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Sep

2022

14 Tips for Saving Money on a Low Income

By Krystal Ndoni | Budgeting & Goals, Family Finances, money | Comments Off

If you have a low income and sometimes struggle to make ends meet, you are hardly alone. As of now, 64% of Americans live paycheck to paycheck, meaning almost two out of every three people are feeling somewhat strapped.
Factors that can make saving money challenging include inflation (the cost of living has been rising steeply) and heavy debt loads, with the average person carrying $6,000+ on their credit card balance.

These two forces can quickly eat away income, making it feel impossible to save. Thankfully, there’s a way forward—with a little strategizing.

Here, learn 14 smart tips for how to save money on a low income. They can help boost your financial wellness.

Smart Ways to Save Money with Low Income

1. Finding a Budget Method That Suits You

A budget is a way for you to track your income, help you make good financial decisions, and plan towards goals.
It paints a picture of how much money you have coming in and going out and how you are allocating funds, which you can use to identify areas for improvement. A budget also will help you see what resources you have available to cover your living expenses. With it, you can see how to make money stretch further.

There are a wide range of budget methods to choose from. A traditional approach is building a line item budget, which involves tracking your expenses in a spreadsheet. You can build a spreadsheet from scratch, or use a template.

Google Sheets has a free template that’s great for beginners, and you can also create a budget in Excel.

Apps are an automated form of budgeting—they track all the expenses for you. If you prefer keeping track by hand, you can find budget-ready notebooks.

Whatever style or programs you use, it’s essential to find one that works for you, helps you save, and can assist in your progress towards a financial goal. Decide what technique works best for you.

2. Watching Money Spent on Food and Drink

If you’re thinking about how to save money with a low income, one wise move can be dining in. That may mean opting for pasta at home instead of the cute Italian place nearby.

Making meals at home is typically cheaper than eating out. And the gap has widened: In 2021, meals at home increased 2% in price. The cost of eating out, however, increased 9% that same year!

Cooking at home is cheap as long as your grocery bill is sensible. Look for budget-friendly recipes that are simple and use all the ingredients in your pantry. Search online for affordable recipes, including recipes under $10. You’ll likely find many options.

Choose more affordable proteins like eggs, beans, chicken, fish, and quinoa over beef and lamb. Red meats typically cost more than other proteins. The U.S. Bureau of Labor Statistics shows that ground beef, a less expensive cut, ranged from $4.10 to $5.90 per pound in May 2021. Any cut of chicken, on the other hand, ranged from $1.50 to $3.40 per pound.

Finally, you might want to trade wine for beer…or go on a dry spell. Alcohol is a costlier commodity than other beverages. Consider looking for alternatives like antioxidant-packed teas, juice, or reliable tap water. You might decide to save alcoholic drinks for special occasions like celebrations for a while to cut costs.

3. Getting Rid of Debt One Step at a Time

Studies show that debt can cause stress and negatively impact mental and even physical health. Paying off debt can be a major motivation to save money. It’s one less bill to pay at the end of the month, and the freedom is empowering.

How to approach debt reduction? Always be sure to pay at least the minimum amount due. Then consider these two techniques that can help you be financially stable with a low income:

• In the snowball method, you use extra funds to pay off the smallest debt first, giving you a sense of accomplishment for wiping out a balance. Then you move on to the next smallest debt.

• In the avalanche method, you use extra funds to pay off high-interest accounts first, regardless of the balance. That can be a wise move since this is the kind of debt that often keeps people owing money for a long period of time. Credit card debt, which currently has interest rates of 15% to 19%, is a common example of high-interest debt.

You also can combine your debts into one account with a debt consolidation loan. These personal loans typically have a significantly lower APR (annual percentage rate) which can save you considerable money in the long run.

4. Finding Ways to Get Rid of Non-essentials

Look at your budget, and separate your list of basic living expenses from non-essentials.

Essential expenses will include housing, food and drink, transportation, utility bills, and more. An example of transportation costs might be car payments, car insurance, gas, monthly train passes, and so forth.

Non-essentials usually include wants vs. needs (items like clothing you like but don’t require, and entertainment). If you’re a sneakerhead or handbag collector, it may be time to pause shopping. But if you need fresh clothes and shoes for work, set a target amount you can afford to spend that month. Make your dollars stretch with sales racks at stores or second-hand steals.

Love video games and eating out? Look at alternatives. Consider investing in cheaper board games and hosting game nights. Or, make friends with video console owners!

5. Changing to a Cheaper Entertainment Subscription Model

Can’t live without Netflix? What about Netflix, HBO, Disney, and Hulu? Combined, those streaming services can quickly total $35 per month before taxes. In one year, that’ll set you back $420.

While it’s important to unwind, sometimes cutting entertainment is worth the savings. Consider free entertainment on your TV or computer. There are plenty of apps that offer free on-demand and live streaming services. You can also get classic TV antennas that pick up free national channels.

Finally, try the library. Most carry more than just books—movies too. You just need a library card.

6. Cutting Back on Larger Expenses

Looking for other ways to save money on a low income? You can also find cheaper options for large bills in your budget to save money when you have a lower income.

Your biggest expense will probably be housing, so start there. Several factors affect rent or mortgages, like location and amenities. Consider living in a cheaper neighborhood temporarily. Also, a home with fewer amenities like a patio or pool are typically cheaper.

Consider getting roommates to split housing costs or even going rent-free. If you have family nearby—it might be worth asking to live with them for a low fee or even rent-free, provided you have a plan to get on your feet or can contribute to the household (say, by cooking or cleaning).

Transportation is another large cost. If your job is a safe and reasonable distance to bike to, try it out. Bikes are low-cost maintenance—with the benefit of staying fit and going green.

7. Saving What You Can

Try to cut habits that add up. A $5 fancy coffee once a week costs $260 a year. On a smaller income, that can eat away your earnings. If you can save $5 or $10 a week—that’s a good start. It’s better than saving zero dollars. But, developing a financial plan is a key step to saving anything you can.

You won’t know how much money you have until you have a budget in place. Once you have a picture of your money, look at where you can cut costs. It may be in categories like groceries, shopping, or entertainment, which are flexible costs.

