Overdraft Fees vs Non-Sufficient Funds (NSF) Fees: What’s the Difference?

Overdraft Fees vs Non-Sufficient Funds (NSF) Fees: What’s the Difference?

Overdraft and non-sufficient funds (NSF) fees have a lot in common. Both fees are triggered when there’s not enough money in an account to cover a transaction, and both can be avoided with practice.

But the reason behind each fee is slightly different. Read on to learn about the difference between overdraft and NSF fees, and the best ways to avoid them altogether.

What Are Overdraft Fees?

When a bank account balance is negative (meaning transactions exceed deposits), the account holder is often charged an overdraft fee. The transaction goes through, but the account holder owes the bank the cost of the transaction to bring the account back to zero, as well as the overdraft fee set by the bank.

Typically, overdraft fees will continue with each transaction until an account’s balance is out of the red. That means if an account holder is unaware of the overdraft and goes on using the card without making a deposit, they could be hit with a fee for each charge, no matter how small.

The average overdraft fee is $25, which can add up quickly when someone isn’t paying attention to their checking account balance.

How Do Overdraft Fees Work?

Overdraft policies vary from bank to bank, but typically they kick in when a debit card or checking account transaction exceeds the amount held in a bank account.

When the transaction goes through, the bank has a few choices:

•   If the account holder has opted for a tool like overdraft protection, they may be shielded from overdraft fees up to a certain amount

•   If the account is in good standing, or if the account holder has never over drafted before, the bank may choose to waive overdraft fees in this instance

•   If the account holder has a history of over drafting, or is relatively new, the bank may choose to charge the overdraft fee

When You Could Get Hit With an Overdraft Fee

It’s not just debit card purchases that can set off an overdraft fee. If the account holder doesn’t have enough cash in their checking account, any of the following transactions could lead to an overdraft fee:

•   ATM withdrawals

•   Checks

•   Autopay bill payments or withdrawals

•   Transfers between bank accounts

As mentioned above, once an account holder overdraws, the bank may continue to charge subsequent overdraft fees on the account until the balance is restored through a deposit.

Recommended: How to Avoid Overdraft Fees

What Are NSF Fees?

On the surface, it’s hard to tell the difference between overdraft and NSF fees. Both fees occur when an account doesn’t have enough cash to cover a transaction.

However, an NSF fee is charged when an account doesn’t have enough money to cover a transaction and the transaction is canceled or rejected.

The average NSF fee is $30, but some banks charge as much as $40.

How Do NSF Fees Work?

An account holder might trigger an NSF fee instead of an overdraft fee if they:

•   Opt out of or never signed up for overdraft protection

•   Already exceeded the bank or credit union’s overdraft protection limit

•   Write a check that’s more than the balance of the account

When You Could Get Hit With an NSF Fee

NSF fee policies vary by banking institution, but an account holder is more likely to be charged in the following situations:

•   Check writing. When someone writes a check for more than the account’s balance, the check “bounces,” and the transaction won’t go through. The account holder will be charged an NSF fee by their bank, and they may be charged an additional fee by the bank or entity that tried to cash the check.

•   ACH payments. An ACH payment, or Automated Clearing House Network payment, can be an easy way to transfer money or pay someone, but if the transferring bank doesn’t cover ACH payments, the transaction could be canceled and the NSF fee charged.

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What Are the Differences Between Overdraft and NSF Fees?

NSF and overdraft fees are commonly lumped together as general bank fees, but they are not the same. Here’s the difference between overdraft and NSF fees:

NSF Fee vs. Overdraft Fee

NSF Fee

Overdraft Fee

Average Fee $30 $24.94
Transaction goes through? No Yes
Charged repeatedly until corrected? No Yes
Can it be avoided through overdraft protection? No Yes

Tips for Avoiding Overdraft and NSF Fees

Overdraft and NSF fees are frustrating for many people because they fall into the category of bank fees you should avoid — and you can easily do so with a few simple practices.

1. Setting Up Email and Text Alerts

Many banks and credit unions offer email and text alerts that account holders can set up to notify them of low balances. For example, an account holder could set up an alert when their checking account balance falls below a certain amount.

With enough notice, account holders have time to transfer money into the account to cover upcoming charges or auto-debits.

