SoFi

Do you often find yourself dreaming about what you would do if you were a millionaire? Maybe you fantasize about retiring early and traveling the world. Or maybe what excites you is being able to donate to a bunch of causes you care about.

No matter how you would spend your dough if you joined the ranks of young millionaires, you might suspect the only way you’ll ever be that rich is if you win the lottery.

But the road to wealth isn’t that narrow—there are many ways to become a millionaire. Sure, winning the lottery would make it simpler, but some middle-class workers retire with over a million dollars in savings because they made good financial decisions and have luck on their side.

Others may have started businesses that brought them success, advanced their careers so that they made enough to save seven figures, or made smart and successful investments.

Though there are no guarantees, here are some ideas that could help put you on the path toward becoming a millionaire:

Getting a Good Job and Increasing Your Income

You can’t join the ranks of the young millionaires if you’re not bringing in more money than you need for your basic necessities. But getting a good job and increasing your income isn’t always as easy as it sounds.

If you haven’t gone to college yet, going could increase your potential income. You could also go back to college for a master’s degree or even a doctorate to up your earning potential, or take on a side hustle.

If you don’t want to get more schooling or spend your nights and weekends hustling, you could look at people who have your degree who have become very successful.

Maybe they’ve figured out how to use it in unexpected ways or maybe they’re great at chasing opportunities for professional advancement. You could invite them out for coffee to learn from them!

Another way to potentially increase your income could be to start your own business. While starting a business is risky , since 20% of businesses fail in their first year and 50% fail by their fifth year, if you’re able to find the right product for your market, then you could potentially make a lot of money.

That’s how some young millionaires made their first millions—people like Grant Sabatier, who made his money by founding Millennial Money , said in an interview with Money Magazine that you need to keep searching until you find something to do that, “you like the most that makes you the most money.”

Eliminating Debt

One thing that could be holding you back from becoming a millionaire is debt—especially if that debt is “bad debt,” a term often used for high-interest debt. Eliminating your debt could be key because it’s difficult to build wealth if you’re paying a significant portion of your income toward interest.

That’s what billionaire Mark Cuban does. He’s said in the past that, “if you’ve got $25,000, $50,000, $100,000, you’re better off paying off any debt you have because that’s a guaranteed return.”

Paying off debt could help free up money to invest and help you build wealth. One way to pay off debt is the debt avalanche method, which suggests paying off the debts with the highest interest rates first and then focusing on debts with the next highest interest rates (while still making minimum payments on all of the debt, of course). A financial tracking program is just one method that could help you plan ways to pay off debt.

Eliminating debt isn’t just about paying off existing debt, it’s also about reducing the chances of going into debt in the future. Part of a debt payoff strategy could involve reducing spending so that, for example, you don’t need to rely on credit—or by setting a strict budget and paying with cash whenever possible.

You also might want to create an emergency fund by setting aside a certain amount every month so that if you have a financial setback, you don’t have to go into credit card debt.

Cutting Overspending and Saving Your Money

Getting control of your spending is critical to building wealth. One way to potentially become a millionaire is to save aggressively.

That doesn’t mean that you have to cut back on everything that gives you pleasure, but you could consider the happiness return on investment you get from the money that you spend. How big of an apartment or home do you truly need to be happy? What kind of car do you need? Do you need to buy a coffee every morning?

You could find ways to cut back on the things that don’t matter so much, but not skimping to the point that you miss out on things you love. For example, maybe you need your morning latte, but you can do without spin classes.

Or maybe coffee shop beverages can fall to the wayside, but you can’t get by without the fun of weekly Zumba. Also, you could focus on cutting back on big expenses instead of those that won’t have a huge impact on your budget.

For example, dining out only once a month, adjusting your thermostat higher or lower depending on the season, or finding a cheaper, smaller home to save a significant amount of money.

While cutting back can be hard, Sebatier told Money Magazine that it’s all about how you look at it. “You have to cut back, but you should view saving as an opportunity, not a sacrifice.”

One way to stay on top of managing your money is to create a debt reduction plan.

Making Smart Investments

When it comes to how to become a millionaire, getting your money to work for you is a common refrain. But investing is not a get rich quick scheme. Just as billionaire and investing wunderkind Warren Buffett says, “Successful investing takes time, discipline, and patience.”