8. Separating Money for Yourself From Other Expenses

Though you pay utility companies, the landlord, and your debt, remember to pay yourself. One technique: Save whatever change you have leftover from bills. Put it in a jar, and deposit it into a savings account regularly.

Living within your means or spending less of what you earn on living expenses can help you keep more of your earnings. If you have a significant amount of money leftover at the end of each month, create new savings goals like a home purchase fund or a retirement fund.

9. Turning On Alerts for Bill Payments

Get reminders for your bills. This will help you avoid late fees, which can eat up your funds.

When you open an online bank account, you can sign up for alerts on upcoming bills. Some banks offer a feature on mobile and browser programs that allows you to create alerts for your bills. You can add any type of upcoming bill you have, like your internet or electricity bill due dates, and get reminders via text, email, or phone notifications that a bill is due soon.

10. Spending Less on Your Car

A car can be expensive. Some tips to make it more affordable:

• Buy a car—don’t lease. You get more value paying off a car compared to leasing a car. A lease also comes with more restrictions and costly penalties. It’s also more expensive in the long run than buying pre-owned.

• Buy used. Used cars are cheaper. And, because they’re used, the insurance tends to be cheaper as well. Buying a pre-owned car means it won’t lose value as quickly as a new car. Some estimates say that a new car loses 40% of its value in the first year.

• Aim to get a car that gets great gas mileage. An SUV or truck can easily cost $75 for a full tank. If you’re paying for a gas guzzler, it might be worth downsizing to a car that gets better gas mileage.

11. Finding Ways to Cut Entertainment Costs

Reading, listening to music, and tuning into your favorite program has its health benefits. From reducing stress and pain to improving memory—it’s important to have a little fun.

Instead of booking concert tickets for your favorite band, consider listening to their tunes on free apps (YouTube, for instance). Also check listings and see which local bands are playing; that could be a good way to discover some new favorites.

If you enjoy a good show, check out free TV streaming apps like Tubi or Pluto TV. Both have a great selection of movies and shows on demand or live.

12. Eliminating Your Bad Habits

When asking yourself, “How can I improve my financial situation?” look at your good and bad spending habits.
Do you buy groceries at the gourmet deli instead of a cheaper supermarket? Do you tend to eat out because you didn’t pack a lunch? Do you leave the AC running in your apartment while you’re out all day?

These are all costly habits you can change. Find a cheaper grocery store. You’ll find your dollar can stretch a lot further with cheaper prices. Try meal prepping on weekends so you can pack lunches for work each week. Lastly, run electricity only when you need it—and compare bills. You’ll likely see a difference.

13. Committing to a Month of No Spending

A no-spend challenge can be a fun way to save.

A no spend-challenge means that you avoid discretionary spending altogether, except for necessities like rent and groceries. That means not spending money on movie theater tickets, clothes, or even chocolate.

Write down a list of your non-essential expenses, like buying a cup of coffee each morning or eating out with friends on the weekend. Try alternatives like making coffee at home or taking a walk in a park instead of brunch with your friends. Let them know you’re doing the challenge—they might even join.

14. Getting Help if You Need It

If you find yourself still living paycheck to paycheck, there’s help.

If you have substantial debt, consider getting free debt and credit counseling from the nonprofit National Foundation for Credit Counseling (NFCC). The sessions take place over the phone or online. Call or fill out an online form to get started.

Also, cities, states, and the federal government provide help in the form of subsidized housing, discounted healthcare and free groceries. Simply call the 211 network 24/7 to share your situation and get connected to the right people.

You can also use the government’s benefit finder that can match you with the right programs.

15. Automating Your Savings

Once you have a budget in place, it’s easier to know how much to save a month.

To simplify saving (as mentioned briefly above), try automating transfers, a feature many banks offer that moves money from your checking account to your savings account on a certain date. For example, if you’re paid every Friday, you can set up an automatic transfer of the desired amount to your savings or investment accounts.

If you put away just $50 each week, you’ll have $2600 at the end of the year.

Why Saving Money With a Low Income Is Possible

No matter what your income, it’s tempting to live like a rock star or just try to keep up with your higher-earning friends. Or you might feel like your smaller earnings are not worth saving, and you’ll wait till you make more. But it’s possible to save more than you think even on a lower income.

If you make savings a priority and adjust your lifestyle to your income, it can pay off and help you increase your financial wellbeing. Simple changes like learning to budget, shopping at cheaper grocery stores, trading in your car for a greener one, or buying second hand can all help you take control. These moves can also help you pay down any debt you may have, build your rainy-day savings, and achieve longer-term financial goals.

The Takeaway

Whether you earn a lot or a little, living within your means always pays off.

Budgeting is the first step to getting your finances organized. It’ll help you see how much money you have to cover your monthly expenses and how much you have leftover for savings. You’ll also see a clearer picture of your spending habits.

Once you have a sense of your spending habits, find ways to spend smarter. That means finding cheaper options for necessities and cutting non-essential spending.

Finally, set attainable savings goals and put your cash away in a high-yield account. SoFi can help you here: When you open an online bank account with direct deposit, you’ll earn a competitive APY, pay zero account fees, and have tools to track your expenses, set up bill payments, and automate savings.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Why is saving money so hard?

Saving can often be hard because of our mindset. We don’t focus on creating and sticking to a budget and instead spend feely, in the moment. If you are following a budget but find it hard to free up cash to save, you might take on a side hustle to help bring in more income.

What happens if you don’t save money?

Not having savings puts you in a precarious position. Having money in savings is a safety net for unexpected expenses like a medical bill or job loss. Without one, you may find yourself unable to pay for bills, which could cause you to take on high-interest debt and/or pull you closer towards poverty. It’s wise to have at least three to six months’ of living expenses stored away in case of emergency.

How do I get the motivation to save when I do not make much?

With social media in today’s culture, it might seem like everyone has what they want (except you). So it’s important to put on blinders, and focus on your journey. Delete apps that encourage you to overspend, and ask trusted friends or mentors to navigate this territory together. Save whatever amount you can: Don’t get discouraged by comparing yourself to others’ savings plans.