2. Utilizing Direct Deposit

Setting up direct deposit with an employer means paychecks go directly to a bank account on payday. It’s a nearly immediate payment, opposed to waiting for a check by mail then depositing it at the bank. This could save someone from overdraft fees, especially if paychecks and major bills occur at regular intervals.

3. Having a Savings Cushion to Prevent Overdraft

Keeping a healthy cushion in a checking account can prevent it from dropping dangerously low. While it’s not best practice to keep tons of extra cash in a checking account (as these accounts often have low or no interest), keeping a few hundred extra in the account could keep someone from overdrafts when they need to make a transfer or forget about a check they wrote.

4. Checking Finances Regularly

While automation can help, nothing beats a regular check-in. Consider reviewing account balances at least once a week. It’ll help keep those numbers in mind when a large transaction or purchase comes up.

Recommended: Is Overdraft Protection Worth It?

5. Utilizing a Budgeting App

Keeping a budget is an important part of financial wellness. Not only does it involve knowing the balance of bank accounts, but it can also prevent people from over- or unnecessary spending that sends an account into overdraft. Some budgeting apps come with alerts to notify users when account balances are low.

Banking With SoFi

It’s easier to avoid overdraft fees at some banks than others. SoFi’s online bank account offers no-fee overdraft coverage and faster direct deposit, making it simple to help avoid unnecessary charges.

Better banking is here with up to 3.25% APY on SoFi Checking and Savings.

FAQ

What is the difference between overdraft and non-sufficient funds fees?

The difference between overdraft and NSF fees is the success or failure of the transactions. Overdrafting will allow the debit to clear. With an NSF, sometimes called a bounced check, the transaction does not go through.

Is an overdraft fee or an NSF fee more expensive?

Both overdraft and NSF fees hover around $30 to $35, on average.

How can you avoid overdraft and NSF fees?

You can avoid overdraft and NSF fees by keeping a close eye on bank account balances and choosing a bank that offers overdraft protection or forgiveness.


Photo credit: iStock/Ivan Pantic

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 members with direct deposit can earn up to 3.25% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 2.50% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 11/3/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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Budgeting Tips for High School Students and Those Entering College

Budgeting Tips for High School Students and Those Entering College

Learning money management skills early can set a person up for financial success throughout life. That’s why high school and the start of college are ideal times for students to gain some knowledge and skill so they can manage their money, whether that means saving their earnings from a summer job or understanding the ins and outs of college loans.

Skills like budgeting and building a solid credit score may seem daunting to high school students at first — but quickly become exciting and engaging as they gain independence and see the results pay off.

Here, you’ll learn about the ways to start on a path of smart money management and good financial habits, from using credit wisely to building an emergency fund.

Budgeting Checklist for Incoming College Freshmen

1. Setting up Your Own Bank Account

Financial planning for high school students begins with a simple money move: opening an online bank account. This is also a key step towards independence; it marks the shift from asking mom and dad for funds to being a more self-sufficient young adult.

Typically, you can open your own bank account once you turn 18. If you are younger, you will likely still need your parent’s help to open either a joint account or high-school student account.

But if you are 18 or older, you can easily open a bank account online or in person at a bricks-and-mortar bank branch. You might look for a college student bank account, which may have lower fees. Typically, the documents needed to start an account will include:

•   Government-issued photo ID, like a driver’s license or passport.

•   Proof of your mailing address.

•   Your Social Security number.

You may or may not even need to make an opening deposit. Before you sign on,though, do read or inquire about the account terms. You’ll want to know what kind of requirements (like a minimum monthly balance) and fees (such as monthly and overdraft fees) are expected so you can make sure to get the best, most affordable deal possible.

Aim to open both a checking account for spending and a savings account for rainy day or emergency funds.

2. Preparing for College Ahead

If you are a high school student, you are probably aware of how big an issue student debt can be in America. Currently, approximately 43 million borrowers owe around $1.6 trillion in student debt. Being saddled with significant debt may make achieving your financial goals harder. Familiarizing yourself with how much your education will cost is a good step as you prepare for college. This knowledge can help you chart a path that avoids too much debt.

As you compare the tuition of colleges you might attend, look at the funds available vs. how much you might have to borrow. The U.S. Office of Financial Readiness has a useful Savings Goal Calculator to show you how long it’ll take to save towards your goal and what your monthly contribution would be, along with other tools.

