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Budgeting for Basic Living Expenses

When creating a budget, people typically look at their income and expenses, and then decide how to prioritize spending and saving to fit their financial circumstances and goals. It can help to make a complete list of income and expenses as a starting point. The expenses listed may fall into two categories: basic living expenses and ones that go beyond bare necessities.

What Are Basic Living Expenses?

Basic living expenses, as the name implies, are ones necessary for daily living, with main categories including housing, food, clothing, transportation, healthcare, and relevant miscellaneous costs.

Although not everyone would define basic living expenses in the exact same way, here is a breakdown expenses to consider.

Housing

For homeowners, this can include their mortgage payment, property tax, and insurance payments, along with monthly utilities and basic maintenance costs. If living in a condo, this includes condominium fees. For renters, it can include the monthly rent payment, utilities, renter’s insurance, and any other housing-related costs they’re responsible for paying.

Food and Beverage

Basic expenses would include buying groceries for the family, but not restaurant food or other optional food or drink expenses.

Clothing

This includes clothes for work and school for the family, plus footwear, underwear, outerwear, casual clothing, pajamas, and so forth. Designer clothing and other pricier items are typically not categorized in basic living expenses.

Healthcare

Expenses in this category can range from monthly payments for healthcare insurance, to co-pays and additional bills from doctors, dentists, specialists, and so forth. It also includes co-pays for prescription medications and over the counter meds.

Transportation

Transportation expenses can include car payments and insurance, gas, and maintenance. It can also include Uber and taxi expenses, public transportation tickets, parking fees, and so forth.

Other Expenses

Cleaning supplies for the home or apartment, personal hygiene items, cell phone and internet bills, and so forth can also be included in a list of basic living expenses.

Wants Versus Needs

The challenge, in many of these categories, can be to successfully determine which of these expenses are truly needed and which are extras that would be more appropriately categorized as “wants.” In and of itself, there’s nothing wrong with paying for “wants” that fit within the budget but, for the purposes of making a basic living expense budget, it’s important to tease them apart.

Paying a cell phone bill, for example, could be considered important for safety and to facilitate communicating with work and family. Getting the latest and greatest cell phone for its bells and whistles, meanwhile, is crossing over into a want, not a need.

In the 1970s, something called the Growth-Share Matrix was developed, and it may help people who are wondering how to categorize living expenses and then prioritize them. The process includes listing all expenses, and then putting wants in one column and needs in another. Each column can then be divided into high or low priority. So, there would be four categories:

•   High-priority needs
•   High-priority wants
•   Low-priority needs
•   Low-priority wants

Another way to name these categories is:

•   Must have
•   Should have
•   Could have
•   Won’t have

This makes it easier to see what must be paid and what is optional. When budgeting, it can make it easier to choose where to put any discretionary funds. In other words, these methods may be able to help people answer these questions: “What are living expenses that must be paid? Which ones are more optional?”

When making a budget, it’s important to also account for any credit card payments, personal loan payments, student loan payments, and so forth that must be paid. After documenting all these expenses, figuring out how to calculate living expenses is as easy as some quick math. Figuring out how to budget for these expenses is the next item on the agenda.

Allocating Your Income

Although no two financial situations or budgets are exactly the same, there’s been a long-standing rule of thumb that says people shouldn’t spend more than 30% of their after-tax income on housing.

In September 2019, the U.S. Bureau of Labor Statistics released how people in the United States are spending their income, percentage-wise, in key categories. Here is an overview:

•   Housing: 32.8%
•   Transportation: 15.9%
•   Food: 12.9%
•   Personal insurance/pensions: 11.9%
•   Healthcare: 8.1%
•   Apparel and services: 3.0%

This accounts for nearly 85% of what people, on average, have been spending. It shows that, on average, people are slightly above the recommended percentage for housing expenses.

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Types of Budgeting Methods

There are numerous ways to craft a budget; in fact, we’ve created a guide to cover the different types of budgeting methods. One of the keys to effective budgeting is picking a strategy that allows for consistency. The following methods could help an individual create a budget.

Proportional Budget

For people who have divided up their expenses into needs and wants, proportional budgets may make sense. This is a budgetary strategy where monthly income is divided into three categories:

•   Needs
•   Wants
•   Savings

In one type of proportional budget—the 50/30/20 rule featured in All Your Worth by Elizabeth Warren and Amelia Warren-Tyagi—50% of income would go towards needs; 30% towards wants; and 20% towards savings. It typically makes sense to do this calculation with after-tax income, which is take-home pay.

