of not only a company’s past and current performance, but also it’s potential for the future as well. All of these factors can help investors as they decide which stocks to invest in.

Business News

Especially in today’s online-first world, all the good valuation in the world can’t help a company if its CEO is the star of a scandalous viral video.

For this reason, it’s just as important to keep an eye on the outside factors involving companies of interest, including personnel changes, headlines, new products or services, or marketing campaigns.

The financial world has its go-to publications, including the Wall Street Journal, Bloomberg and Investor’s Business Daily, along with a host of industry-specific publications.

Online tools employ tech to help investors play around with different scenarios, and even setting up a simple Google search on a business name can help interested investors stay in the loop.

Bottom-Up Investing: An IRL Example

Here’s a hypothetical example of how bottom-up investing works in action.

Jane is a loyal follower of The Widget Co. She’s used its products for years, is brand loyal and thinks the CEO is a visionary leader. She’s interested in purchasing Widget stock, but knows that being a shareholder is a lot different than being a consumer.

Although she likes what she has seen so far, she wants a peek behind the curtain—who holds leadership positions, its operational philosophy and how it manufactures those products she loves so much.

Her first step is Widget’s financial documents, where she looks for things like consistent upward trends in stock prices and a favorable P/E ratio. She compares Widget’s trends over time to the overall market to see its individual performance against market ups and downs.

Next, she takes to the web and discovers that The Widget Co. has a YouTube channel with behind-the-scenes tours of its manufacturing processes.

She checks LinkedIn profiles and Googles the names of the CEO and senior leadership to see their resumes, and whether they’ve ever made the news—for better or worse—and sets up news alerts with the company’s name so she doesn’t miss anything new.

Finally, to get a feel for the overall industry and the public’s feelings toward the company, she checks social media. Do other people love these products as much as she does? What are the ratings and reviews? She understands that just because one sector is popular at the moment doesn’t necessarily mean that The Widget Co. is a part of that trend.

Jane likes what she sees, but after running some numbers to determine the stock’s real value, she decides that it’s a bit too expensive to buy, for now. But if it hits her target number, she’s in.

Strategies for Success

Think of top-down investing vs. bottom-up investing as the tortoise vs. the hare (with the bottom-up approach, you’re the tortoise.) Finding success with the bottom-up investing approach is a long (long) game, so it can be important to come to the table with a double dose of patience.

It’s one reason long-term stock picks are often referred to as value stocks vs. growth stocks. Growth-stock investors go for the big risks and the big wins, while value investors (also called income investors) take a more calculated approach in hopes of steady growth over the long term.

One thing bottom-up investing is not, however, is set-it-and-forget-it. Things do change over time, and even the most seasoned companies can endure hardships—especially in the face of a changing economy and changing tech (brick-and-mortar shopping, for example.)

For that reason, it’s important for a bottom-up investor to periodically check in on their stock picks to ensure they’re still a good decision.

Things to Consider

No matter which type of investing approach is taken, it’s important to consider risk tolerance. How much would it be okay to lose if the market crashed?

Are you more fight or flight? For some investors, any dip in the stock market scares them into pulling out, and potentially missing out on even bigger returns in the future.

It’s also important to keep in mind that even the most solid companies now might see trouble in the future. What are the signs that a company is no longer a good investment?

Changes like a slowdown (or full stop) in profits, the accumulation of debt or cutting dividends are all potential watch-out for trouble, as well as any type of investigation.

Get Started With Stock Bits

Imagine finding the perfect stock, and then experiencing sticker shock at the price of one share.

That used to be the minimum buy-in for a stock purchase, but just like ETFs have made it possible to invest into little bits of business at a time, fractional shares allow investors to buy just a portion of even the most expensive stocks out there.

Fractional Share Investing allows investors to claim a sliver of their favorite stocks, for as little as $1 with no fees. Investing with SoFi Stock Bits, is as easy as opening and funding an online investing account with SoFi and selecting from stocks like Amazon, Apple, Facebook, Netflix, and Tesla.

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.

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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.


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4 Tips for Paying Off a Large Credit Card Bill

You know which three little words no one wants to hear? Credit card debt. It can go from zero to thousands with one quick swipe or build at a slow creep—a nice dinner here, a trip to the mall there, a gas fill-up to get you through until payday—and before you know it you could be staring at a credit card balance that’s a lot higher than you thought it was.

For Alicia Hintz, a member of the SoFi community, the debt creep started in 2016 with a large and unexpected loss of income—the day before she and her husband were to leave on their honeymoon. (Thanks, universe.)