Photo credit: iStock/Rocco-Herrmann

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.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://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.

SOBK0622023

Sep

2022

What Is a Nostro Account? How Does it Work?

All You Need to Know About Nostro Accounts

By Paulina Likos | Financial Independence, money, Terminology | Comments Off

When a domestic bank needs to handle foreign transactions, they can establish a nostro account with a foreign or correspondent bank, which holds the funds and makes transactions on behalf of the domestic bank. Nostro comes from the Latin, meaning “ours.”

Having a nostro account enables the bank to process transactions for their customers in other countries without having to set up a base of operations abroad. The correspondent bank in the other country handles deposits and other transactions, which are denominated in the local currency, minus any foreign transaction fees.

Since nostro accounts are bank-to-bank accounts, not personal ones, it’s unlikely you’ll encounter one of these. But it’s useful to know how financial matters work between countries, in case you’re thinking about what to do with leftover foreign currency, or other financial dealings while traveling or doing business.

What Is a Nostro Account?

A nostro account is set up by a bank in one country, let’s call it the domestic bank, and the funds are held and partly managed by a bank in another country (the foreign bank).

The foreign bank holds all the funds needed for the domestic bank’s transactions in that country, denominated in the local currency, within the nostro account.

When customers of the domestic bank have relocated, or are traveling or doing business abroad, they can use the foreign bank to make deposits and withdrawals, and so on. The foreign bank works with the domestic bank to ensure that the currency exchange for all transactions is accurate.

A nostro account is the bank’s bank account in another country. Individuals do not have nostro accounts. This system operates behind the scenes, and isn’t something you need to think about if you’re wondering how to invest in a foreign currency, although nostro and vostro accounts do help with foreign currency trading.

How Does a Nostro Account Work?

When opening a nostro account, you open an account with another bank in a foreign country. The foreign bank is also sometimes called the facilitator bank or correspondent bank.

Financial institutions and large corporations that are involved in international trade will typically set up nostro accounts. This gives the organization the ability to hold funds in a foreign currency (via the facilitator bank), without the need to convert its own currency into a foreign currency.

Interestingly, for accounting purposes, the foreign bank calls this account a vostro account, meaning “yours.” It is the same as the nostro account, but each bank uses a separate term for their accounting purposes.

Recommended: What Are Traveler’s Checks?

Example of a Payment Using a Nostro Account

What is a nostro account and how, exactly, does it work in real life?

Say that a small domestic bank located in Colombia has a number of customers who are traveling, living, and working in the U.S. temporarily. The Colombian bank might establish a nostro account with a bank in the U.S. to offer services to those customers.

The U.S. bank would be the facilitator bank in this arrangement. As such, the U.S. bank could accept deposits on behalf of the domestic Colombian bank into its nostro account. Those deposits would be denominated in U.S. dollars (which is also considered the world’s reserve currency).

Funds, such as deposits to the U.S. bank, could then be forwarded to the domestic bank in Colombia through the SWIFT system. SWIFT is the Society for Worldwide Interbank Financial Telecommunications, a cooperative that offers safe and secure financial communications to facilitate cross-border transactions.

The Colombian bank could then convert the deposits to its local currency, and credit customers’ accounts with the corresponding amount of money, minus any fees charged.

Recommended: What Is Forex Trading?

Nostro Account vs. Vostro Account

The terns nostro and vostro both describe the same bank account, but from each bank’s perspective. That’s because the domestic bank looks at the funds in the other bank as “ours” — nostro.

Meanwhile, the bank in the other country that holds the account considers it a “vostro” account (vostro means “yours). The money in the account is held in a foreign currency (i.e., the currency of the correspondent bank), then converted to local currency once the funds are transferred to the domestic bank.

Essentially, the terms vostro and nostro simply help to distinguish between the two sets of records that must be kept and reconciled by the two banks.

Advantages of a Nostro Account

• There are several advantages to having a nostro account.

• Ease of transactions in conducting international currency exchanges.

• Nostro accounts allow you to pay money in your currency without having to incur foreign exchange risk.

• Nostro accounts allow holders to keep funds in a foreign currency.

Disadvantages of a Nostro Account

• There are also some disadvantages that come along with maintaining a nostro account.

• There may be some added expenses associated with money transfers using nostro accounts.

• Since you are working with financial institutions outside of the U.S., there are rules and regulations you have to comply with.

The Takeaway

Nostro accounts are an important behind-the-scenes system that banks and large corporations rely on to make international and foreign exchange transactions seamless. This specialized system helps settle international trades and payments without one bank having to physically set up operations in a new country.

Nostro is Latin for “ours,” which is the term used by the domestic or originating bank. Vostro means “yours” and is the term used by the correspondent or facilitating bank that holds the funds on behalf of the other institution. The two terms refer to the exact same account, just from different perspectives for accounting reasons.

Despite the convenience, nostro accounts come with certain fees and expenses, along with regulations that must be adhered to when executing these transactions.

Fortunately, most individuals don’t have to consider vostro or nostro systems when opening up their personal bank accounts. For example, if you open an all-in-one bank account with SoFi, you’ll just enjoy the convenience of banking easily and securely from your phone or computer, no matter what is happening across borders. If you set up direct deposit, you can earn a competitive interest rate. Also, SoFi members pay no account or overdraft fees, and can access complimentary financial advice from professionals as needed.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is a nostro account and why is it used?

A nostro account is a bank account a bank holds at a foreign bank denominated in a foreign currency where the account is held, and facilitates foreign exchange transactions with ease.

How do I open a nostro account?

Individuals don’t open nostro accounts. If you are part of a large bank or corporation, you would establish a nostro account with a bank overseas.

Does a nostro account earn interest?

A nostro account may earn interest, so it’s likely that deposits made with the foreign bank would offer competitive rates to customers relative to that location.

Photo credit: iStock/delihayat

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SOBK0422004

Sep

2022

5 Cash Management Strategies You Should Know

By Walecia Konrad | Budgeting & Goals, Building Your Career, money | Comments Off

Cash management is a term often used by businesses to determine how much revenue coming in is available for day-to-day operations, and how much is available for investing in the future of the business.

