SoFi

Precious metals can be an important part of a diversified portfolio. Here’s what to know before you invest.

Read more

Put simply, income is the amount you earn whereas net worth is the total value of your assets minus any debt. When it comes to measuring your financial health, income isn’t the metric that matters. Sure, you want to know whether your income will help you reach your goals, but looking at your net worth is a better measure of your overall wealth.

That being said, it’s important to understand how both play into your finances, so let’s take a look at net worth vs income and how they factor into your financial health.

Income vs Net Worth: Two Measurements of Wealth

Both income and net worth can help measure the chances of someone creating wealth. However, the difference is that income is the primary way someone generates wealth, whereas net worth measures your level of wealth. To put it another way, income is how you make money, but it doesn’t necessarily lead to creating wealth.

Instead, looking at your net worth allows you to see the value of all your assets and liabilities at a specific point in time. It gives you a sense of your financial health in terms of whether you own more assets — such as your home, investments and cash — than liabilities (any money you owe, like credit card debt). Your net worth also allows you to see how much of your wealth is held in assets or cash. And it offers a reference point to help you measure your progress toward your financial goals.

Recommended: Should I Sell My House Now or Wait?

Is Net Worth More Important Than Income?

While income is a key aspect of your finances, net worth typically is more important. That’s because even if you have a large income, it doesn’t guarantee that you’ll generate more wealth than someone else who may have a slightly lower one. Sure, having a larger income can help you build wealth faster, but it’s all in how you handle your finances, such as the amount of money you save.

Let’s say your friend makes $100,000 per year but has a lot of debt, leading their net worth to be $15,000. On the other hand, you make $70,000 but have invested over 10 years, to the point where your net worth is $100,000. You have more wealth, and therefore, are more likely to be financially stable than your friend.

Another instance where income doesn’t correlate with wealth is when someone is older and getting ready to retire. Their income may be lower because they’re working part-time, but their wealth could be in the millions because they’ve worked for many years.

All this to say, income is important but only as important as how you use it to reach your financial goals.

How to Calculate Income

Calculating your income doesn’t simply mean looking at the number on your paycheck. You’ll also want to factor in other sources of income, such as any government benefits, commissions, tips and dividends. Don’t forget to include irregular or occasional income sources like cash gifts, inheritances and even tax refunds.

Make sure that when you add these up, it’s your net income and not gross income, as that will give you a more accurate picture of what you’re bringing in. Gross income is pre-tax money and before deductions are taken out. Net income, on the other hand, is income that has taxes and deductions taken out.

Example of Calculating Income

Let’s say you have a day job that offers bonuses and commissions. You also invest in securities that provide dividends.

Here’s how you would calculate your income:

•   Annual net salary: $64,350

•   Annual commissions: $3,500

•   Annual bonus: $2,000

•   Annual dividends: $3,234

TOTAL INCOME: $73,084

You can then use this total to calculate monthly and weekly income — in this case, it’s $6,090.33 per month and $1,405.46 per week.

How to Calculate Net Worth

Calculating your net worth involves creating a net worth statement so you can see a snapshot of your assets and liabilities.

Start by looking at your assets and determining the total amount of all accounts under this category. Assets are items that have some sort of monetary value. These include:

•   Checking accounts

•   Savings Accounts

•   Your home

•   Real estate

•   Retirement fund

•   Personal property (such as your vehicle)

•   Pension equity

•   Securities (like stocks and bonds)

•   Life insurance policy

•   Profit-sharing equity

Once you’ve calculated all of your assets, you’ll need to calculate the total amount of your liabilities. Liabilities are any debts or financial obligations you have, including:

•   Mortgage

•   Credit card balance

•   Personal loans

•   Auto loans

•   Student loans

•   Unpaid medical and dental bills

•   Home equity loans

•   Money you owe to family and friends

•   Unpaid taxes

After totaling up your assets and liabilities, subtract the latter from the former. This number will be your net worth. If your liabilities are greater than your assets, you’ll have a negative net worth. The more assets you have than liabilities, the higher your net worth will be.