Prior to that, they’d been toying with the idea of selling their Minneapolis home and moving closer to family in Wisconsin. The income reduction sealed the deal. But their house needed some work to be market-ready. The total bill was more than their savings, and their income wasn’t enough to pay in cash, so to the plastic they went.

For them the improvements were worth the investment—in that they sold their house for more than they paid for it, but almost every penny of it went toward fees, commissions, closing costs, and other expenses.

Alicia’s financial journey is likely to resonate with the 41.2% of American households that carry an average of about $9,300 in credit card debt, according to data reported by the Federal Reserve for Outstanding Revolving Debt. The statistics are sobering to be sure, but here’s a spoiler alert—thanks to some smart planning and a lot of stick-to-it-iveness, Alicia’s story ends on a high note.

4 Debt Payoff Strategies

Fast forward a few months and Alicia and her husband live in Wisconsin but on a much-reduced budget. In fact, it would be six more months before they were able to get their finances back up and running—that’s a lot of time for savings to shrink and debt to grow.

1. Zero Interest Credit Card

To try and combat the loss of income, Alicia opened a 0% interest (also known as a deferred interest) credit card with plans to pay it off within the year. “Before I opened that card, I had always paid off my credit card balance each month in full,” she said in a written interview with SoFi.

But, as is life, things didn’t go as planned. “The first month I didn’t pay off my full balance made me panic,” said Alicia. And on top of day-to-day financial challenges, the couple was invited to a destination wedding in the summer of 2017. In order to get the discounted room rate, they had to pay upfront for the flight and resort—close to $5,000.

“That extra money added to our credit card debt was a steep mountain to climb,” Alicia said. “After we had to pay that, I knew it would be years to get everything paid off.”

A 0% interest promotional period on a new credit card can last as long as 18 billing cycles , which could be a long enough time to make a large dent in the card’s principal balance.

But once the promo period expires, the interest rate can climb to as much as 27% (or higher). A credit card interest calculator can give you an idea of how much that rate will affect your total balance, and it’s important to consider whether you can achieve your payoff goal before the rate rises.

2. Creating a Debt-Focused Budget

Tackling a large credit card bill isn’t likely to be easy, so an important part of the process could be a hard look at what putting extra money toward credit card bills means for the rest of your budget.

One way to approach a solid debt-payoff plan is to begin with an organized budget. You can start by taking a look at the big picture, including all of your monthly expenses as they currently stand, all your income, and all your debt.

One way to make this task easier on yourself is to download an app like SoFi Relay, which pulls all of your financial information into one place.

Your next step might be to focus on your spending. You may see obvious areas where you can cut back, or see if you can get creative to come up with some extra cash flow each month.

“We definitely tried to eat out less and cut back on shopping for clothes,” Alicia said. “But it seemed like every month there were more unexpected expenses that needed to be put on the credit card.”

From there, you can start to focus on a plan that makes credit card payments as equally important as the electric bill. And while you may not be able to pay more than the minimum on all your cards, it’s important to ensure that you pay at least that much if you want to avoid accumulating additional debt.

That’s because, while paying only the minimum can lead to compounded interest rates and larger overall balance over time, skipping payments can also lead to higher, penalty interest rates, late payment fees, and can even affect your credit.

3. The Snowball, The Avalanche and The Snowflake

The snowball and avalanche debt repayment strategies take slightly different approaches to pay down debt, and both involve maintaining the minimum payment on all but one card.

The debt snowball method focuses on the debt with the lowest balance first, regardless of interest rate, putting extra toward that payment each month until it’s paid off.

Then, that entire monthly payment is added to the next payment—on top of the minimum you were already paying. Rinse and repeat with the next card, and it’s easy to see how this method can quickly get the (snow)ball rolling.

The debt avalanche is based on the same philosophy but targets the highest-interest payment first. Getting out from under the highest debt can save a lot of money in the long run, and just like the snowball method, applying that entire payment to the next-highest-interest debt can lead to quick results.

The third snow-related strategy, the debt snowflake, emphasizes putting every extra scrap of cash toward debt repayment. This method played an active role in Alicia’s debt-elimination strategy. “If you have extra money to throw at your loans, even $20, that can still make a difference in your overall amount owed,” she said.

4. Personal Loan

As Alicia’s credit card utilization went up, her credit score went down. She decided to research her options and was ultimately approved for a SoFi credit card consolidation loan at a considerably lower interest rate than her credit cards, which along with making extra payments, helped save her money in the long run.

Now facing one personal loan payment vs. multiple credit card bills, Alicia anticipated being able to pay down the debt sooner than the three-year term she selected. And once again, life happened.

Over the course of those years, her husband took a new job, and they both changed cars, bought a house, and had a baby. They also went to two more destination weddings. This time, though, the extra expenses didn’t derail the plan.