But cash management is important for individuals, too. Your own personal balance sheet is not unlike that of a business. You want to determine how much of your income is available for covering expenses, discretionary spending, and investing for your future.

When you take control of your spending and saving in proportion to your income, you’re engaging in cash management. Here, we’ll explain the process in more depth, highlight the benefits you’ll reap, and guide you through this process, step by step.

What Is Cash Management?

You may wonder about the meaning of cash management; it can sound like a complicated term. But here’s the simple truth: Cash management is all about managing the money that’s coming in and the money that goes out in the best way possible for your day-to-day living. You can also think of it as cash planning, as it helps you stay in good financial shape today and tomorrow. Let’s look at this through a somewhat different lens: Solid money management strategies like the ones we’ll explore help you maintain healthy cash balances, stay on budget, earn a return on your savings, and reduce expensive debt.

💡 Recommended: Business Cash Management, Explained

Why Is Cash Management Important?

Good cash management is essential for a business’s financial stability. By the same token, borrowing cash management techniques that businesses use can help individuals enhance their overall financial wellness.

Cash Management Strategies

The concept of cash management is straightforward, but implementing it can become a bit more complex as individuals deal with financial ups and downs. These five strategies can help you adopt an efficient cash management process worthy of any corporate Chief Financial Officer.

1. Create a Realistic Budget

Think of your budget like a personal cash flow statement, which is a financial statement businesses often use to monitor income and expenses each month. Your personal budget can work the same way, becoming your personal cash flow statement.

If you’re often wondering at the end of the month where all your money went, that’s likely a sign it’s time to create a realistic budget. This can give you a clear picture of your monthly cash flow (money you earn) and your monthly cash outflow (money you spend).

From there, you can take the necessary steps to manage your cash flow to help you avoid too much debt, set financial goals, and save for the future. Once you accomplish that, you’ll be enjoying a good example of cash management. And it’s easier than you might think! Creating a budget isn’t difficult. You’ll simply need to gather some of your financial information and do some calculating. Let’s explore what financial info you’ll need below.

Income

Income includes your salary, bonuses, self-employed income, rental income, and all investment income including interest, dividends, and returns.

For the purposes of cash flow budgeting, you want to work with after-tax income, or the money that’s actually available to you instead of pretax gross numbers. So, this means take-home pay, not your gross salary.

Any extra money — such as bonuses, tax returns, or money from side gigs — should be factored in, as they are earned and with taxes owed in mind.

Expenses

Essential expenses should include things like the following:

• Housing and utilities

• Food

• Childcare

• Medical expenses

• Insurance premiums

• Car payments and maintenance

• Public transportation costs

• Clothing

Expenses can also include discretionary spending. This includes the things you want but don’t necessarily need, such as entertainment, travel, and other non-essential items.

Then there’s debt. Do you have student loans, credit card debt, or any other debt? If so, this is the liability side of your cash flow statement. You’ll need to take a close look at that.

2. Accurately Estimate Costs

Just like a business, the more accurate your budget is, the more efficient your finances will be.This is where tracking expenses comes in. You may find it makes sense to track your expenses for one to three months so you can determine exactly where your money is going. You can do this using your own spreadsheet or budgeting apps such as SoFi Relay.

Here are a few common living expenses that can help you create your own list. Once you have a finalized list, you can then use it to determine how much you’re spending on living expenses.

• Housing

◦ Rent

◦ Mortgage

◦ Utilities

◦ Maintenance

◦ Insurance

• Transportation

◦ Car payments

◦ Maintenance

◦ Gas and tolls

◦ Parking

◦ Public transportation costs

◦ Taxis and ride shares

◦ Auto insurance

• Childcare

◦ Day care

◦ After-school programs

◦ Summer camp

◦ Tuition

◦ Babysitting

◦ College tuition

• Insurance

◦ Health insurance premiums (if not deducted from your paycheck)

◦ Auto and home insurance premiums

◦ Life insurance premiums

◦ Disability income insurance premiums

• Food

◦ Groceries

◦ Takeout and restaurants

• Health

◦ Deductibles, copays, and coinsurance

◦ Prescription drug costs

◦ Over-the-counter (OTC) drugs

◦ Eyeglasses and contacts

• Entertainment

◦ Concert, theater, and movie tickets

◦ Paid streaming and podcast services

◦ Books

◦ Travel

• Pets

◦ Food

◦ Flea and tick prevention/other medications

◦ Vet bills

◦ Pet insurance

• Personal

◦ Clothing/shoes/accessories

◦ Haircare and other grooming

◦ Toiletries/cosmetics

◦ Gym membership

3. Be Mindful of Cash Flow

You can use your income and spending data to better manage your cash flow. One approach to consider: Separating your income into different “buckets” using a percentage system.

With the 70-20-10 rule, you aim to put 70% of your income into essential and discretionary spending, 20% toward savings or paying off debt, and 10% toward investing and charitable giving.

These “buckets” can help you prioritize and achieve your financial goals. If your spending exceeds 70% of your income, you can find ways to reduce discretionary spending. How, exactly? Cutting back on takeout and restaurant meals, streaming services, and clothing purchases can all add up to more savings.

You may also find you need to make more drastic cost-cutting moves, such as finding less expensive housing or transportation. This can be especially important if you are paying off debt. If you are carrying heavy student loans and/or credit card debt, you may find you need to devote even more than 20% of your income to paying that down so you can avoid the high-interest payments and make way for other savings. This could include an emergency fund or health savings account (HSA).

The 10% investing allocation is where you focus on long-term financial goals, such as saving for retirement or future education expenses. It also offers a place to give back with charitable contributions.

4. Invest Extra Cash

Successful companies invest extra cash back into the business so it can grow. The same notion works for personal finances. Where you invest your extra cash that’s destined for short- and long-term savings is an important aspect of cash management.

For short-term savings, high-yield savings accounts, money market funds, certificates of deposit (CDs), and cash management accounts may all pay more interest than a traditional savings account.