Advantages of a proportional budget include that it’s a simple formula, which may make it easier to stick to. Plus, it keeps a focus on the big picture, clearly distinguishing between needs and wants. It can also be a useful method for people who want to save money in a straightforward way.

This budget method may not work well for people who are still working on separating needs from wants. And, if a person’s needs currently take up more than 50% of income earned, then the 50/30/20 percentage breakdown may work as a goal to work towards—but not as something that can be fully implemented right away.

Line-Item Budget

This is a granular method where you keep tracking of budget items, line by line, in relevant categories. This can be helpful for people who want to keep their focus on spending money on basic living expenses because they can easily see how much of their money is going into what category. This is also an easy method to create and use, but it doesn’t necessarily have a focus on savings, and it is more time intensive to manage.

Envelope Budget

This may be the most hands-on way to manage money. People using this method withdraw enough money from the bank each month to cover each budget category. Then, they put the appropriate amount for each category in a separate envelope: housing expenses in one, grocery expenses in another, and so forth.

Then, once a particular envelope is empty, then no more money can be spent in that category for that month, unless cash is taken from another envelope, which reduces the amount that can be spent on that envelope’s category. This method can work well for people who appreciate a tactile way of handling money. The need to get cash from the bank each month does add a step to the process and, like the line-item method, it doesn’t address savings.

Budgeting Tips

When creating a budget, it often becomes apparent how there are expenses that can be eliminated or at least reduced. For example, if internet access is a necessary expense for someone, perhaps because they sometimes work from home, there still may be ways to find a more cost-effective service.

It also generally makes sense to incorporate savings into a budget. First to build an emergency savings account and then to save for other personal goals, including for retirement. Although the proportional budget described above has savings as an integral part, the line-item budget and envelope budget don’t. But, a line can be added for savings—and an envelope can be added to the monthly pile.

Consistency also counts. Big time. When budgeting is a part of daily life, it can make it much easier to reach financial goals than when it’s a sporadic activity. If budgeting fades from focus for a month, don’t quit. Get right back on track.

Finally, when help is needed, ask for it.

SoFi Checking and Savings

An online checking and savings account provides a comprehensive option to spend, save, and earn all in one product—and it can help to keep budgeting on track. With this checking and savings account, users can see, each week, what spending looks like and adjust, as needed, to meet personal financial goals.

Account holders can create individual financial vaults in a single SoFi Checking and Savings® account. In other words, it allows people to create different umbrellas within the account so there is even more clarity on spending, savings, and earning. Each vault can be named(such as Housing Expenses or Savings) and, each time someone logs into their account, they can instantly see what’s in each vault and track savings progress. Account holders can also set up direct deposit and then easily allocate money to different vaults as they see fit.

SoFi Checking and Savings has no account fees and cash can be withdrawn free at more than 55,000 ATMs around the world. Plus, to help members with budgeting, SoFi offers financial advice to members at no cost, including to create a plan to help reach individual financial goals.

Budget, spend, save, and earn with SoFi Checking and Savings.

3 Great Benefits of Direct Deposit

1. It’s Faster
As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

2. It’s Like Clockwork
Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

3. It’s Secure
While checks can get lost in the mail – or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.



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.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet

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Creating a One-Year Savings Plan

A lot can happen in a year. (Don’t believe us? Go check out your Timehop.)

While many of the changes we see as we make our way around the sun aren’t exactly planned for, it is possible to create and implement long-term savings strategies in order to achieve specific financial objectives. A one-year savings plan that can give earners the opportunity to save for substantial goals that may seem overwhelming at first.

Which is to say, yes: a year from today, you could be richer than you are now, or potentially have a better cash cushion. If you play your cards right, you might be on your way toward funding that dream vacation or finally replacing your kitchen counters.

Of course, creating a plan that will actually work does involve some upfront effort which is exactly what we’re here to help with.

Decide What are You Saving For

Before you even glance at your budget, it’s important to get clear about exactly what you’re saving for. Creating a specific objective can give you the information you need to create a solid plan to make it happen—it might also help motivate you to stick to that plan once you’ve made it.