“The loan was paid off within two years,” she said, thanks in part to a conservative budget and using an annual work bonus as a snowflake to make a dent in the balance.

From Someone Who’s Been There

One of the biggest things to remember, Alicia said, is that debt elimination doesn’t happen overnight. “Paying off debt is hard work,” she said. “Take it one month at a time. Some months are easier on your wallet, and others are not—looking at you, December!”

She suggested using the time you’re working to pay off debt to develop good budgeting and spending habits so that your post-debt finances are about saving, not spending.

And another tip from Alicia? Celebrate even the little victories. “When I paid off half my SoFi loan, I celebrated by taking a nice long bath,” she said.

When they reached zero balance, she and her husband went out for ice cream. “You can celebrate by going to the park with your kids, reading an extra chapter in a book, or finding a new series to watch,” she said. “Always celebrate your loan payoffs, no matter how small!”

SoFi personal loans also have no fees and no surprises—just a helpful way to manage your money. Additionally, applying is all online. If you’re looking for ways to consolidate your credit card debt, you can check your rate at SoFi in just two minutes.

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.
Member Testimonials: The savings and experiences of members herein may not be representative of the experiences of all members. Savings are not guaranteed and will vary based on your unique situation and other factors.
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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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What is a Financial Asset?

You’ve probably come across the term “asset” many times in your life—long before you began saving and investing.

What is an asset? Generally, the word may be used to refer to anything of value—from a great smile to a great work ethic to a great group of friends. But when you’re talking about finances, the term asset is typically used to refer to things that have economic value to a person, a company, and/or a government.

For individuals, it can mean pretty much everything they own—from the cash in their wallet to the boat in the backyard to the baubles in a jewelry box. But usually, when people talk about their personal assets, they’re referring to:

•   Cash and cash equivalents, including checking and savings accounts, money market accounts, certificates of deposit (CDs), and U.S. government Treasury bills.
•   Personal property, including cars and boats, art and jewelry, collections, furniture, and things like computers, cameras, phones, and TVs.
•   Real estate, residential or commercial, including land and/or structures on the land.
•   Investments, such as stocks and bonds, annuities, mutual and exchange-traded funds, etc.

Those who freelance or own a company also may have business assets that could include a bank account, an inventory of goods to sell, accounts receivable (money they’re owed by their customers), business vehicles, office furniture and machinery, and, the building and land where they conduct their business.

Liquid vs. Non-Liquid Assets

When you’re building your portfolio and assessing your overall financial situation, you’ll quickly realize that all assets are not created equal.

Some assets are liquid: Liquid assets can be accessed quickly and converted to cash without losing much of their value. Cash is the ultimate liquid asset, but there are plenty of other examples.

If you can expect to find a number of interested buyers who will pay a fair price, and you can make the sale with some speed, your asset is probably liquid. Stock from a blue-chip company is an asset with liquidity. So is a high-quality mutual fund.

Some assets are non-liquid or illiquid: These assets have value, but they may not be as easy to convert into cash when it’s needed. Your car or home might be your biggest asset, for example, depending on how much of it you actually own. But It might take a while to get a fair price if you sold it—and you’ll likely need to replace it eventually.

The same goes for a business. And even if you’re willing to part with a prized collection—your “Star Wars” action figures, perhaps—you’d have to find a buyer who’s willing to pay the amount you want without delay. And if something happens to affect the market for a particular collectible—think Beanie Babies—your asset may sell at a loss or not at all.

While some investments have long-term objectives—including saving for a secure retirement—liquidity can be an important factor to consider when evaluating which assets belong in a portfolio.

Many unexpected events come with big price tags, so it can help to have some cash or cash equivalents on hand in case an urgent need comes up. General recommendations suggest having three to six months’ worth of living expenses stashed away in an emergency fund—using an account that’s available whenever you need it.

Some might also consider keeping a portion of money in investments that are reasonably liquid, such as stocks, bonds, mutual funds and exchange-traded funds (ETFs). This way, ideally, the assets can be liquidated in a relatively quick timeframe if they are needed. (Although, of course, there’s never any guarantee.)

Finding the Right Asset Allocation

As an investor, you’re also likely to hear about the importance of “asset allocation” in your portfolio.
Asset allocation is simply putting money to work in the best possible places to reach financial goals.

The idea is that by spreading money over different types of investments—stocks, bonds, cash, real estate, commodities, etc.—an investor can limit volatility and attempt to maximize the benefits of each asset class.