Funds earmarked for long-term savings are usually best made as contributions to the following kinds of accounts:

• IRAs

• 401(k)s

• 403(b)s

• Self-employed retirement savings plans

• Other long-term tax-advantaged accounts

This isn’t money you need soon, so it can be invested more aggressively than your short-term savings.

5. Avoid Bookkeeping Inaccuracies

With any cash management or budgeting process, being fluid and staying on top of your finances is key. There are times when you may need to allocate more toward debt payment and other expenditures, as well as times when you can focus on saving.

Regularly tracking expenses and adjusting your buckets accordingly will help ensure no inaccuracies creep in and keep you on track for your financial goals. Also, regularly checking your account balances and reviewing statements (online, in an app, or on a hard copy) is vital too. Accurate bookkeeping enables you to stay on top of cash management while balancing short-term needs with long-term financial planning.

The Takeaway

As you’ve seen from these examples of cash management, it’s a process that need not be complicated. By adopting these cash management concepts, you’ll be able to manage your cash flow, create a budget, and stay on top of your finances. What’s more, they’ll also guide you towards meeting your long-term goals as well by helping you manage debt and save for tomorrow.

Bank Better With SoFi

Cash management strategies work as well for individuals as they do for businesses. But it can help a person along to have a partner in growing your money. A SoFi Checking and Savings bank account can be just that. We offer eligible accounts a super-competitive APY, plus we don’t charge you minimum balance or monthly fees. What’s more, you’ll have access to a network of 55,000 fee-free ATMs. All of this means you’ll have more money to manage!

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

Photo credit: iStock/ptasha

Sep

2022

13 Tips for Aggressively Saving Money

By Rebecca Lake | Budgeting & Goals, Family Finances, money | Comments Off

Saving money can help you to feel more in control of your finances and your life. When you have cash stashed away, you know you are prepared for financial emergencies and can also be working toward your short-term goals (like planning a wedding) or long-term ones, like retirement.

Often, though, saving happens gradually, like a slow drip. But there are people who want to save more aggressively, or there could be a moment in your life that spurs you on to accrue as much money quickly as you can.

If you’re interested in how to aggressively save money, there are smart strategies to help you do just that. Implementing an aggressive savings budget takes a certain amount of commitment, since you may need to make some significant lifestyle changes. That can be worth it, however, if the payoff is watching your money grow faster.

Read on to learn how to quickly grow your savings, including:

• What is an aggressive savings plan?

• What are the benefits of saving money quickly?

• How can you create an aggressive savings plan?

What Is an Aggressive Savings Plan?

An aggressive savings plan is a blueprint for setting aside a sizable amount of your income, typically over a fairly short time period. A 30-year-old who’s hoping to retire by 40, for example, might utilize an aggressive savings plan to save and invest 50% or 60% of their take-home pay over a period of 10 years to reach their goal.

For perspective, the personal savings rate in the U.S. was 5.4%, as of May 2022. So the vast majority of people aren’t saving aggressively on a regular basis. Taking an aggressive approach to savings is something you might consider only if you have a specific goal you’re interested in achieving with your money.

Why an Aggressive Savings Plan Can Be Beneficial

Following an aggressive savings budget takes financial discipline, and it may not be right for every person or every financial situation. If you can stick with an aggressive savings plan, however, there are some tangible benefits you might be able to reap.

Here’s why an aggressive savings plan can work in your favor:

• You can set aside money for large or small goals.

• Reaching your savings goals can take less time.

• Saving money becomes a habit.

• You can learn to manage money better.

• It becomes easier to learn to live on less.

• You can avoid debt when you’re focused on saving vs. spending.

• It teaches you how to prioritize needs vs. wants.

Saving aggressively can become a lifestyle if you’re able to accustom yourself to spending less. But even if you only apply an aggressive savings plan for a few months, you might be surprised at just how much money you can set aside.

Whether you follow a turbocharged savings plan for a short or long time, it can definitely improve your financial status and even be a form of financial self-care, since you’re likely avoiding debt and improving your money mindset.

Tips for Building an Aggressive Savings Plan

There’s no single strategy for how to save aggressively; instead, there are numerous steps you can take to shape your savings plan. If you’d like to stop overspending money and start saving instead, these tips can help you get your finances on the right track.

1. Paying Yourself First

“Pay yourself first” is an often-repeated piece of personal finance advice. It simply means that you should set some of your paychecks aside for saving before doing anything else. The good news is that paying yourself first is relatively easy to do.

Some of the ways you can pay yourself first include:

• Contributing part of your salary to your 401k at work

• Scheduling recurring transfers from checking to savings each payday

• Using direct deposit to route payments directly to savings and bypass checking.

Paying yourself first ensures that money makes it to savings, rather than being spent. If you’ve struggled with sticking to a savings habit, adopting this mentality can make it easier to stay the course.

2. Getting Out of Debt

Debt can be a significant obstacle to saving money. If you’re spending hundreds or even thousands of dollars paying off credit cards, student loans, or other debts each month, you might have very little left to save.

Getting rid of your debt can help to free up more money so you can follow through on an aggressive savings budget. Focusing on debt payoff also requires you to control spending habits, since the goal is to not create any new debts in the process.

If you have high-interest credit card debt, consider balance-transfer offers that charge zero percent for a period of time, giving you breathing room to pay down your balance. Or you might take out a lower interest rate personal loan to consolidate and pay off your debt.

Recommended: 15 Creative Ways to Save Money

3. Tracking All of Your Spending

An aggressive savings plan won’t really work if you don’t know exactly where your money is going. Keeping track of your spending is essential for making your plan work.

There are different ways to track spending, including:

• Writing purchases down by hand

• Using a spreadsheet

• Linking bank accounts to an expense tracking or budgeting app.

The method you choose isn’t as important as tracking all of your expenses regularly, including cash spending. Getting into the habit of tracking expenses can make the next step in your aggressive savings plan easier to tackle. You’ll be much more aware of where your money goes and how you might economize.

4. Utilizing a Budgeting Method

A budget is a plan for spending money each month. Making a budget each month is central to how to save aggressively, since you can decide how to allocate the money you’re earning.

In its most basic form, making a budget means adding up expenses and subtracting them from income. When you’re trying to save aggressively, the goal is to make the gap between income and expenses as wide as possible.