Example of Calculating Net Worth

As an example, let’s say that Barbara decided to calculate her net worth. First, she’d list out her assets and liabilities:

ASSETS

Checking accounts	$600
Savings accounts	$10,000
Home	$365,000
401(k) balance	$24,399
Vehicle (current value)	$32,590
Brokerage account	$12,000
TOTAL:	$444,589

LIABILITIES

Mortgage	$200,000
Car loan	$29,251
Credit card	$4,126
Student loans	$36,700
Personal loans	$13,857
Unpaid medical bill	$300
TOTAL:	$284,234

Once she’d written that all out, she would be able to calculate her net worth using the following formula:

Total assets – total liabilities = net worth

$444,589 – $284,234 = $160,355

Barbara has a positive net worth of $160,355.

Ways to Improve Your Net Worth

Ideally, you’ll have a positive net worth that keeps growing over time. Here are several ways to improve your net worth.

1. Keep Track of Your Assets and Debt

Tracking your assets and debt will give you an accurate picture of where you stand. That way, you’ll be able to see your progress and what you need to improve or keep doing to grow your net worth. For instance, if you notice that your debt keeps growing, you can use this information to help you figure out why and take steps to rectify the situation.

2. Pay Off Debt

The fewer liabilities you have, the more your net worth will grow. To improve your net worth, you can focus on making sure you’re making on-time payments and avoid taking out new loans if possible. If your budget allows, consider making extra payments toward loans to pay off your debt faster. Some loans, like mortgages, may have prepayment penalties, so check with your lender before sending that extra check.

3. Increase Your Income

Getting a higher salary will help you build wealth by paying off debt or putting money toward investment accounts. Ideally, you want to increase your income and pay off your debts as soon as you can. To increase income, you can consider negotiating for more in your current job, looking for a new one, or starting a side hustle to help you make more.

4. Invest

Sticking your cash in a savings or checking account can only get you so far. To accelerate your wealth-building journey, you’ll need to invest some of your money.

Start investing by contributing to your employer-sponsored account (bonus if they offer a match), and then branch out to other products as you see fit.

The Takeaway

Your net worth is a snapshot of your finances at a specific point in time and will fluctuate. It’s a good measure to see whether you’re on track with your financial goals. The more you track your assets and liabilities, increase your income, and decrease your debt, the more your net worth will grow.

A money tracker tool like SoFi Insights can make it easy to keep track of all of this, with a bird’s-eye view of your account balances and tools to track your spending.

Find out where your finances stand.

---

Photo credit: iStock/GOCMEN

*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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.
SORL0523020

Read more

While there’s no universally required credit score needed to rent an apartment, having a solid credit score can certainly help your chances of a landlord handing you a set of keys. In general, a landlord will look for a credit score that is at least “good,” which is generally in the range of 670 to 739. However, that can vary by landlord or property manager, as well as the location in which you’re renting.

Read on to learn more about how your credit score can affect renting an apartment — and how you can approach renting if you have a lower credit score.

What Credit Score Do I Need to Rent an Apartment?

Truth is, the answer to what credit score you need to rent an apartment is a bit squishy. In general, you’ll have a better chance of approval if your credit score is at least deemed “good.”

What’s considered good? Credit scores are generally classified as follows per FICO® (keep in mind that different scoring models may vary):

•   Exceptional: 800-850

•   Very good: 740-799

•   Good: 670-739

•   Fair: 580-669

•   Very poor: 300-579

There also are variables that can affect whether your credit score qualifies you to rent an apartment. For example, if you live in a city where there is huge demand for apartments, landlords may give preference to those with higher credit scores.

Can You Get an Apartment if One Person Has Bad Credit?

If one person has bad credit, know that it will likely make it tougher for you to get an apartment. Landlords have a lot of leeway and can follow criteria of their choosing.

Still, it’s not impossible even if it is trickier. One smart strategy in this situation is to put the lease in the name of the person whose credit and income is best. You could also offer to show your income or provide a reference.

What Landlords Look at on Your Credit Report

When your landlord reads your credit report, they will be looking for clues about your financial health and habits.

Of much importance is your debt-to-income ratio. In a nutshell, this is the amount of your monthly pre-tax income that gets spent on debt payments. It’s certainly not news to you that filing for bankruptcy can have a negative impact on one’s credit. A landlord also may be spooked if you have hefty credit card balances.

Your credit history disclosed on your credit report also may include your rental history, since some landlords and rental property managers share your data with the credit bureaus. This can be a plus if you’ve been doing the right thing; if not, this can work against you.