For example, stocks offer the best opportunity for long-term growth, but can expose an investor to more risk. Bonds tend to have less risk and can provide an income stream, but their value can be affected by rising interest rates. Cash can be useful for emergencies and short-term goals, but it isn’t going to offer much growth, and it won’t necessarily keep up with inflation over the long term.

When it comes to volatility, each asset class may react differently to a piece of economic news or a national or global event, so by combining multiple assets in one portfolio, an investor can mitigate the risk overall.

Alternative investments such as real property, precious metals, and private equity ventures are examples of assets some investors also may choose to use to counter the price movements of a traditional investment portfolio.

An investor’s asset allocation typically has some mix of stocks, bonds, and cash—but the percentages of each can vary based on a person’s age, the goals for those investments, and/or a person’s tolerance for risk.

If for example, someone is saving for a wedding or another shorter-term financial goal, they may want to keep a percentage of that money in a safe, easy-to-access account, such as a high-yield online deposit account. An account like this would allow that money to grow with a competitive interest rate while it’s protected from the market’s unpredictable movements.

But for a longer-term goal, like saving for retirement, some might invest a percentage of money in the market and risk some volatility with stocks, mutual funds, and/or ETFs. This way the money can grow over the long-term, and there will likely be time to recover from market fluctuations.

As retirement nears, some people may wish to slowly shift their investments to an allocation that carries less risk.

Getting Some Help with the Mix

If you’re new to investing and feeling a little daunted by the many asset choices available, one option is to look at diversifying your allocation by purchasing ETFs or mutual funds.

These funds give investors who might not have the money or time to research and buy individual securities access to a basket of assets—different stocks and bonds—that are professionally managed.

Though investing in a mutual fund or ETF doesn’t guarantee those investments will increase in value over time, it’s a way to avoid some of the complicated decision-making and constant market-watching that can make investing stressful.

And you can use ETFs and/or mutual funds in your portfolio whether you choose to be a hands-on investor or take a more hands-off approach.

With SoFi Invest®, for example, investors can DIY their asset allocation with active investing, and pick out stocks or ETFs. Or they can or sit back and let SoFi do most of the work with automated investing.

Either way, one-on-one help is available from SoFi advisors, who can help set up a portfolio with asset allocation percentages that work toward individual goals.

The Importance of Rebalancing

Choosing that original asset allocation is important—but maintenance and portfolio rebalancing is also key over time. As people attain some of their short- or mid-range goals—paying for that wedding, for instance, or getting the down payment on a house—they may wish to consider where the money will go next, and what kind of account it should be in.

As life changes, it is possible that the original balance of stocks vs. bonds vs. other investments is no longer appropriate for a person’s current and future needs. As a result, they may want to become more aggressive or more conservative, depending on the situation.

Rebalancing also may become necessary if the success—or failure—of a particular asset group alters a portfolio’s target allocation.

If, for example, after a big market rally or long bull run (both of which we’ve experienced in recent years) a 60% allocation to stocks becomes something closer to 75%, it may be time to sell some stock and get back to that original 60%. This way, an investor can protect some of the profits while buying other assets when they are down in price.

Yes, it may be tempting to stick with a particular asset class that’s performing well—after all, the goal of investing is to make money. But too much of a good thing could become a problem if the market shifts—so there’s a reason to get back to that original percentage.

You can do your rebalancing manually or automatically. Some investors check in on their portfolio regularly (monthly, quarterly or annually) and adjust it if necessary. Others rebalance when a set allocation shifts noticeably.

With automated investing through an account like SoFi Invest®, investors can set a goal (or goals) with SoFi advisors and know that their investment account will automatically correct to the chosen percentages if they get too far out of whack.

The Value of Knowing What You Own

Knowing where your money is invested and having some idea of each asset’s value can provide a better understanding of your overall financial well-being.

Ready to do some math? Your assets are what you own. Liabilities are what you owe (debts such as credit card balances, student loans, car loans, etc.). The difference is your net worth. And tracking your net worth over time can help you make a plan to reach your financial goals.

If you’re only using your checking and savings statements to monitor your money, you may be missing out on some key information that could affect your financial planning.

Putting the big picture down on a balance sheet or tracking it with an app can help you see what you’re doing right and what might be going wrong. With this insight, you can adjust your investments and financial plan as you see fit.

The assets you accumulate will likely change over time, as will your needs and your goals. So, it’s important to know the purpose of each asset you own—as well as which ones are working for you and which ones aren’t. Here are some questions you can ask yourself as you mindfully manage your assets:

1. Are you getting the maximum return on your investment, whether it’s a savings account or an investment in the market?
2. How does the asset make money (dividends, interest, appreciation)? What must happen for the investment to increase in value?
3. How does the asset match up with your personal and financial goals?
4. How liquid is the investment? How hard would it be to sell if you needed money right away?
5. What are the risks associated with the investment? What is the most you could lose? Can you handle the risk financially and emotionally?