For a one-year saving plan, consider factors like your income and current cost of living to settle on something that will likely be achievable in just a year. For instance, maybe this year you want to stash cash for one of the following:

•   A vacation you’ve been dreaming of for years (pending pandemic complications, of course).
•   A down payment for a new car.
•   A down payment (or significant portion thereof) for a new home.
•   Long-awaited home improvements.
•   Putting extra money away for retirement.

You may be familiar with the idea of SMART goals—that objectives are most easily met when they’re Specific, Measurable, Achievable, Relevant and Time-bound.

In the world of one-year savings plans, that means coming up with a specific dollar figure for your goal and making sure it’s relevant enough to your life to keep you motivated.

You probably also want to consult your earnings and expenses to ensure that it’s a realistic goal; it’s going to be a lot harder to save up $5,000 if you’re making $30,000 than it is if you’re making $60,000. (We’ll dive further into budgeting and cuts in just a second.) Divide your total goal by 12 to see how much it would require you to set aside each month, which will give you better insight as to how achievable it really is.

Once you’ve got your goal worked out, write it down and post it in a prominent place in your home, like on your refrigerator. Studies have shown that you’re more likely to reach your goals if you take this simple action—so it’s worth picking up your pen!

How To Create a One-Year Saving Plan You’ll Stick To

Now that you’ve got a goal in mind, you still need to figure out how to turn it into a reality.

Here are some ideas on how you could do it..

Start with Your Existing Budget

You can’t make any big changes to your finances if you don’t know what they look like in the first place. And that means the first step toward revamping your budget is to take a closer look at how it looks right now.

If you don’t have a budget yet, take a month to track exactly where all your money is going. Be sure to include both regular, fixed expenses, like rent and insurance, as well as more flexible, discretionary spending like food and transportation. Be brutally honest—tracking every cent will give you the best chance at figuring out how to spend less.

Which leads us to our next step…

Get Creative with Budget Cuts

There are really only two ways to save money: make more of it, or spend less of it. And while asking for a raise or starting up a side-hustle might be smart moves, you only have so much leeway with your boss and time in your day. In other words, you likely have more control of how much you spend than how much you earn.

Since this is an elevated, short-term savings goal, you might be able to make more substantial cuts than you would if you were planning on implementing this savings strategy for the rest of your life. There are simple ways to cut down monthly expenses. For instance, could living without cable at home for a year be feasible? What about cutting off all your streaming services or quitting dining out or drinking?

Even without these extreme measures, you can likely find wiggle room in your discretionary spending. For example, a young couple might spend as little as $405 per month on groceries or as much as $805, according to the latest numbers from the USDA .

How can you dial down your own living expenses? You might quit buying overpriced, pre-packaged convenience foods or find ways to get creative with ramen. Maybe you can start doing your own oil changes rather than taking the car in for service. Think of this as an opportunity to learn some new life skills while also stashing some extra cash!

Regardless of how you get there, your goal is to be able to set aside the monthly amount you’ll need to meet the one-year savings goal you wrote down and pinned to your bulletin board. So get out your calculator, and don’t be afraid to get creative.

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Make a Plan for Your Investments

No matter how much money you save, it won’t go as far as it could if you just stash it under your mattress. Figuring out where to put your savings is an important step in your planning.

Different kinds of savings accounts are used to help individuals save for different goals. For example, a long-term goal like retirement may be best suited for an investment vehicle like a Roth IRA, which offers some tax advantages. But for shorter term goals like starting an emergency fund, an account that offers more flexibility and has less restrictions, like a high yield savings account, may be a better option.

Keep it Simple

Having a plan is one thing. Sticking to it is another. But if you keep a simple savings plan, you’ll stand a much better chance of actually making it work.

For instance, setting up automatic transfers that will shunt a portion of each paycheck into your savings account makes saving seamless—and ensures you don’t get stuck in that all-too-familiar situation at the end of the month where you accidentally spent what you intended to set aside.

And building in systemic cuts that you don’t have to think about (like ditching that monthly subscription box, for example) is a lot easier than poring over the coupon book every Sunday.

Set It, Don’t Forget It

Like any money goal, your one-year savings plan is going to take some grit to get to. But having the right tools at your disposal does make the process a whole lot less painful.

SoFi Checking and Savings® offers you an easy birds’-eye view of your finances, and its Vaults feature allows you to set aside savings for specific goals and purposes.