There’s no single way to make a budget. For example, you might try zero-based budgeting, the 50/30/20 budget method, or cash envelope budgeting. Experimenting with different types of budgets can help you to decide which method works best for you.

Also consider different tools to help you along. Your financial institution may offer budgeting tools, you can download apps, you might use a journal, or even manage your budget in an Excel spreadsheet.

5. Cutting Down Expenses

“How can I stop spending money?” That’s a question people often ask when they’re frustrated by their efforts to save aggressively. The key is knowing how to prioritize needs over wants and looking for areas in your spending that you can reduce or eliminate.

For example, you can start by making the obvious cuts and jettison streaming services you don’t use or canceling your gym membership. But you can go a step further and look for more drastic ways to reduce expenses, such as:

• Renting out a room or taking on a roommate

• Getting rid of your car and using public transportation

• Embarking on a no-spend year

• Moving to a cheaper area.

Whether these types of saving tactics will work for you or not can depend on your situation. But allowing yourself to be creative when finding ways to cut expenses can help to bolster your aggressive savings plan.

6. Opening a High-Yield Savings Account

If you’re saving aggressively, it’s important to keep your money in a secure place where it can earn a great interest rate. The higher the rate and annual percentage yield (APY), the more your money can grow.

That’s where high-yield savings accounts come in. High-yield savings accounts can pay an interest rate and APY that’s well above the national average. For example, the typical savings account at a traditional bank pays 0.13%, as of August 2022. But you might find a high-yield account at an online bank that’s paying 2.00% or more instead.

When looking for a high-yield savings account, consider the APY you can earn. But also pay attention to things like fees, online and mobile banking access, and monthly withdrawal limits. These are important factors when sizing up the best option.

7. Starting a Side Hustle

Starting a side hustle can help you to generate additional income that you can add into your aggressive savings budget. According to a Zapier report, 40% of Americans have at least one side hustle, and 36% started or plan to start a side gig in 2022.

There are different types of side hustles you can try, including ones you can do online and ones you can do offline. For example, you might try your hand at freelancing if you want to make money from home or get paid to deliver groceries in your spare time.

The great thing about side hustles is that you can try different ways to make money to see what works best. Just remember that any earnings from side hustles or temporary work over $400 are taxable.

Recommended: 11 Benefits of Having a Side Hustle

8. Avoiding Eating Out at Restaurants

Grabbing dinner out can be convenient, but it can also derail your plans to save aggressively. If you’re spending $50 a week on takeout food or meals with friends, for instance, that’s $2,600 a year that you’re not saving.

Learning to plan meals and make food at home can cut that expense out of your budget. If you want to share meals with friends, consider inviting them to a potluck dinner at your house instead. That can be a great way to try new foods without having to blow your budget.

9. Saving Money Windfalls

Windfalls are any money that comes your way that you might not have been expecting. So that can include:

• Tax refunds

• Rebates

• Bonuses

• Cash-back rewards

• Financial gifts (i.e., birthday money or wedding money)

• Inheritances.

Some windfalls may be small and add up to just a few bucks, while others might be hundreds or even thousands of dollars. It may be tempting to spend those amounts (because it feels like free money), but you can make better use of them by adding them to savings instead.

10. Investing Your Money

Investing your money is the best way to grow it through the power of compounding interest. Compounding means your interest earns interest. When you invest money in stocks, exchange-traded funds (ETFs), and other vehicles, you have a chance to earn interest at much higher rates than what you could get with a savings account, which means the compounding factor is enhanced too. (However, do remember there is risk involved; these investments aren’t FDIC-insured.)

The longer you have to invest, the more your money can grow. So if you’re not investing yet, it’s important to get started sooner rather than later. Some of the best ways to start investing include adding money to your 401k, contributing to an Individual Retirement Account (IRA), and opening a taxable brokerage account.

11. Automating Your Finances

Deciding to automate your personal finances can make saving aggressively less time-consuming, since it’s something you don’t have to actively think about. As mentioned above, you can set up automatic transfers from checking to savings each payday. What’s more, you can also automate deposits to your investment accounts and your bill payments.

Automating ensures that bills get paid on time and that the money you’ve earmarked for savings in your budget gets where it needs to go. You can set up automatic deposits and payments through your bank account; it typically takes just a few minutes.

12. Utilizing the 30-Day Rule

The 30-day rule is fairly straightforward: If you’re tempted to spend money on an unplanned purchase, impose a 30-day waiting period. Thirty days is enough time to decide if you really need to buy whatever it is you’re considering and, if you do, to find the money in your budget to pay for it without having to rely on a credit card.

Using the 30-day rule can help you to curb impulse spending, which can be a hurdle to making an aggressive savings plan work. If you decide the item is still something you want to buy, then you can make the purchase guilt-free. But you might find that what seemed like a smart buy at the time is no longer something you need.

13. Living Below Your Means

Living below your means simply means spending less than you earn each month. When you spend less than your income, you have money left over that you can add to your savings goals.

All of these aggressive savings tips outlined here can help you to get into a mindset of living below your means. When you’re focused on cutting down expenses and sticking to a budget, living on less money than you make doesn’t seem like a struggle.

Saving Money With SoFi

Saving aggressively can take some getting used to if you’ve never tried it before, but the end result can be well worth the effort. As you find your savings groove, it’s important to have the right banking tools so you can make the most of your money.

Opening a SoFi bank account can make it easier to follow an aggressive savings plan. Not only can you get a competitive APY on savings balances, but you can also set up automatic deposits to grow your money. SoFi makes it easy to pay bills and review spending in one place so you can easily see where your money is going.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Are there downsides to aggressive savings plans?

Saving money aggressively can mean having to make certain sacrifices in the short-term. For example, you may have to say no to dinner out with friends, vacations, or new clothes. But those temporary sacrifices can pay off if you’re able to reach your savings goal relatively quickly.

How can I save aggressively if I do not make a lot of money?

Starting a side hustle can help you to create more income so that it’s easier to save aggressively. But if that’s not an option, you can still save at an above-average rate by cutting down your expenses as much as possible and using windfalls to grow your savings whenever they come your way.