If you aren’t sure of the answers to these questions, you may wish to get some help from a financial advisor who, among other things, can work with you to set priorities, suggest strategies for investing, assist you in coming up with the right asset allocation to suit your needs, and draw up a coordinated and comprehensive financial plan.

Ready to start investing? A SoFi advisor can help you look at what you have, what you might need, and how you can maintain the right mix. To get complimentary, personalized advice, check out 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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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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The Effects of Lifestyle Creep and Ways to Manage It

You’ve heard about economic inflation — it’s why gas that used to cost $1 per gallon can now be up to five times that amount. But did you know that lifestyle creep is a thing, too? It’s one reason why many Americans keep earning more money, but still struggle with the same debt load.

Here’s how it works: During your college years, you could make a ten-dollar bill last a week. You were flat broke and crafty with your money. But then you graduated to a full-time job with a full-time salary. And all of the sudden, that $10 went from feeding you for a week to buying one fancy coffee.

Because you were earning more, you had the idea that you could afford more — especially as you watched your friends upgrade to nicer cars, clothes, and homes. And each time you earned a raise, or a promotion, or enjoyed some other income, it equaled more purchases, and maybe more debt.

That’s lifestyle creep — upping your lifestyle to match your income. It can be tempting to see those extra digits as “fun money” that doesn’t need to be budgeted, but putting that money to work could potentially set up a more stable financial future.

So what’s wrong with using a raise to fund an artisanal coffee habit or upgrading to a luxury apartment? Letting lifestyle creep eat up that raise could set back important future milestones, like paying for a wedding, buying a house, or funding retirement.

What do you think your retirement account would look like right now if you had maintained at least some of that frugal creativity that got you through the lean years?

What Is Lifestyle Creep?

Lifestyle creep can be a common phenomenon experienced as one progresses through their career. Lifestyle creep, sometimes known as lifestyle inflation, is the process by which discretionary expenses increase as disposable income increases.

Disposable income is income that isn’t already budgeted for necessities like housing, transportation, and food.
It could include anything from concert tickets to morning lattes to book buying sprees—basically anything that is likely to fall more into a “want” category rather than something strictly “needed.”

Lifestyle creep can put you squarely behind the 8-ball when it comes to getting out of debt, saving for retirement, or meeting other big financial goals. And it’s one reason people can’t escape the vortex of living paycheck-to-paycheck.

It might seem counterintuitive at first, but here’s a simplified example using a clothing budget. If you make $100 a month and set aside 5% for a shopping allowance, that’s $5 a month. If you earn a promotion at work and are now making $150 a month, that 5% now equates to $7.50 a month.

Lifestyle creep happens when you up your clothes budget to match the percentage, instead of putting the extra $2.50 toward savings or investments. Over time, those numbers can add up. And earning more isn’t all fun and games. It can also mean more expenses, and larger retirement goals.

What Causes Lifestyle Creep?

Graduating from the penny-pinching college life to your first full-time job is only one instance that can trigger lifestyle creep. It also can happen with any type of bump in cash flow that’s not part of your monthly budget, such as a raise, bonus, tax refund, gift, or winning a scratch-off ticket.

There are also psychological factors at play here, including the sometimes compulsive urge to keep up with the Joneses.

And before you blow it off as just envy with a lack of willpower, consider this: A recent examination
of a lottery winner’s effect on the neighborhood found that the larger reward the lucky gambler collected, the more likely their neighbors were to incur more debt and even file for bankruptcy.

Say what?!

The social pressure to keep up with the consumption habits of family and friends, even when it’s conspicuous, can cause real and serious financial stress.

Social media can make matters even worse, with studies showing that post envy could be causing people to live beyond their means just so their feeds can reflect their acquaintances’.

But how do you resist the urge to upgrade your 2000-era sedan when your neighbor rolls up in a shiny new SUV? The answers might be simple on paper, but switching your mindset from “Should I spend this on a shopping spree or a vacation?” to “Should I put this money into savings or invest it?” can be easier said than done.

Discerning Needs Versus Wants

It’s normal to want to celebrate a new raise, but to avoid lifestyle creep, it can be important to make sure not to celebrate with something that will increase costs to the point of making the raise irrelevant.

For example, a person gets a raise that increases their income by $200 a month and then immediately trades in a fully paid-off car for a newer, fancier car (want), which results in a $300 monthly car payment.

Not only is the raise spent, but the amount of money available each month has also actually diminished. Sure, that person might have a car worthy of bragging about, but they may not be any healthier financially, even though they’re making more money.