3. Getting a Credit Card to Build Credit

As you are probably well aware, credit cards are a convenient way to pay for purchases online and in-person. They also help build your credit score, which is a three-digit number that reflects how well you handle debt. It’s based on such things as how good a job you do of paying bills on time and how well you use credit (that is, not charging up a storm on your plastic if you can’t easily repay it). Your credit score is calculated by the big three credit reporting agencies (Equifax, Experian, and TransUnion). If you have a good rather than fair credit score, it means you’ll likely qualify for lower rates if you take out a car loan or mortgage later in life.

If you’re a high school student, you can learn how to use a credit card wisely to build credit by being added onto a parent’s credit card. Their wise use of their card and good credit rating can create a solid launching pad for your credit score. Parents can set low borrowing limits and write up agreements with their kids to ensure their responsibility for paying off their card.

4. Growing an Emergency Fund

As a high school student, you likely have free housing and free food. That won’t always be the case, so while your expenses are low or even non-existent, it’s a great time to start saving for a rainy day (aka creating an emergency fund).

You only need three things to start saving: some money, an account, and a goal. In terms of goals, getting in a groove of saving some “just in case” cash can be a very smart move. An emergency fund can really provide peace of mind when those unexpected life events occur, like a big medical bill arrives or your laptop dies. Even if you just put $20 a month away, it’s a good start.

You might also put away some cash you earn if you are working or money you receive as a gift. If you start an emergency fund now, you’ll have a headstart on financial security when you’re in college.

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5. Creating a Monthly Budget

Now, when you’re young, is a great time to learn how to create a budget and stick to it. It boils down to understanding how much money you have each month and how that will be allocated towards your needs and wants. Of course, budgeting for high school students may be a little different than budgeting for adults; you likely aren’t paying your own rent and utilities, nor are you probably working full-time. But still, it can be a valuable exercise to help you understand cash management today and tomorrow.

There are many engaging tools available to help you build your budget, from great-looking notebooks to easy-to-use apps. They can help guide you through understanding your fixed expenses (say, your monthly cellphone bill) and your variable expenses (groceries and dining out). You’ll want to make sure the money you have every month covers your fixed and variable expenses and allows you to save a little, too. If you are interested in learning more about budgeting for beginners, you might look into options like the envelope system or the 50/30/20 rule.

Recommended: How to Build a 50/30/20 Budget

6. Not Relying on Credit Cards

Another good budgeting strategy for high school students is to be careful when using a credit card. Shopping with a credit card can feel as if you are getting things for free. That is, until the bill, with the high interest rate added on, arrives.

Carrying a balance on your card will cost you. Interest rates add up over time — and you’ll spend more on an item than you would have with cash. You also risk building a habit of living beyond your means.

To keep out of credit card debt, try to only use your credit card to pay for essentials like your phone or car insurance bill every month. Your bill will be much more manageable than if you use plastic to hit the mall. And when your bill is manageable and you can pay it off monthly, your credit score will likely increase.

7. Not Getting Overzealous With Spending

Building on the idea above, part of entering adulthood means knowing how to sidestep financial pitfalls. Overspending is a major one, and it can be so fun in the moment. Shopping is easier than ever with your phone and computer, but those non-essential expenses add up. Here are a few tricks to stop that bad habit before it starts:

•   Create a shopping list for your next outing. Let’s say you’re dorm room shopping. Set a budget, and use cash or a debit card so you spend only what you have.

•   Avoid sales at stores…it’s better to spend no money than money on something you don’t need—no matter how good the deal is.

•   Sleep on it. If you see something you like…don’t get it right away. Think about whether or not you really and truly need it. If you feel as if you have to have it but can’t afford it, get in the habit of saving for it and then buying it outright instead of charging it and then dealing with credit card debt.

8. Paying Attention to Bills and Charges

Even though you are in high school, right now is a great moment to start being a savvy consumer. Get in the habit of tracking your bills, making sure they are accurate, and paying them on time. You might review bills at the end of each week or month, say. Review bills carefully as scams, hacks, and fraudulent charges do happen.

You might also set up bill pay reminders and track expenses on phone apps. Finance apps from banks and software companies have alert systems that can notify you of new charges and due dates. These can pop up as phone banners, text messages, or emails.

While you’re at it, why not check your account balances regularly? For many people, a couple of times a week is good. This will help you stay in touch with how your money is doing and will also allow you to catch any fraudulent activity early.