Investing your money can seem complicated since there are so many ways you could invest your cash, but there are a few rules to know that could help you improve your chances of becoming a millionaire.

First, compound interest can make all the difference. Compound interest is what happens when the interest you earn on your investments starts earning interest.

The more time your money has to compound, the more it will grow. That’s why some save aggressively starting when they’re young.

Saving $100,000 by the time you’re 30 might not be possible for everyone, but the more you save when you’re young, the greater impact it could have on your net worth.

There are other ways to become a millionaire. Another option to help you on the road to $1 million could be to reduce the amount you spend on investment fees. High investment fees can have a big impact on your returns, so you might want to look into low-fee investments. If you’re new to investing a robo-advisor might be the right fit for you and could cost you no management fees.

Finally, you might want to make sure that you invest in a way that’s right for you throughout your life—which could mean investing more aggressively when you’re younger and gradually becoming more conservative in your investments as you age.

Ready to Get Started Investing?

Everyone might dream of becoming a millionaire, but that doesn’t mean it’s always possible. Becoming a young millionaire might involve a lot of sacrifices and luck—especially if you aren’t getting help from family members with deep pockets.

But becoming wealthy is still possible if you didn’t grow up with a silver spoon. You could start with these tips and see how far they take you on your path to being a young millionaire.

You can start investing your money with SoFi Invest. You can do it yourself by choosing stocks, ETFs, and cryptocurrency account, or let SoFi build a portfolio for you with automated investing.

Ready to get started? Start with as little as $1!

---

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.
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.

SOMN19174

Read more

Before we begin, we just wanted to let you know that the following article is meant for general informational purposes. For questions regarding estate planning and any related topics, please consult a legal professional.

You may have heard the old expression, “you can’t take it with you.” The “it” that you’d most likely like to leave behind requires a plan. When you pass, you can’t bring along your bank accounts, property, and investments.

So who gets your wealth? Have you thought about who will receive your assets and how your loved ones will be taken care of when you are gone? The process of putting together these specific directions is called estate planning.

Immediate Advantages of Estate Planning

Many younger people assume that estate planning is only for the old and the rich, but estate planning can be addressed at any time and in any tax bracket.

In fact, estate planning is not only about passing on your assets when you die, rather it includes what directions you would want to provide to loved ones, or who would take care of your children if you are a parent.

You can make changes to your estate plan along the way, as your life situation changes.

Even more important, estate planning is a way to start thinking through these decisions and put them down in writing to communicate to others. Rather than simply assuming that your loved ones would know what you want, you have the opportunity to get rid of potential ambiguity and arguments by defining your wishes.

What Is an Estate?

In the simplest terms, an estate is everything you own—money and assets, including your home and your car—at the time of your death. When you decide, in advance and in writing, who will get your assets and money, that’s estate planning.

Your heirs are the people who will receive your money and assets after you’re gone. The act of giving these things to your heirs is called asset distribution.

Your debts are also part of your estate—anything you owe on credit cards and loans may have to be paid off first by your estate before any further money or assets are distributed to your heirs.

Estate planning is not entirely about money. It may also leave instructions for how your incapacitation or death may be handled. For instance, you may not want to be kept on a life-support system if you were in a coma. You may want to be cremated instead of buried. These instructions can be included in your estate planning.

Creating an Estate Plan

Many people struggle with the idea of where to start, or simply do not think they need to have a plan. The simple fact is that estate planning will be different depending on your lifestage. Here is a rough idea of what you might want to explore based on your lifestage (don’t worry if you are not familiar with the documents listed, we will explain those later):

•   Are you single without any dependents? You may want to explore a durable power of attorney, letter of instruction, and defining beneficiary designations on your accounts.

•   Are you married without any dependents? You may want to explore a durable power of attorney, letter of instruction, living will, healthcare power of attorney, and defining beneficiary designations.

•   Do you have dependents? You may want to explore a durable power of attorney, letter of instruction, living will, healthcare power of attorney, will, and defining beneficiary designations.

Now that we’ve talked about what you might want to consider when developing your estate plan, let’s summarize what each of those documents does:

•   A durable power of attorney: This is a legal document in which you name another person to act on your behalf if you are unable to do so. You can grant limited or broad power to that person. Some examples include being able to pay your bills or make decisions about your investments.