Too many hard inquiries also can raise red flags for a landlord. This is because frequently applying for different types of credit could suggest financial instability, which increases risk in the eyes of lenders — as well as landlords.

How to Rent an Apartment with a Lower Credit Score

Just because your credit score isn’t stellar doesn’t mean you’re resigned to sleeping on a friend’s couch or living with your parents. There are ways to rent an apartment even with a lower credit score.

Pay a Higher Security Deposit

One way to show that your credit history is just history is by offering to make a higher security deposit. Say you are required to pay first and last month’s rent upfront. To sweeten the deal, maybe you tack on a couple additional months of rent.

If you want to instill confidence in your potential new landlord, this might do it. Just make sure you actually have the room in your budget to offer up the cash.

Recommended: What Is The Difference Between Transunion and Equifax?

Get a Cosigner

While getting a cosigner may put a damper on feeling like you’re finally a grownup, it may be worth sucking it up and getting a creditworthy parent or other trusted individual to cosign for your apartment. This can give your landlord peace of mind if someone is willing to pay the rent on your behalf if you’re unable to.

Just keep in mind that your cosigner will be on the hook if you miss a payment, and that cosigners generally must meet even steeper credit score and income requirements.

Play Up Your Income

Maybe your credit score is nothing to brag about, but you’ve worked hard and now have your finances in order, with solid savings and a good income. If you could show that you earn three or four times your rent on a monthly basis, that might divert attention from your lousy credit score. Additionally, if you have a solid stash in your savings account, that can also give your landlord assurance that you have the funds to cover your monthly rent.

Consider Getting a Roommate

Adding a roommate to your lease or rental agreement can increase your creditworthiness and your qualifying income. This is especially the case if you can find a roommate with good credit — and get your landlord to pull their credit first.

Benefits of Good Credit When Renting an Apartment

A landlord needs more than their gut instinct to help them determine who to rent to, which is why a credit score carries a lot of weight when it comes to getting your rental application approved. A good or — better still — an excellent score can give landlords the confidence to consider you for the apartment, especially if all other signals they get when checking on your background indicate they should give you the green light.

Having a solid credit score can help you to snag the apartment you want, and avoid the hassles associated with trying to secure an apartment when your credit isn’t as great, such as getting a roommate or a cosigner. Especially if you live in a city with a competitive rental market, a good credit score can be a serious edge.

Recommended: Does Net Worth Include Home Equity?

How to Monitor Your Credit Score

Ideally, you want to check your credit and get a copy of your credit report before you start apartment hunting. It’s important to know where you stand, and if there are any errors, you want to fix them right away.

Through the end of 2023, you can get free weekly credit reports from the three national credit reporting agencies, Equifax, Experian and TransUnion. To get your free reports, simply go to
AnnualCreditReport.com .

While your credit report provides information on your various credit accounts and their balances and your payment history, it does not include your credit score. You can check your credit score by looking at a loan or credit card statement or through an online credit score checker. You can also buy a score directly through credit reporting companies. Even if you might have checked your credit score not that long ago, don’t skip doing so again — your credit score updates every 30 to 45 days.

If your score is low, consider taking steps to improve it before jumping into your apartment search. Actions like paying down credit card balances and making sure you don’t have any more late or missed payments for a stretch can show progress.

Recommended: What Credit Score Is Needed to Buy a Car?

What to Expect in 2023

According to Zillow, demand for rentals will grow in the coming year. The U.S. rental property market is currently experiencing, heightened demand and high property prices, while those looking to rent are competing with a wealthier pool of renters. This is driving up prices, albeit at a slower rate than last year.

Further compounding the situation is the fact that housing prices are still so inflated that the percentage of people who can afford a home remains low. This could lead to a rental market that is even more competitive, which may not bode well for those with less than stellar credit.

Recommended: Should I Sell My House Now or Wait?

The Takeaway

You’ll want to shoot for having a good credit score — generally in the range of 570-739 — to get an apartment. While you may be able to still get an apartment if you don’t have solid credit, it will make it more challenging with the competition you’re likely to face.

If you have the luxury of time, do what’s necessary to improve your score so that when you begin your search, you’ll be an ideal candidate. An online credit monitoring tool like SoFi Insights can make it easier.

Stay on top of your credit score and easily see what impacts it.

---

Photo credit: iStock/MixMedia

*Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SORL0523021

Read more