Best of all, there are no account fees, and you’ll earn rewards when you spend and save.

Learn more about how SoFi Checking and Savings® might help you achieve your financial goals.



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.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Understanding the Basics of an Employee Savings Plan

An employee savings plan is a tax-advantaged investment plan offered by an employer. The employer may offer to match any contribution made by employees, who can later use the funds for long-term financial goals like retirement.

The saving process is simplified by the employer taking automated deductions from an individual’s paycheck before income tax is collected. Using an employee savings plan provides you with a number of benefits. You may be able to increase your retirement savings contributions while also saving on taxes.

What Is an Employee Savings Plan?

Some employers offer an employee savings plan to help employees invest for retirement and other long-term financial goals, like a down payment on a house. Leveraging an employee savings plan is one of the first steps to building a simple savings plan you can stick to.

Each employee chooses how much they want to contribute to the plan each month. That amount is then deducted from the employee’s paycheck each month. If paychecks are distributed biweekly, the contribution will likely be split up between the two.

The automated process can help make it easier to save, and employees generally have the option to change their contribution amount based on their needs and goals.

Employee Savings Plans Contributions are made on a pre-tax basis. That means the funds are transferred to your savings plan before taxes are taken from your paycheck. This allows account holders to save money while paying taxes on a smaller portion of your salary.

In some cases, your employer may offer a matching contribution to any funds you contribute to your employee savings plan. Usually, there is a match limit equivalent to a certain percentage of your salary.

For instance, imagine your employer matches your contributions up to 3% of your salary and you earn $75,000 a year. That amounts to $2,250.

As long as you contribute at least $2,250 to your plan, your employer will give you the same amount, for a total of $4,500—plus anything over that amount you decide to contribute.

Types of Employee Savings Plans

There are several types of employee savings plans you may have access to through your job.

Many organizations offer qualified defined contribution plans, which means it qualifies for pre-tax contributions and tax-deferred growth. Private companies offer these through 401(k) plans, while public or non-profit organizations generally offer 403(b) or 457(b) plans.

Another type of employee savings plan you may see is a health savings account (HSA). If you have a high-deductible health plan (HDHP), this plan lets you save money tax-free to pay for qualified medical costs that aren’t covered by insurance.

A profit-sharing plan is less common, but also helps you save for retirement. Employees own shares of the company and receive distributions from the company either quarterly or annually. However, as an employee, you cannot add your own contribution to a profit-sharing plan.

A defined benefits plan, also known as a pension plan, is another type of employer sponsored plan. In this type of plan, employees are offered a specific benefit, which may be based on factors like your years of service at the company.

These days, very few companies offer this type of benefit, instead opting to offer a 401(k) plan or other similar option.

What Are the Benefits of an Employee Savings Plan?

There are a number of advantages to using an employee savings plan. The first is that contributions are tax-free. In most cases, income taxes are paid at the time of withdrawal. That may reduce the amount of taxes you’ll have to pay on your overall salary.

So even though your take-home pay is smaller because of those automatic contributions, your taxable income is also less. Plus you have a growing investment account to help you prepare for retirement or other goals.

Another advantage of participating in an employee savings plan is that your employer could offer a free contribution match as part of their benefits package to retain team members. Research by the Plan Sponsor Council of America found that 54% of employers with this type of plan also offer some type of contribution match.

Employee savings plans also come with larger annual contribution limits compared to individual retirement accounts (IRAs), which are also tax-advantaged. For the tax years 2020 and 2021, the limit for employee savings plans is $19,500 . A traditional IRA, on the other hand, only allows you to contribute $6,000 for the 2020 tax year .

If you’re 50 years or older, both types of plans do allow for an extra catch up contribution. You can add an extra $6,500 for eligible employee savings plans in 2020, but only an extra $1,000 for your IRA .

Employer matches do not count towards your plan’s contribution limit.

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What to Look Out For

While there are a number of advantages that come with an employee savings plan, there are also some pitfalls to beware of.

First, some employers require you to work at the company long enough to become vested before you can access your matched funds.

Being fully vested means that you’ve reached the minimum number of years to be able to make withdrawals from your employer match.

If you leave the company before becoming vested, you do get all of the contributions (and growth) you’ve made in your plan. But if you leave before becoming vested, you may lose the matched funds from your employer.