•   A letter of instruction: This is a document that can help organize the logistics of your estate plan and give you an opportunity to provide a personalized message to your loved ones. This document could be used by your loved one to understand your wishes and easily access everything you own and owe.

•   A living will: This is a document that expresses your intentions regarding life-sustaining measures. It is important to understand that this expresses what you want but does not give anyone the authority to speak for you, which is why it’s normally accompanied by a healthcare power of attorney.

•   A healthcare power of attorney: This is a document that authorizes someone to make medical decisions for you in the event that you are unable to make them for yourself.

•   A will: This is a document that provides instructions for distributing your assets upon your death. There are additional provisions that could be added and details your attorney can work through, but for parents, this is also where they might designate a guardian.

•   Beneficiary designations: Beneficiary designations are made on accounts and insurance policies to establish who gets the account when you pass away. You may want to review these and make sure they align with your overall intentions and are updated as your life changes.

Asking Yourself the Following Questions Before Estate Planning

•   Who is the executor? Be sure it’s someone you can trust with your life. Literally.
•   Who will receive my assets? In most cases it’s children or next of kin, but you can leave your assets to anyone or anything, including charities.
•   Who gains custody of my children? Basically, who are your children’s godparents? Who is responsible for and worthy of raising your children if you are no longer there?

Partnering Up With an Attorney or Tax Professional

You might want to educate yourself all you can and make sure a professional has your back and can help you navigate the choppy waters of estate planning. A professional might help you create the documents that can make your estate official and advise you on how taxes may affect your plan.

Ultimately, you will have the final say on how you want your estate to be managed and executed, but a professional could help you arrive at educated, rational, and sensible decisions. They could also help communicate your objectives so that mistakes and miscommunications can be avoided.

They may even be able to help you plan your estate so that you can pay taxes correctly and possible pay even less in taxes than you may have done on your own.

An estate professional will more than likely charge you a fee, but the cost of having expert help may ultimately save you thousands of dollars in costs, legal and otherwise, if you make a mistake.

Getting Started on Your Estate Planning

Need some more tips to hash this out? That’s not uncommon. Estate planning is not as basic as it looks.

And if you’re just starting out, it may help to figure out a way to grow your assets so that when you do leave something behind, it could be significant and useful. Maybe even life-changing.

You could talk to a financial planner about how to get started on your financial journey. A professional can walk you through some of the initial steps of starting a financial plan, with your future goals in mind.

Work with SoFi Financial Planners to help create an effective plan for the long term.

---

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.

SOIN19200

Read more

Say you’re leaving your job. There are numerous things you must attend to before you clock out for the last time: clean out your desk, train your replacement, have an exit interview, attend your going-away pizza party.

One task that may not be top of mind, but is important, is figuring out what to do with the retirement account you have set up through the company you’re leaving. Once you separate from your employer you will have a few options to choose from when deciding what to do with your retirement savings and we want to make sure you’re well informed to make the best decision.

If you’re simply moving from a company with a 401(k) to another company with a 401(k), you may choose to complete a 401(k) rollover from the old account to your new one.

What if your new company doesn’t offer the same type of retirement account as your old one? Perhaps you’ve had a 401(k) for the past 10 years, but your new company provides a SEP IRA or SIMPLE IRA. How do you move your assets from your old retirement account to this new IRA?

Maybe your new employer doesn’t have a retirement account option at all. Or you could be leaving one job before having another one lined up. In these cases, you may want to open your ira investment account.

What’s an IRA Rollover?

An IRA rollover is the movement of funds from a qualified plan, like a 401(k) or 403(b), to an IRA. This scenario could come up when changing jobs or when switching accounts for reasons such as wanting lower fees and more investment options.

The concept of an IRA rollover is simple enough, but there are several factors that people should be aware of regarding what an IRA rollover is and how it works.

People generally roll their funds over so that their retirement money doesn’t lose its tax-deferred status. But, let’s say you leave your job and want to withdraw the money from your 401(k) so you can use it to pay some bills. In this case, you’d be taxed on the money and possibly receive a penalty for withdrawing funds before age 59 ½.