On the other hand, for someone scraping by month to month, there might not be much of a choice but to fund some lifestyle upgrades with a raise—and lifestyle creep is not always a bad thing for someone working on being financially independent and secure.

Using the same example of the $200 monthly raise above, the recipient of the raise uses that money to buy a car needed to get to work to replace a lengthy public transportation commute each day, or perhaps invests in a professional development class to gain career advancement.

Either of those decisions might be perfectly worthwhile lifestyle changes that someone might be happy to pay for with a new raise. After all, part of financial wellness is investing in oneself when possible to achieve goals.

Tips for Avoiding Lifestyle Creep

It’s true–giving every extra penny of a cash windfall to a credit-card company doesn’t sound like much fun. But just knowing that lifestyle creep exists, and recognizing it in your own life, can put you ahead of the game when it comes to making better decisions with your money.

Here are a few possible ways you can avoid lifestyle creep while still enjoying the good things in life.

Celebrating Small

If you earn a raise, you should absolutely celebrate — especially if it’s higher than the average 2.9%. But to outsmart lifestyle creep, you may want to take a deep breath and resist the urge to run to the store for that expensive thing you’ve had your eye on. (What would Marie Kondo do?) Instead, consider a small way to congratulate yourself, like a dinner with friends.

Creating a Budget

One way to avoid lifestyle creep may be to give all income a job. Yep, that extra $200 a month shouldn’t just be chilling in a checking account with no purpose, like a freeloading cousin camping out on the couch.

Letting that extra money hang out in the checking account too long with nothing to do might lead to unplanned spending on a weekend trip or that budget-busting espresso maker that would be a tempting purchase. Putting that money to work might allow protection against impulse spending.

What exactly is “putting money to work”? It all comes down to budgeting. But don’t panic—gone are the days of lengthy kitchen-table sessions with bills and statements fanned out and calculations done by hand.
With the advent of online banking, most people are likely equipped with everything needed to make a budget right on your phone or computer.

Don’t have a basic budget already? Getting a raise can be a great time to crunch the numbers and be financially responsible with that money. If there’s already a budget in place, a new raise is a great time to reconfigure the budget to make sure it still ticks all the financial boxes.

Avoiding Mindless Spending

Mindless or pointless spending might happen when there is unexpected extra cash sitting in the bank account.
Much like the itch to spend that crisp, new $20 bill included in a childhood birthday card, there may be psychological and emotional temptation to spend money in the bank account without considering whether or not those new, modern table lamps or that brand new gaming system is really needed.

Casually spending money on unnecessary expenses could mean missing an opportunity to put money to work for the future, sustainably upgrading a lifestyle by planning ahead for financial growth.

Tracking Your Spending

When it comes to managing money, one question you don’t want to ask yourself is “Where did that money go?” Losing track of expenses could not only lead to a blown budget, but also overdraft fees, returned checks, or other unnecessary fees that could put you even further behind.

If you really struggle with this one, there’s an app for that. A large number of them, as a matter of fact. SoFi Relay, for example, lets you see all of your accounts in one place to help you categorize and track your spending, set goals, and look for ways to streamline. It also can serve as the central hub for automatic payments to your bills, savings, and investment accounts.

Turn on the Auto-Pilot

One of the easiest ways to ensure that you’re only spending what’s in the budget is to automate as many payments and contributions as possible. After all, money you don’t have is a lot easier to not spend.

This strategy can start at work. If you get a raise, you might elect to increase your 401(k) contribution (or start one if you haven’t yet). And while it means that your take-home pay may not change, your retirement account can painlessly grow.

You also can automate bill payments and savings and investment contributions, all with the intention of getting the money out of your tempted hands ASAP.

Outlining Clear Goals

What’s your endgame? Do you want to retire early with a million dollars or more in the bank? Is owning a home a part of your plan? One key to avoiding lifestyle creep is to set long-term financial goals and keep your eye on the prize.

Two financial goals that can be beneficial to almost everyone include growing a short-term emergency fund and longer-term savings plan. But from there, the sky’s the limit and your goals are entirely up to you.

Avoiding New Debt

This might seem like a no-brainer, but you aren’t likely to get out of debt if you keep adding new debt to the pile. A recent report revealed that consumers are willing to spend up to 83% more using a credit card than they would with cash.

Ditching the credit cards is entirely possible — your parents and grandparents lived without them every day. Modern credit cards weren’t introduced in the U.S. until around 1950 , which means that Boomers and their parents were raised on the philosophy that if you can’t afford it right now in full, you wait until you can.

And as the old saying goes, they turned out just fine.