In some cases, you may receive a percentage of that money based on how long you’ve been there. Either way, it’s important to find out these details from the human resources department at your company, especially if you’re thinking about a job change.

Another downside to an employer savings plan is that although your contributions are tax-free, you do have to pay federal and state income taxes when you make withdrawals.

Another factor to consider is your tax bracket. Some people may expect to be in a higher tax bracket during their prime working years, so the immediate tax deduction may be helpful. Others may end up being in a higher tax bracket after they’ve accumulated wealth over decades and reach retirement age.

In addition to paying income taxes on your withdrawals, employee savings plans also typically come with a 10% early withdrawal penalty if you take out cash before reaching 59 ½ years old. There are some exceptions to this penalty, but be aware of it should you be considering making an early withdrawal.

Also remember that your plan contributions are investments that are subject to risk. It’s not like a savings account through a financial institution that offers a yield based on your deposits. You will typically be responsible for crafting your portfolio and managing your investments. The options available to you may vary based on the specific plan offered by your employer.

No matter how much you contribute, the value of your plan is impacted by the performance of your investment choices, regardless of how much money you contributed over the years. It is also helpful to review your goals regularly and gauge your risk based on your time horizons.

For instance, investors may opt to invest in riskier investment vehicles when they’re younger because the potential for gains may outweigh the risk. As they get older and approach retirement, they may begin to allocate less money to those higher-risk investments.

Finally, be aware of any administrative fees that come with your plan. The average cost is 0.45% of invested assets per year, but fees may vary based on the plan.

Explore different options available within your plan to choose the one that makes sense in terms of both investments and fees.

Borrowing from Your Employee Savings Plan

Many employee savings plans designed to save for retirement allow you to borrow funds from your account if you choose to. The IRS has limitations, such as only being able to borrow the lesser of 50% or $50,000.

You’ll pay interest just as you would with any other loan, but that money gets paid back into your account. This may be one option to consider if you find yourself in need of cash, but there are several drawbacks to be aware of.

The loan terms only apply while you remain at the job providing the employee savings plan. If you leave your job with a loan balance, you must repay the full amount by the due date of your next federal tax return.

Another downside is that if you don’t pay the loan back by its due date, it counts as a distribution and you will likely have to pay income taxes and penalty on the money.

You’ll also miss out on the growth those borrowed funds may have experienced, which could set back your retirement goals.

The Takeaway

An employee savings plan can be an advantageous way to save towards retirement and other goals. It can be especially beneficial if your employer offers matching contributions, which can help boost your savings.

Remember to learn the vesting rules of your company so you know how long you must work there in order to access those funds.

By starting early and automating the process, you can build an investment account with robust contributions throughout your career.

An employee savings plan may be just one part of a well-rounded financial portfolio, but there are other types savings accounts that can be useful.

For shorter goals, like an emergency fund, it may be worth looking into another type of account, like a checking or savings account.

SoFi Checking and Savings is an online bank account that allows users to save and spend in one place.

Looking to save in a convenient account without having to invest? Try SoFi Checking and Savings, which makes saving easy and free of account fees.



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 members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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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® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.

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How Long Should I Hold On to Financial Documents?

Somewhere deep down in the recesses of an office desk or folder file is the dreaded junk pile—that neglected mess of old bank statements, ATM receipts, tax statements and official-looking receipts. Most of us wouldn’t be able to tell someone what’s in that pile, let alone how old everything is.

Thus, we’re left with the existential question: Toss it all in the bin or quietly shut the file drawer and back away, continuing to ignore it until it bursts open one day?

We’re happy to report that there is, in fact, a happy medium. Instead of going Marie Kondo on your financial statements, here’s how to keep exactly what you need, sort it simply, and dispose of it properly when it no longer serves a purpose.

The Importance of Financial Statements

“Out of sight, out of mind” is a cliche for a reason. Once taxes are filed, paychecks are deposited, and the rent or mortgage is paid, we tend to forget about these transactions, dumping the receipts in a deep file cabinet or throwing them away altogether.

However, the consequences of financial documents and bank statements stick around long after they’ve been settled. For example, the IRS can come calling years after a person files taxes if the organization suspects that income was misreported. Or, in the event of loss or damage, having a record of purchase for big-ticket items like electronics or jewelry can make it easier to file a claim.

Keeping track of financial statements can help serve as protection or proof if a transaction is challenged or misreported. Without the statement, people might spend days trying to obtain duplicate records, when they could have just had them neatly filed in the first place.