However, if you roll your money over instead of withdrawing it, you don’t have to pay taxes or fees for an early withdrawal. Plus, you can keep saving for retirement and accruing compound interest on that money.

When you roll funds over to a new IRA, you should follow several IRA rollover rules that can help ensure you do everything legally, don’t have to pay taxes, and don’t pay fines for any mistakes.

8 IRA Rollover Rules to Know

Rule 1: Decide What Type of Rollover You Want

You can choose between two types of rollovers and it’s crucial to know the differences between each.

First, you may choose a direct rollover, which is the moving of funds directly from a qualified retirement plan to your IRA, without your ever touching the money. Your original company may move these funds electronically or by sending a check to your IRA provider. With a direct rollover you don’t have to pay taxes or early distribution penalties since your funds move directly from one tax-sheltered account to another.

The second option is an indirect rollover. In this case, you withdraw money from your original retirement account by requesting a check made out to your name, then deposit it into your new IRA later.

Some people choose an indirect rollover because they need the money to accomplish short-term plans, or they haven’t decided what they want to do with the money upon leaving their job. Other times, it’s because they simply don’t know their options.

Many people prefer a direct rollover to an indirect rollover, because the process is simpler. With a direct rollover, you aren’t taxed on the money. With an indirect rollover, you are taxed, and if you’re under 59 ½ years old, you have to pay a 10% withdrawal fee, unless you follow specific IRA rollover rules. You should consult with a tax professional to understand the implications of an indirect rollover prior to making this election.

Keep in mind that a transfer is different from a rollover: A transfer is the movement of money between the same types of accounts, while a rollover is the movement of money from a qualified plan into a new plan or individual retirement account one type of retirement account to a different kind of retirement account, as would be the case when moving funds from a 403(b) to a traditional IRA.

Rule 2: Complete an Indirect Rollover Within 60 Days

If you do choose an indirect IRA rollover, your employer must withhold rollover 10–20% in taxes. If you later decide to deposit the funds into an IRA within the 60 day window, IRS rules require you to make up the taxes withheld with outside funds. Otherwise, you will be taxed on the withholding as income.

If you deposit the full amount…the amount you received plus the withheld taxes, you will report a tax credit of the withheld amount. The withholding will not be returned to you, but rather settled up when you file that years taxes.Keep in mind that this is a 60-day rule, not a two-month rule, so be sure to do the math correctly.

Rule 3: Don’t Forget the Same-Property Rule

When you withdraw assets from your retirement account for an indirect rollover, it’s beneficial to deposit those exact same assets into your IRA.

For example, if you take out $10,000, then $10,000 must go into your IRA, even if some of the original withdrawal was withheld for taxes. If you withdraw stocks, those same stocks must go into the new IRA, even if their value has changed.

This means that when you withdraw money, you can’t use the cash to invest, then put the money you earn from those investments into the IRA. That money would be considered regular income, so you’d be taxed on it.

If you break this rule, not only will you have to pay taxes, but you may also be required to pay a penalty.

Rule 4: You Can Only Do a Rollover Once per Year

If you’re rolling funds over from an IRA, you can only complete a rollover once every 12 months . There are many exceptions, such as trustee-to-trustee transfers, rollovers from a 401(k) plan to an IRA—and vice versa—and rollovers from a traditional IRA to a Roth IRA, which are commonly referred to as conversions.

Remember that the one-rollover-per-year rule refers to once every 12 months, not once every calendar year.

Rule 5: You Should Only Roll Assets Over From Same-Kind Accounts

Unfortunately, you don’t always have the ability to transfer funds directly from one type of retirement account to another. You can roll over from certain types to others, but not every kind of account is compatible with every other account. For example: You can roll funds from a Roth 401(k) into a Roth IRA, but not into a traditional IRA; and you can roll funds from a traditional IRA into a SIMPLE IRA, but only after two years.

These rules can be tricky to keep up with, so the IRS has put together a chart to make it easier. Most importantly, you want to transfer funds from one account to another with the same type of tax treatment, like a pre-tax 401(k) balance to a traditional IRA or a ROTH 401(k) balance to a Roth IRA.

When in doubt, consult the government’s official chart, and always discuss your plans with a tax advisor to confirm you’re making the right moves.