Can you aggressively save long-term?

Whether you’re able to save aggressively for the long-term can depend on how committed you are to your plan. If you have a clear reason for saving, then you may not need any added motivation to keep going. On the other hand, you may need to take a temporary break from saving as aggressively if you find yourself chafing under a strict spending regime.

Photo credit: iStock/Farknot_Architect

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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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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SOBK0722003

Sep

2022

Effects of Social Media on Your Finances

By Rebecca Lake | Budgeting & Goals, Family Finances, money | Comments Off

Social media makes it easy to stay in touch with friends and family, spot the latest trends, and follow the news while enjoying the occasional cat meme. But your social media habits could have a negative effect on your finances if you feel pressured to spend unnecessarily in order to maintain a lifestyle that you can’t really afford.

FOMO or fear of missing out is a well-documented phenomenon that can drive people to make decisions based on things they see other people doing on social media. When the concept of FOMO is applied to money, it can lead to overspending and dangerous financial behaviors, all for the sake of getting likes and clicks.

Understanding how social media can hurt your finances can help you break the FOMO cycle and make smarter decisions with your money. Read on to learn:

• The negative financial effects of social media

• At worst, how social media can impact your finances

• How to reduce the financial impact of social media.

Negative Financial Effects of Social Media

If you’re busy checking your favorite influencers, you may not realize how social media keeps you poor. After all, these people might be making a living on social media, so how can it possibly be bad?

The reality is that social media can influence how you manage your finances in a number of ways. If you’re wondering how Twitter or Facebook can impact your finances or whether Instagram and Snapchat are contributing to your lack of cash, here are some of the potentially dangerous side effects to consider.

Overspending

Social media can contribute to impulsive or compulsive spending if you’re constantly trying to keep up with trend-setters or you’re buying “stuff” to satisfy your emotional needs. For example, you might see your favorite beauty influencer touting a new $50 lipstick or $500 dress and decide that you need to buy it too to feel beautiful.

What you might not know is that the influencer is being paid to advertise these items on their social media accounts and they didn’t purchase it themselves. In that sense, social media can be a trap for overspending because it’s easy to adopt the mindset that since everyone else seems to be doing it, you should too.

Distractions Causing Less Time for Budgeting and Managing Finances

Social media can also keep you poor if you’re spending so much time online that you’re not keeping up with your budget. Whether you use an envelope system or the 50/30/20 budget rule, a budget is at its core a personal plan for spending the money that you earn each month. Without a budget, it’s much easier to lose track of expenses and give in to FOMO spending.

You might also turn a blind eye to how much debt you might be racking up as a result of social media-driven spending. By the time you get around to taking a break from social media, you could have a stack of credit card bills to deal with.

Trying to Keep Up With Your Friends

The types of people you surround yourself with can have an impact on how you manage your money. If your social media feeds are full of friends who are going off on expensive vacations, driving flashy cars, or buying big homes, it can be very tempting to try to match those behaviors in your own life.

The problem is that unless your friends have spilled the beans, you don’t really know how they’re able to afford those things. They could be living in a beautiful home, for example, but struggling to make the mortgage payments each month. Or they might drive a luxury vehicle with a four-figure car payment. Or perhaps their family is wealthy and helps them with their bills.

If you try to replicate their lifestyle, it’s possible that you could quickly find yourself struggling financially. On the other hand, developing financial discipline can make it easier to live a lifestyle that you enjoy, without causing yourself unnecessary stress.

Buying Trendy Items

Ever bought something just because you saw it advertised on your social media feeds? That’s one tricky way that social media platforms keep you broke.

You might buy something because the ad makes the items seem as if it will dramatically improve your life. Or perhaps it’s something that everyone else is buying and you want to feel like you’re part of the trend. The trouble is that once the trend eventually dies, you’re stuck with that item and you’re out the money you paid for it.

That’s not just limited to clothes, bags, or accessories either. Meme stocks, for example, saw a huge uptick in the early part of 2021 thanks to a group of Reddit traders touting the benefits of GameStop and other stocks.
While some investors who jumped on the trend were able to make a lot of money in a short period of time, others saw big losses once the trend began to lose steam. In other words, proceed with caution.

Dealing With Constant Advertisements

Ever been searching for something on Google, then you open up social media and see an ad for it? If you’re trying to wrap your head around how Snapchat or Facebook can impact your finances, targeted advertising could be the answer.

The average person can see as many as 10,000 ads per day and quite a few of them are concentrated on social media outlets and search engines. And once you see an ad, it’s hard to unsee it. The flashier the ad, the more you might be tempted to click and make a purchase. If you’re trying to quit spending money, ads can be the biggest roadblock to your success.

Falling Into the Trap of an Influencer’s Fantasy Life

At first glance, influencers seem to have it made. They’re living in nice homes and wearing the latest designer clothes, they look perfect, and they’re rich. Or at least, that’s the way it seems.

Following influencers can be harmful to your mental and financial wellbeing if you feel like you need to try to emulate their lifestyle. Once again, you don’t know what their life is like behind the scenes or how they’re financing it. For every big influencer making six or seven figures, there are scores of micro-influencers who are making much less. And in some cases, they may be dressing up their lifestyle for the camera to hide the fact that they’re not truly wealthy. Or they may just be showing off swag that they got for free or are being paid to promote. Try to keep up, and you could see your financial wellness spiral downward.

Helpful Tips to Reduce the Financial Impact of Social Media

What happens if you fall into any of the traps above? High credit card debt, empty bank accounts, and increased stress can all be signs that social media may be negatively affecting your money management.

Fortunately, there are some things you can do to reduce the negative impacts social media might be having on your financial life.

Unfollowing Brands and Influencers

Hitting the “unfollow” button on brands and influencers can remove those accounts from your social media feeds. And it can be a major, positive moment in your financial self-care. When you can’t see what an influencer is up to or what a brand is advertising, there’s much less temptation to spend. You can instead focus on following accounts that add to your quality of life in some way (perhaps with money-saving hacks).