Getting Your Head in the Game

Lifestyle creep likely isn’t impossible to reverse, but one could argue that the further you’ve allowed yourself to fall into the luxury lifestyle, the harder it could be to pull yourself out.

One way to get your head in the game is to make lists, starting with your needs (electricity) vs. wants (electric car.) From there, you could prioritize your “wants” and start to cut from the bottom.

Are there things in your life that just exist because they can? Consider eliminating them completely, or finding crafty ways to keep them around in more affordable ways, such as shopping consignment vs. retail or eating lunch out one day a week vs. all five.

And the jealousy that can mess with your head? All that glitters isn’t gold.

Choosing Your Friends Wisely

Peer pressure is a powerful motivator, but the perceived wealth of your friends, neighbors and acquaintances can be a far cry from the actual state of their finances.

In fact, the truth is that eight out of 10 working Americans are living paycheck-to-paycheck. That’s a far different reality from the picture they might paint on the internet.

If you seem to find yourself in situations where there’s pressure to overspend, including kids sports activities, nights out on the town, or an invite to a destination wedding, you may want to consider finding a circle of friends who share the same financial goals as you.

After all, it’s a lot easier to say “Let’s just cook at home to save money” to a friend who won’t pressure you to try the trendy new restaurant in town.

Spending a Raise

So what exactly should someone do with extra money after a raise? Paying more into a retirement account, paying off debts, or just putting some extra dollars towards a specific savings goal are some approaches to take.
A cash management account might be one helpful way to manage a raise and stay on top of a budget.

A cash management account like SoFi Money® allows users to spend, save, and earn all in one place. That means SoFi Money® can be used to budget a raise without having to deal with extra accounts or complicated transfers, all while earning interest.

Even better? SoFi Money® now offers a vault feature to separate money into various vaults all within one account. Each vault can help with saving for a different goal like a down payment on a car or house, an emergency fund, or a vacation. Want to regularly send a little bit of that raise to each savings goal?

No problem—within SoFi Money®, transferring money to each vault is easy and can be set up to be automatic. Moving money into different vaults could help meet savings and financial goals.

With any pay bump, saving for long-term goals in an investment account might be another strategy to consider. SoFi Invest® is one vehicle available to set up recurring deposits, either by linking to a SoFi Money® account or several other choices for funding the investment account.

While a raise might often come with unintended lifestyle creep, a smart financial strategy could be budgeting that new money towards paying off debts or saving up for the future rather than blowing it on unneeded lifestyle upgrades.

A cash management account like SoFi Money® may help budget and separate money into different vaults—an easy way to make sure that raise is being used to its fullest advantage.

Learn more about how SoFi Money® can help with saving to meet financial goals.

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.

SoFi Relay is offered through SoFi Wealth LLC, an SEC-registered investment advisor. For more information, please see our Form ADV Part 2A, a copy of which is available upon request and at . For additional information on SoFi Wealth LLC, SoFi Relay, and products and services of affiliates, see
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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.


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Negotiating a Credit Card Debt Settlement

There is a sinking feeling in your gut that comes with credit card debt. And that’s especially true when you have credit card debt that is starting to feel unmanageable. Let’s be honest: No one loves to be carrying a credit card balance. But to look at your statement each month and know you don’t have a way to pay it off can feel pretty devastating.

While negotiating a credit card settlement might not sound like a fun solution, sometimes it’s the right course of action. Does that sound daunting? Don’t worry, we’re going to walk you through what it means, and discuss ways you can get out from under your credit card debt.

Before we dive in, it’s important for you to know that this is an incredibly complex topic. We’re going to try to break it down the best we can, but please understand that this info is general in nature and does not take into account your specific objectives, financial situation, and needs; it should not be considered advice.

SoFi isn’t a credit repair company, and always recommends that you speak to a financial professional about your unique situation.

The Difference Between Secured and Unsecured Debt

First, let’s talk about the type of debt a credit card typically is. When a credit card company issues a credit card, it’s taking a big chance on getting its money back, plus interest. It’s more than likely that the credit card you have is considered “unsecured.”

All that means is that it isn’t connected to any of your assets that a credit card company can seize in the event that you default on your payments. Essentially, the credit card company is taking your word for it that you are going to come through with the monthly payments.

In contrast to an unsecured credit card is a mortgage loan, which is almost always secured. Put simply, unlike defaulting on a credit card, if you default on your mortgage, your lender can seize your house and put it up for sale or auction.

The hope is to recover some of that mortgage money, if not all of it. There’s no such recourse for unsecured debt, but that doesn’t mean defaulting is without consequences.