Rule 6: You Don’t Have to Transfer Everything

No, you are not required to roll your full balance over to your new IRA.

Granted, if you’re leaving a job and moving money from your retirement account with that company to an IRA, you may not want to leave any money behind.

But if you’re moving money from one IRA to another, it might be helpful to know that you can leave some assets in the original account if you want to.

Rule 7: You Can Roll Over Inherited Funds From Your Spouse

Rules for inherited funds differ depending on whether you’re inheriting assets from your spouse or from someone else, and sometimes they vary depending on what type of account you’re inheriting.

If you’re inheriting an account from your spouse, you can usually roll the money from their retirement account over to your own.

On the other hand, you may choose to assume the inherited IRA as your own—or you might name yourself the beneficiary and just leave all funds in their original accounts.

If you’ve inherited an account from someone other than your spouse, things are a bit more complicated. Unfortunately, you cannot treat the inherited account as your own, so rollovers aren’t an option. Some people may prefer to set up a separate inherited IRA or cash out the account and pay taxes on the money.

Rolling money over from an inherited account is complicated, so you may want to research and talk to a professional before taking action.

Rule 8: Keep the Aggregation Rule in Mind

The aggregation rule states that all your IRAs must be aggregated, or lumped together, when determining how much you owe in taxes.

This rule mainly affects people who are trying to make a backdoor Roth contribution , which is a funding process high-income earners may leverage to fund Roth IRAs. They use this method because although people aren’t allowed to contribute to a Roth IRA once they hit a certain income, there’s no income limit for people to convert a traditional IRA to a Roth IRA.

The aggregate rule makes pursuing backdoor Roth contributions trickier, because you could end up paying much more in taxes than you expected. If you want to make a backdoor Roth contribution , be sure to scrutinize all the rules, especially the aggregation rule, and speak to a tax advisor so that you don’t wind up with a larger tax bill than expected.

How to Do an IRA Rollover

Now that you know the IRA rollover rules, actually completing a rollover should be relatively easy.

First, decide which type of IRA you want to set up. If your employer provides you with an IRA, it will be a SEP or SIMPLE IRA, but if you set one up yourself, you’ll choose between a Roth and traditional IRA. There are pros and cons to each, but be sure to double-check that you can roll funds over from your original retirement account to whichever new type of account you select.

If you want to do a direct rollover, your employer can move your assets by making out a check to your IRA provider or by sending the money electronically. If you want to complete an indirect rollover, request to have the check made out to you.

If you don’t already have an IRA provider, choose the one you want to use to open your new IRA. It’s often a good idea to speak with your IRA provider if you have any questions along the way, whether you’re wondering about rollovers, transfers, or investments.

Consider SoFi as your IRA provider. SoFi offers both traditional and Roth IRAs, and you have many investment options—and zero transaction fees. With SoFi Invest®, you make the choice as to how active you want to be in the investing process. And with SoFi you always have a credentialed financial planner there to help.

Schedule a complimentary appointment with a SoFi Financial Planner.

---

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
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.

SOIN19180

Read more

If you were given the choice between having a secure future where you can accomplish goals and achieve dreams OR being financially insecure, it’s unlikely you would make the latter choice. To help turn the first choice into your reality, it’s important to have a solid financial plan in place.

To do this, it may be beneficial to go through a process of discerning and prioritizing your goals. You might try to determine where you are right now financially, and then set, implement, and track goals—tweaking as needed, which can include reaching out for expert help.

Saving and investing play key roles when financially planning for the future, and how you’ll invest will likely depend upon many factors, such as generation.

For some generations, it may be about planning for retirement, while others may want to focus on putting away cash for an uncertain future.

For younger generations, the focus is often on things like paying off student loans while also saving for a down payment on a house.

Because current financial positions and goals vary for people, this post will offer tips to help you create a plan that’s every bit as unique as you.

Setting Goals: What and Why

How you plan for your future depends, in large part, on your goals. Ones that people often have include:

•   paying down debt
•   saving for retirement
•   buying a home
•   starting a family
•   traveling

You’ll likely see some of your own goals in this list, and you may well have other goals that are not included. As you decide what’s most important to you, also consider the “why” of it all.

Paying down debt, for example, may be important to you—because the less interest you pay on outstanding debts, the more money you can save and invest for other items on your list.