Focusing on Yourself and Managing Finances

Turning your attention to mastering personal finance basics is another way to break the cycle of allowing social media to influence your money decisions.

For example, if you don’t have a budget in place yet, you can block off an afternoon or evening to sit down and make one. Or you could spend time researching the benefits of an emergency fund and the best place to open a savings account.

Replacing social media time with these kinds of tasks can help you to improve your financial situation little by little. And the more you learn about personal finance, the more motivated you might become to save more while spending less.

Improving Your Money Mindset by Removing FOMO

Taking the FOMO out of your financial decision-making can go a long way toward bettering your money situation. Instead of automatically allowing yourself to spend, ask yourself why you feel tempted to do so. For example, if you see an influencer sporting a new $500 bag that you’d like to buy, take time to analyze what that bag is really going to cost you.

How many hours of work will you need to do to make the $500 after taxes needed to pay for it? And how often will you use the bag? What will it add to your life? Asking these kinds of questions can help you to decide if a purchase that’s FOMO-driven is truly worth it.

Budgeting for Any Purchases You Make

A budget is a simple but powerful tool for controlling spending. You can use a budget to minimize the negative impacts of social media by committing to only spend money on planned purchases. That means no impulse buys or unanticipated spending.

True financial emergencies can be the exception to this rule. If you’re building an emergency fund, you can use that money to pay for any unexpected expenses that might come along. Otherwise, if it’s not in the budget, you don’t spend it.

Setting a Waiting Period Before Making a Purchase

Applying a temporary 30-day rule can help to curb FOMO. The 30-day rule advocates delaying impulse buys for 30 days to decide whether you really want to spend money on them or not. Taking time to let the idea of the purchase cool off can give you perspective on whether you should spend the money.

At the end of the 30 days, you might decide that the purchase isn’t that necessary after all. Using the 30-day rule can keep you from wasting money on things you don’t need or won’t use.

Setting a Screen Time Limit on Your Phone

Globally, the average person spends two hours and 27 minutes on social media per day. If you’ve never kept track of how much time you spend scrolling each day, you might be surprised by what it adds up to.

A simple fix is setting limits on screen time. So, for example, you might allow yourself 10 minutes to check social media on your lunch break and another 20 to 30 minutes in the evening. Spending less time on social media can free you up for other things, like managing your finances or developing healthy, inexpensive hobbies.

Deleting Social Media

If you continue to feel like social media is negatively impacting your finances, you could simply delete it altogether. Removing social media apps from your phone means you can’t just scroll mindlessly and find yourself in a sea of ads and promotions.

This action can also make it easier to set limits on screen time if you’re having to open up your laptop to check social media. Yes, you still have your accounts; removing the apps alone won’t delete them.

If you want to take your social media purge to the next level, you can delete your accounts and profiles altogether.

Curating Social Media Feeds

If you don’t want to abandon social media entirely, you could try curating your feeds instead. Social media algorithms are designed to show you more of the things you’re already searching for or suggest things based on your search history. By focusing your searches on things that provide you with real value and inspiration, you may be able to weed out influencers or excessive ads that could lead you to overspend.

Removing Payment Apps From Your Phone

Mobile payment and mobile wallet apps can make buying things online or in stores convenient. Instead of fishing out your debit or credit card and typing in all those digits, you can pay with a click or a tap at checkout.

The problem is that mobile payment apps can make it all too easy to make purchases without thinking. Removing those apps from your mobile device (typically, just by holding your finger on the app till the x appears), unlinking your cards, or deleting your accounts altogether can make it easier to avoid situations where you might spend without thinking. Having to take the extra time to break out your plastic and type in the digits might provide much-needed time to think over the urge to buy.

Improving Financial Accountability

Being accountable to yourself about what you spend can act as a motivator to limit unnecessary or frivolous spending. If you’re having a hard time staying accountable and sticking to your budget, you might enlist the help of a friend or family member to reinforce positive financial behaviors.

For example, if you’re about to spend money on the latest accessory or electronic gadget, you can call up your accountability partner and ask for advice. They can talk you through whether the purchase is a good idea or not and help you put into perspective why you should — or shouldn’t — spend the money.

Managing Finances With SoFi

Being aware of how social media can hurt your finances can help you take steps to counteract its negative impacts. For example, streamlining your financial accounts can make it easier to keep tabs on your money.

When you open a new bank account with SoFi, you can get access to checking and savings in one place. You can manage your money online or through the SoFi mobile app and enjoy special member benefits, including a competitive APY on balances and getting paid up to two days early with direct deposit.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Are there positive financial impacts of social media?

Social media can have a positive impact on your finances if you’re following accounts that genuinely help people manage their money better. For example, you might learn about new budgeting techniques, pick up savings hacks, or get tips on how to reduce expenses by following reliable financial accounts on social media.

Does social media lead to debt problems?

Social media can lead to debt problems if you’re charging more than you can pay off on your credit cards or taking out loans to finance a lifestyle that you can’t realistically afford. You might get into a situation where you can’t afford to pay your bills.

What are good financial accounts to follow on social media?

When deciding who to follow on social media for financial tips or advice, do your research. Look at their follower count, but also consider the quality of the advice they’re offering. You can look at their credentials to see if they have any financial certifications, are affiliated with respected financial institutions, or have personal experience dealing with the type of advice they’re offering. And be wary of any influencer whose only goal seems to be to sell something to you.

Photo credit: iStock/Suwaree Tangbovornpichet

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SOBK0722005

14 Tips for Saving Money on a Low Income

Smart Ways to Save Money with Low Income

1. Finding a Budget Method That Suits You

2. Watching Money Spent on Food and Drink

3. Getting Rid of Debt One Step at a Time

4. Finding Ways to Get Rid of Non-essentials

5. Changing to a Cheaper Entertainment Subscription Model

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Why Saving Money With a Low Income Is Possible

The Takeaway

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Example of a Payment Using a Nostro Account

Nostro Account vs. Vostro Account

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5 Cash Management Strategies You Should Know

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Cash Management Strategies

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Income

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FAQ

Are there downsides to aggressive savings plans?

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Effects of Social Media on Your Finances

Negative Financial Effects of Social Media

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