Credit Card Debt Negotiation Steps

Starting the process of negotiating credit card debt usually happens when you have multiple late or skipped payments—not just one. This may begin with an email or phone call to the credit card’s customer service department, or an old-school letter sent by snail mail.

You may wind up having to go through a number of customer service reps and managers before a deal is finally struck, but taking the initiative and being proactive are solid first steps.

It also may show them that you are handling the situation honestly and doing what you need to do, however unpleasant it is to admit that you are falling behind on your payments. Some additional tips for negotiating include:

•   Understanding the exact amount of money you owe on your account before starting negotiations
•   Research the different options available (we go more in depth into these options below)
•   When you are ready to start negotiating, call your credit card company and ask for the debt settlement department
•   Make sure to get the agreed upon terms in writing
•   Types of Credit Card Debt Settlements
•   Lump Sum Settlement

Types of Credit Card Debt Settlements

Lump Sum Settlement

This type of agreement is perhaps the most obvious option, and it means paying cash, and instantly getting out of credit card debt. It’s pretty straightforward and typically quick. This option lets you pay an agreed upon amount, and then get forgiveness for the rest of the debt you owe.

However, there is no guarantee as to what lump sum the credit card company might go for. It really depends on their policies, but being open and upfront about your situation and your willingness to work with them could help your cause.

Workout Agreement

This type of debt settlement can involve multiple different options. You may be able negotiate a lower interest rate or waive interest for a certain period of time. Additionally, you can talk to your credit card issuer about reducing your minimum payment or waiving late fees.

Hardship Agreement

This is also sometimes known as a forbearance program, this type of agreement could be a good option to negotiate if your financial issues are temporary. For example, if you were to lose your job you can call your issuer to see if they offer any hardship agreements.

Through a hardship program there are a few different options that are usually offered. Some include: lowering interest rate, removing late fees, reducing minimum payment, or even skipping a few payments.

Why a Credit Card Settlement May Not Be Your Best Option

Watching your credit card balance grow each month is scary. It’s unfortunate, but you may feel the need to reach out to your credit card company for a credit card settlement. Depending on your circumstances, it may be the only way to stop the hemorrhaging.

If you do reach out about a credit card settlement, your credit card privileges may get cut off. That means, of course, that you can’t use the credit card for any purchases or services, possibly even that same day. Your account may be frozen until a settlement agreement is reached between you and the credit card company. Nothing personal, of course. It’s just business.

It’s also almost certain that if you negotiate a credit card settlement, your credit score may lower. This is because your debt obligations are reported to the credit bureaus on a monthly basis—and if you aren’t making your payments in full, this will be noted by the credit bureaus.

When you negotiate a credit card settlement, you may be able to avoid bankruptcy and give the credit card company a chance to recoup some of its losses. This could stand in your favor going forward when it comes to rebuilding your credit and getting solvent again. But, again, there are no guarantees—and much depends on your financial habits and needs going forward.

It’s a process that certainly doesn’t tickle, but if you can get past the pain, you may be able to open up a second chance for yourself and your future by taking some proactive steps.

Solutions Beyond Credit Card Debt Settlements

Personal Loan

Consolidating all of your high-interest credit cards into one low-interest unsecured personal loan with a fixed monthly payment can help you get on a path to pay off the credit card debt you’re carrying.

SoFi personal loans, for example, are completely free of fees (no origination fees, no prepayment fees, and no late fees) and offer a variety of fixed terms, allowing qualified borrowers to pick the one that works best for them—at an interest rate that, ideally, is preferable to a high-interest rate credit card.

However, it’s important to know that getting a personal loan still means managing monthly debt payments. It requires the borrower to diligently pay off the loan without missing payments on a set schedule, with a firm end date.
A personal loan is known as closed-end credit for this reason, as opposed to a credit card, which is considered open-end credit, because it allows you to continue to charge debt (up to the credit limit) on a rolling basis, with no payoff date to work towards.

Transferring Balances

Essentially, a balance transfer is paying one credit card off with another. Most credit cards won’t let you use another card to make your payments, especially if it’s from the same lender. If your credit is in good shape, you can apply for a balance transfer credit card to pay down debt without high interest charges.

Many balance transfer credit cards offer an introductory 0% APR, but keep in mind that a sweet deal like that usually only lasts about six to 18 months . After that introductory rate expires, the interest rate can jump back to a scary level—and other terms, conditions, and balance transfer fees may also apply.

A SoFi personal loan can help simplify your credit card debt. It comes with a set loan term and fixed interest rate, so there are no surprise interest rate increases. And there are no prepayment penalties or origination fees.

Learn more about how using a SoFi personal loan to consolidate high-interest credit card debt could help you meet your goals.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see

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


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