Saving for retirement may include, for you, a desire to travel to the country of your heritage, while buying a home may represent true stability—a place where can raise a family, run a home-based business, and the like.

As another example, here are 10 financial milestones that you may set for yourself if you’re in your 30s. They may range from establishing a good credit score to paying off student loans and credit card debt—as well as include ways to budget for and maximize the part of your budget that’s set aside to have some fun.

When you know why you’re moving towards a certain goal, it can provide powerful motivation for you to stay the course, even if something unexpected happens—whether it’s the furnace on the fritz or an unanticipated surgery.

Understanding the Now

Although it may, at first, sound contradictory, one of the initial steps of planning for the future includes taking a deep dive into where you are right now. This includes things like:

•   your assets (what you own)
•   your debts (what you owe)
•   your income (what you bring in)
•   your expenses (what you pay out)

At a high level, savings can be determined by adding up what’s in checking and savings accounts, including emergency funds, vacation funds, and so forth. Add what you’ve put away into retirement accounts, a 529 account, and so on.

Debt balances can be calculated by collecting recent statements from credit card companies, student loan services, and so forth. Add the outstanding balances up.

As far as income, how much comes in monthly from wages/salaries, bonuses, interest, and dividends? Rather than using gross income amounts, it might be more helpful to consider your take-home pay along with pre-tax contributions—perhaps for retirement or a flexible spending account.

Then, list your relatively fixed expenses, which could include your rent or mortgage payment, what you pay for monthly utilities, property taxes (if applicable), insurance premiums, prescription costs, groceries, gas, and so forth. Also look at what you spend on clothing, hobbies, entertainment, and dining out. Are there any other expenses you need to consider?

This process can be handled manually, or you can leverage technology to aggregate your accounts and track your spending. Personal financial management tools can streamline your overall planning process by automatically updating information as you make progress.

These tools can also provide insights into your spending patterns as well as help you identify recurring charges you may have forgotten about Choosing to track your progress manually or with help is a matter of preference. If you would like technology to help with the heavy lifting, consider trying SoFi Relay.

It can be hard to balance living in the now while also saving for the future, but there are ways to plan so you can have your cake and eat it too—saving for the future while also living life to the fullest.

Creating a Financial Plan

At its simplest, when thinking about how to plan for the future, it might be helpful to connect the dots between where you are today and where you want to be to achieve the goals you’ve set. In other words, your mileage may vary, depending upon the distance you need to travel.

As just one example, let’s say you have a goal to pay down debt. If you examine your finances more closely, then perhaps you decide that it’s really a two-pronged issue. You need to:

•   accelerate how quickly you’re paying back your student loan debt
•   pay off your credit card debt to reach the point where you can pay off your outstanding balances monthly

It might be helpful to set a target date to accomplish each of these debt-reduction goals and then reverse engineer how much more you would need to pay each month to make that happen.

You could also explore, for example, how much more quickly you could pay off credit card debt if you consolidated them into a personal loan with a lower interest rate and/or whether refinancing your student loans is a good choice for you.

In this example, we’re looking at one goal. What can you do, though, if you have multiple goals to accomplish? If that’s the case (and that’s not uncommon), then prioritizing your goals may make the most sense. After all, if you spread yourself too thin, you may not see progress quickly enough and this could result in a loss of motivation.

Here’s one more thing to consider as you create your plan. It may be tempting to focus on just debt reduction (and, in some cases, that could be the right strategy), but it can also help to cultivate a pay-yourself-first attitude.

With this philosophy, the top priority is to put a predetermined amount of money into personal savings and investment accounts. When this is your main focus, it can help to ensure your discretionary spending doesn’t cut into your financial growth.

Implementing Your Plan

Once you’ve formulated a plan of attack, it’s time to put it into action! If, using our previous example, you want to pay off student loan debt, now might be the time to increase your payments by appropriate amounts to pay them off by your target date. A next possible step? Automate those payments to reduce the amount of time spent on managing this part of the plan.

If your goal is to save more money, the same concept can apply. Determine how much money should come out of your paycheck monthly and then you could automate that part of the plan.

If you’re ready to start a retirement account, you might consider a Traditional IRA or Roth IRA. For non-retirement accounts, you might consider a taxable account as step one—these can include bank accounts, money market accounts, and individual and joint investment accounts.