9. Keeping Your Credit Card Clean of Any Bad Reports

Learn how to build a positive credit score by paying your credit card bill on time. Paying bills on time is the biggest contributor (35%) to your credit score, so work towards nailing that.

Also know that your credit utilization ratio matters. Here’s what that ratio does: It reflects how much of your available credit you are using. So if you have a credit card with a $1,000 credit limit, if you charge $700, you are at 70% of your limit. Which, according to financial experts, may be too high and can lower your credit score. The best rule of thumb for balances on your card is 10% or less of the borrowing limit and no more than 30%. This shows a less risky use of credit.

10. Thinking About Insurance Early

High school students usually don’t need policies like life insurance or disability insurance, which are part of true “adulting.” But it helps to get familiar with how insurance works.

Car insurance is a great product to learn with. If you are getting a car, ask your parents to help you shop for auto insurance or look online. There are tools that let you compare policy features and rates. If you are covered by your parents’ policy, ask them to walk you through its features and costs. These experiences will help you learn how to protect your hard-earned assets and be a smarter consumer.

Why Getting Started Young Is Important

Building financial health early sets you up with the life skills needed for bigger decisions, like purchasing a home or retiring early. Recent research found that young people who have taken some financial literacy courses make better financial decisions, like avoiding costly debt. Immersing yourself in or at least getting some basic knowledge about finance will serve you well for years to come.

Here are some other advantages of building your financial know-how and learning how to budget:

Shows Maturity to Parents

Learning basic financial skills will help you transition from dependence on your parents to independence. It will also show your parents that you are ready for more freedom and self-reliance, which can be a good thing, especially if they are the helicopter types.

Helps Parents With Expenses

By learning to budget and manage your money, you can help your family reach their goals. If you stash cash aside now, you might have enough funds to pay for books or daily needs like toiletries and food when you are in college. You might even be able to contribute a chunk of change towards tuition. Whatever the case, starting to save for college in high school will help you gain good financial habits.

Prepares You Better for College

Setting up a financial plan when you are a high school student is great preparation for college. Students who have a good knowledge of budgeting will likely not run out of spending money while on campus. They may also have an understanding of college loans that makes them less likely to default when it’s time to repay them. Establishing moneywise routines early can set you up for decades of financial health.

The Takeaway

High school is a great time to begin to learn financial concepts and skills like budgeting and nurturing a good credit score. While you are living at home and not paying rent, you can begin to establish good habits with bank accounts, credit, and bill paying that will reward you throughout your life.

One important step is setting up a bank account that helps your money grow. When you open an online bank account with SoFi that includes direct deposit, you’ll be rewarded with a competitive APY and no account fees, so your money grows faster. Plus you’ll have access to 55,000+ Allpoint Network ATMs worldwide at no cost.

Better banking is here with up to 3.25% APY on SoFi Checking and Savings.

FAQ

How can a teenager create a budget?

Students have a wealth of resources like free budget templates on the Internet, budgeting apps, or old-school budget planners. You might look into some of the different methods, like the envelope system and the 50/30/20 rule, and see which one suits your style best.

How much money should a high schooler have saved?

That depends on the individual and their goals. The general rule of thumb for savings is three to six months of living expenses in your emergency account. For high school students, who typically aren’t paying for daily living expenses, they might begin saving $20 or more a month to build up a nest egg for when they are on their own.

How should a beginner budget?

A beginner should partner up with someone to guide them. Ask a parent or a trusted older relative to help you set up a budget. Another avenue is to use online tools, from financial literacy courses and videos to apps that help you track spending and savings.


Photo credit: iStock/SDI Productions

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 members with direct deposit can earn up to 3.25% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 2.50% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 11/3/2022. 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.
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.
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Guide on What to Do When You Get a Pay Raise: 12 Tips

Guide on What to Do When You Get a Pay Raise: 12 Tips

If you received a raise at work, first things first: Congratulations on this recognition for a job well done! Your first impulse may be to celebrate with a big purchase or party. But rather than blowing your salary bump right away, it’s wise to be strategic. Take a little time and consider how you might use that extra cash. It could help you reach some short- and long-term financial goals.

To help you decide what to do with a pay raise, here is a guide that will show you some options and expand your thinking. Read on to learn 12 tips and be better informed as you make your decision.