Not everything needs to be saved forever, but some things should be safely filed away for a rainy day.

What to Keep and For How Long

Like items in a grocery store, each type of financial document has its own expiration date. Some will be relevant years after they’ve been filed; others can be tossed within months. Here’s the general rule of thumb of how long a person should keep each statement:

Tax Documents: 6-7 Years

Keep tax documents—anything related to filing taxes—around for seven years . Why so long? The IRS can audit anyone up to three years after they file if the agency suspects that an error was made in “good faith,” aka an accident.

That also applies to the opposite situation: If a filer thinks the IRS made an error, the filer can submit an amended return up to three years after the fact for a refund.

Additionally, the IRS has six years to follow up on returns if it thinks the filer underreported income by more than 25% .

It’s not a bad idea to keep the tax return, in addition to supporting documents. That could include evidence of:

•   Retirement plan contributions
•   Charitable contributions
•   Interest payments on a mortgage
•   Alimony or child support payments

Record of Sales: 3 Years

From selling stock to a home, and every large sale in between, it could be smart to keep these records of sale for at least three years after the transaction takes place . These documents can be called up in tax-related issues.

Paycheck Stubs, Bills, Bank Statements, Investment Statements: 1 Year

If someone isn’t using direct deposit for payday, they should keep their physical paychecks for a year . Once they receive their W-2 and confirm that the amounts match, the stubs can go.

Utility bills, bank statements, and other bills should stick around for a year , just to be safe. Budgeters can use them to compare balances month over month. It also can be a helpful habit to check over bank and credit card statements each month. It’s a chance to catch and dispute fraudulent or incorrect charges . In addition, bills for services like medical treatment and auto repair should be kept for at least for a year for reference.

Investment statements that are distributed quarterly should be kept on hand until the annual statement is revealed and the numbers are lined up.

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Receipts, Resolved Credit Card Statements: Toss It

Unless purchases are logged manually, a person should feel comfortable tossing receipts almost as soon as they acquire them. As long as they don’t plan to return the item, all they should do is confirm the amount against the debit or credit card charge, then send that little slip to the trash.

Similarly, if a credit card is paid in full each month, there’s not much reason to keep the statement lying around. Again, it can be used to check charged amounts and spot mistakes or fraud, but once statements are resolved against transactions, it should be okay to ditch the statement.

Although there are suggestions for how long people should keep a statement, at the end of the day, they should trust their gut. If there’s an urge to hold on to something not listed above, keep it.

Three Ways to Store Sensitive Documents

It won’t matter what a person saves and shreds if they don’t know where to find records in the long run. Safely storing sensitive financial documents doesn’t really mean tucking them away and forgetting about them. Here are a few ways to store and organize financial records:

•   Use an old-school filing system. Finding an affordable, fire-safe file box to keep statements in is already a massive step up from the bottom of a junk drawer. Everyone will have their own approach to logical filing, but it could be done by year, type of record, or institution the record comes from.

Some might be tempted to go extra safe and take this paperwork to a deposit box at the bank. However, if the documentation is needed, it won’t do a person much good sitting miles away in a bank vault. Keeping it close and safe is probably preferable.
•   Scan and save online. Many smartphones come with the capability to scan documents, and there are other well-reviewed scanning apps on the market. Those who tend to lose paper might choose to scan everything and save it online. The only hitch is keeping up with the scanning, and saving all documents to the cloud instead of just on the phone.
•   Go paperless. Many institutions offer paper-free transactions, meaning customers don’t get statements in the mail. Online banks, in particular, have made this a priority. Going paperless does not mean having to log on to each site to get financial information, but it does mean a person is less likely to lose papers.

Going paperless with financial statements requires a little more work—people can’t just wait for documents to arrive in the mail. But if done correctly, they can find the papers they need with the click of a few buttons.

Go Paperless With SoFi

Going paperless with records doesn’t have to be tricky or time consuming. SoFi Checking and Savings is an online money management account that’s optimized for digital use. The mobile-first experience means easy access to funds anytime, anywhere. Plus, no account or ATM fees could mean savings compared to a traditional bank.

Learn more about SoFi Checking and Savings today!



SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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.
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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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rolled dollar bills

How Does a Money Order Work?