Monitoring Your Progress

As you automate payments, you’re using a set-it-and-forget-it strategy, freeing yourself up to work on other parts of your plan. And, that will likely include at least an annual review to see how it all is progressing.

Some people like to do that as part of ushering in the new year. Others may prefer spring, right around tax time, while still others might like to review their plan in the fall when they’re making employee benefits decisions. As with most parts of your unique plan for your future, there are many ways to do it right. It all depends on the individual.

If you discover that you need help with your plan or have questions, it can make sense to speak to a financial planner.

Investments: Planning for the Future

No two investors are alike. Having said that, there are patterns of investing and, if you know which kind of investor you are, it can help you to put your investments to work in a way that dovetails with your personality. In general, there are three investor types:

•   active investor
•   passive investor/low-maintenance investor
•   hands-off investor/automatic investor

You might look at this list and feel as though you know where you fit in. Or, you can take a quick investor quiz to gain insights. Once you know what kind of investor you are, you can determine what kind of investing works best for you.

First, let’s look at active investing.

Active Investing

If you want to be involved in each aspect of investing, embracing a hands-on approach, SoFi supports self-directed investors through free trading with active investing. This is a hands-on way to put your money to work, as you buy and sell stocks with zero SoFi fees and no account minimums.

A long-held investing myth says that you need to be an expert to trade stocks. This active investing program debunks that myth, allowing people who enjoy being involved in their investments to learn by doing. There are news updates and more in the SoFi app, and you can connect with other members at exclusive events—which demonstrates that, yes, you can do it yourself without doing it alone.

And, as soon as you start investing with SoFi, you get access to rate discounts on other products and become part of a community that is on a mission to get their money right. Plus, you get complimentary access to financial planners.

Passive Investor/Low-Maintenance Investor

If you like the idea of investing but don’t want to be significantly involved in making investment decisions, then you may fall into this category. This could mean that you have a “buy-and-hold” philosophy where you buy securities and plan to hold on to them for a longer period of time, throughout fluctuations of the market.

Or, it could mean that you’re open to more activity on your investment account, but you don’t want to spend much personal time studying the market and otherwise handling the details. If this sounds like you, then you may want to consider automated investing. Read on for more details!

Automated Investing

If setting it and forgetting it sounds good to you, then you might want to explore automated investing with SoFi. With this choice, you don’t have to follow the market to master it. SoFi professionals will help build and manage your portfolio without charging a management fee.

If you want to invest but don’t want to take on the stress of setting goals, diversifying your money, and rebalancing your portfolio, SoFi can help you with all of that. Financial planners can help create a plan for your future that can tackle multiple goals, adjusting your investments regularly, so your money is always invested where you want it to be.

They can also help diversify your portfolio, allocating across different financial investment types to help to manage risk. And, your access to financial planners is always complimentary.

Leveraging SoFi Invest®

Think about the goals you have for your future and the role that investments can play in helping you achieve those goals.. No one plan will work for every investor—everybody’s financial situation is different. But no matter what goals you’ve set, SoFi members get one-on-one access to financial planners to help you create a plan that’s uniquely yours.

Whether you’re a do-it-yourself investor or you want an automated solution, you can leverage SoFi Invest to help reach your financial goals.

---

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.

SOIN19073

Read more

When you hear the word bonds, you may think of the savings bonds your family members gave you on your birthday as a child. And you may not have given them much thought since.

But, as a generally lower-risk investment than stocks that offer a reliable source of interest payments, bonds can (and should) be a part of your grown-up investing strategy, too. Read on for an explanation of how they work—and how they can work for you.

What Are Bonds?

In short, bonds are loans you make to either a company or a government entity for a fixed period of time. The specific terms of the deal vary, but basically: You give someone money, they promise to pay it back in the future, and they pay you interest until they do.

For example, you might buy a GE bond that lends the company money for 20 years at 4% interest. For each $1,000 you invested, you would get $40 per year for 20 years; then you’d get your $1,000 back.

Why Invest in Bonds?

There are two good reasons to buy bonds—income and safety. Bonds pay interest at a fixed rate, usually twice a year. People in retirement who need a reliable source of income often invest in bonds.

High quality, investment grade bonds (more on this later) are typically safer, because the borrower is less likely to default on their promise to repay your investment. This doesn’t mean you can’t lose money if you need to sell the bond before it matures, but the issuer is unlikely to go broke. The price of bonds can fluctuate, but usually much less than the price of stocks. They are used in a portfolio to smooth out the volatility of stocks and reduce the risk of your overall investment strategy.

Who Issues Bonds?

There are four broad categories of bonds available to most investors:

• Treasury Bonds: Bond issued by the U.S. government.

• Corporate Bonds: Bonds issued by a corporation.

• Municipal Bonds: Bonds issued by a state or local government or agency (for example airports, school districts, and sewer or water authorities).

• Mortgage and Asset Backed Bonds: Bonds that pass through the interest on a bundle of mortgages or other financial assets such as student loans, car loans, or the accounts receivable of companies.

The main difference between them? Risk. The U.S. government (probably) won’t go broke, but a company might. Because the expected return is tied to risk, you are likely to see higher returns with a corporate bond than with a treasury bond. Municipal and mortgage and asset backed bonds vary widely in risk.

Just How Risky Are Bonds?

Depends on the issuer. To help investors understand the risk, corporate bonds are rated for risk by agencies such as S&P and Moody’s. The precise scale varies with the rating agency, but bonds rated AAA to BBB by S&P are considered “Investment Grade,” those rated BB+ to C are high-yield, or “junk bonds“. Bonds with a D rating are in default and not paying interest.

Muni and asset backed bonds are also rated by agencies on a similar scale. Muni ratings depend on the credit quality of the issuing city or state, while asset backed bonds depend on the quality of the assets backing the bonds. As a rule, investors demand higher interest on lower quality bonds. High-yield bonds yield more because the risk of default is higher. Note that ratings can (and do) change over time.

Bonds can also go up or down in value if interest rates change. You can buy a 20-year bond that only has 8 years left on it in the bond market. The price you’d pay for the bond depends on whether interest rates on similar bonds went up or down since it was issued. If this kind of bond pays 4% today, you would pay more than $1,000 for one issued some years ago that pays 5%. An old bond that pays only 3% would be worth less, since interest rates today are 4%.

Recommended: Bond Valuation Definition and How to Calculate It

Should I Buy Bonds?

Unless you are a very aggressive investor, you should probably have some bonds in your portfolio. Some people can’t stomach the wild swings of stock values. Adding even a small percentage of bonds to your investment mix can smooth out the volatility and might help you from panic selling when the market drops.

With that said, buying individual bonds isn’t always the best approach. Since most bonds have a face value of $1,000, it can be difficult and expensive to build up a diversified bond portfolio. Unless the bond portion of your portfolio is several hundred thousand dollars, it usually makes more sense to invest in bond mutual funds or exchange traded funds (ETFs). A typical bond fund will generally hold between dozens and hundreds of individual bond issues.

Bond ETFs generally contain bonds of similar types of issuer, maturity range, and quality.
(Again, the issuer is the entity that borrowed the money. Maturity is how long the bond holders have to wait for their money. The longer it is, higher the interest rate they usually get, but also the greater the risk that something will go wrong. Quality is the financial strength of the issuer. How likely is the borrower to not be able to pay back your investment?)

If you invest in SoFi Invest®, all but our most aggressive portfolios contain at least some bonds. We currently use nine different bond ETFs to build our portfolios. Each ETF contains different kind of bonds, which lets us use the right combination of bonds for each portfolio.

Not sure what the right investment strategy is for you? An investment account with SoFi makes it easy: Our technology helps you determine the right asset allocation mix for you, while advisors are available to offer you complimentary, personalized advice. Consider working with a SoFi Invest advisor today.

---

SoFi Wealth, LLC does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
The SoFi Wealth platform is operated and maintained by SoFi Wealth LLC, an SEC Registered Investment Advisor. Brokerage services are provided to clients of SoFi Wealth LLC by SoFi
Securities LLC, an affiliated broker-dealer registered with the Securities and Exchange Commission and a member of FINRA / SIPC. Investments are not FDIC Insured, have No Guarantee and May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Clearing and custody of all securities are provided by APEX Clearing Corporation.
WM17136

Read more