Money is fluid, meaning it can be readily converted into many other forms for any number of reasons. Money orders are one form of payment, although they (like checks) may seem like a pre-internet, musty relic if you don’t know much about them. Sometimes, though, they can be useful.

For those of you who are new to money orders, here’s a guide.

What Is a Money Order?

Think of a money order as a paper check that can never bounce because it has been prepaid by the sender. It can be cashed or deposited just like a check, but it offers a few benefits over checks beyond never bouncing.

For one thing, if for whatever reason you don’t have a bank account, that isn’t a problem. You don’t need a bank account to get a money order, cash one, or even use money orders to pay bills.

To send a money order, here’s the protocol of the U.S. Postal Service:

1. Take cash, a debit card, or a traveler’s check. You cannot pay with a credit card.
2. Fill out the money order at the counter with a retail associate.
3. Pay the dollar value of the money order plus the issuing fee.

Recommend: Can You Buy a Money Order With a Credit Card?

Where to Get a Money Order

Many of the biggest banks offer money orders, and often require that they be purchased at a branch. There can be a $5 fee when buying a money order worth up to $1,000 (though the fee may be waived for premium accounts).

Sometimes the money order fee is also waived for members of the military. However, many banks require that you already have an account with them to purchase a money order.

Money orders are also issued at places like Walmart (with a maximum fee of 88 cents, and the exact fee varying by location), convenience stores, credit unions, and the Postal Service.

Postal Service fees for money orders are based on the dollar amount: $1.25 for a money order of up to $500, $1.75 for one from $500 to $1,000, and 45 cents for postal military money orders issued by military facilities.

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Open a SoFi Checking and Savings Account and start earning 1% APY on your cash!


Another Possible Advantage

Money orders may be safer than some other forms of money. For example, while a check contains sensitive personal information like your home address, phone number, and bank account number (plus the name of anyone else on the account), a money order usually only contains the names of the payer and payee.

So a money order is usually a more anonymous and therefore a potentially more secure method of payment than a check, although some money order issuers may require an address in case the recipient needs to contact the sender about the payment.

Sometimes both halves of the transaction may have to include this information. If you’re unsure, the best bet is to just ask.

Potential Drawbacks

Fees. While you can pay bills with money orders, the small fees can add up if you’re relying on them for that purpose.

Check cashing stores may charge 3.99% to 4.99% to cash a money order. Many banks usually will do it for free, but there are banks that will deposit a portion of the order and then, after a couple of days, deposit the rest.

Payment limits. Usually $1,000 is the ceiling for most money orders.

Inconvenience. The fact that many banks require your presence to process a money order may make putting money orders you receive into use less convenient. .

The cap on a money order’s value also means there’s a time investment if, say, you need to pay $2,000 to someone—that’s two money orders, two fees, and twice as much time spent getting them issued.

Use in scams. A big strike against money orders overall—and this is why banks can be somewhat cautious in accepting them—is that they can be used in scams. Money orders are perceived as a safe way to receive payments, and that is true when they are legitimate.

But the news is full of stories about counterfeit money orders that revolve around suspicious prizes, employment opportunities, classified ads, and so on.

Because money orders are not checks, it can make them harder to trace. It’s a good idea to keep your receipt until you are sure the order has been received and cashed.

Alternatives to Money Orders

Sometimes vendors or recipients aren’t able to accept a check, and a money order might make sense. But there are digital age options like peer-to-peer or P2P transfers.

P2P platforms are often a free service offered by financial institutions that lets users send and receive money, usually in minutes.

And P2P transfers are generally quick, as fast as a few seconds.

Other options are covered in this guide on how to transfer money from one bank to another, including transactions between accounts you own, and between you and other people.

A P2P Service With Perks

One of the best things about money is the freedom to spend it on whatever you want, in whatever fashion that works best for you. The days of paper checks and money orders feel numbered.

But with all the P2P apps and services out there, it can feel tough to know what you might actually need. One thing’s for sure: Simple, quick P2P transfers aren’t going anywhere.

A SoFi Checking and Savings® online banking account allows a member to send money to anyone, anywhere, even if the recipient does not have a SoFi Checking and Savings® account. If the recipient does, the transfer happens instantaneously.

There is no minimum to open a SoFi Checking and Savings® account, and there are no monthly fees or many other common types of fees.

Try easy P2P transfers with SoFi Checking and Savings.®



SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC .
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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