How to Financially Handle a Pay Raise

1. Using It to Get Rid of Debt

Your raise may be able to help you get rid of some debt that is dragging down your finances. It’s worth noting that some debt can be good, like a mortgage on your home, which tends to have a relatively low interest rate. Every time you make a payment, you are building equity and wealth.

But if you have debt that carries a high interest rate and doesn’t have a long-term benefit, you may want to get rid of it ASAP. Credit card debt is the classic example of this. Interest rates on new cards are currently around 19% or 20%, which means this kind of debt can grow quickly. With a raise, you can pay that debt down sooner rather than later. This can help free up your finances to focus on other money goals.

2. Using It to Build Your Emergency Fund

Having extra cash is a perfect opportunity to build an emergency fund if you don’t have one or if yours could use a boost. Financial experts advise having at least three to six months’ worth of basic living expenses in the bank. This can tide you over if, say, a big medical bill or car repair hits or if your family were to endure a job loss. A raise can allow you to set a lump sum of money aside or motivate you to regularly allocate toward your emergency fund so you are financially secure in times of need.

3. Re-Evaluating and Updating Your Budgeting

When you get a raise, you may be wondering how to manage this extra cash. There are probably a lot of wish-list items tempting you to increase your spending. Instead of shopping, it may be a good time to reevaluate your budget to see how you can best put your money to work.

Typically, budgets recommend that you first allocate funds toward your mandatory monthly expenses like mortgage, rent and other bills. Next, don’t forget to pay down debt, followed by adding some money to your emergency stash if needed. Have you also thought about retirement funds? Make sure to figure out how much to save every month and put some of your money to work in a 401(k) or another retirement fund. With the money that’s left, you can spend as you see fit, invest it in the stock market, make charitable donations, or decide other ways to use it.

If you need more guidance on budgeting, look online at different techniques, such as the 50/30/20 budgeting rule, or test-drive some apps that help you see where your money is going and determine how to best manage it.

4. Avoiding Lifestyle Creep

If you are contemplating what to do with a raise, one thing to sidestep is lifestyle creep. That happens when a person makes more money but also spends more of it, typically on luxuries. So if you get a raise and then rent a more expensive apartment or sign up for a luxury-car lease, that’s lifestyle creep. You have bought into some of life’s finer things, but you may wind up just breaking even. In fact, even with more money, you may feel as if you are living above your means.

It can be smart to avoid this behavior because you don’t want to spend every penny you make. That’s not a healthy financial habit; it doesn’t help you build wealth over time. Yes, you can allow yourself to enjoy some discretionary spending (more on that in a minute). But if you let lifestyle creep happen, it may be hard to make ends meet and find opportunities to save for longer-term goals.

5. Re-Evaluating Your Retirement

When you get a raise, you have a prime opportunity to increase your retirement savings. It may not sound like fun compared to taking a vacation, but allocating money this way can be a good financial strategy to reach your goals. If you have, say, a 401(k) plan with your employer, you can increase your monthly contribution and possibly snag the employer match, too, which is akin to free money. While it may not feel like a fun use of your raise now, your future self will thank you when you see how well your retirement savings are growing.

6. Invest in Yourself

Consider how your raise might help your long-term wellbeing, your mood, and your quality of life. Would it be wise for you to get in better shape? Have you been having trouble sleeping for a while? Do you feel hungry to learn a new skill? A bit of extra money might help you resolve those situations. Sometimes, not having enough money is a common and valid reason for not doing more of this kind of self-care.

Maybe, with your raise, you can now afford to take a few fitness classes and learn some moves you can do on your own. Perhaps you can work with a therapist on what’s keeping you up at night. Or maybe it would bring you joy to take some guitar lessons or pursue a continuing-ed class in a topic that has always fascinated you. Putting a portion of your raise to work this way can be rewarding on so many levels.

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning up to up to 3.25% APY on your cash!


7. Considering Inflation

Inflation has been very much in the spotlight lately. It soared to 8.6% in May 2022, which was a 40-year high, and some financial experts expect it to persist for some time. Defined as the gradual increase in the prices of goods and services in an economy, inflation is something many consumers are familiar with. It’s why your money doesn’t go as far when you buy groceries or fill up your gas at the pump. When inflation is high, your purchasing power declines. Simply put, your dollar doesn’t go as far.

If you get a raise during a period of high inflation, do the math. If you receive a 10% raise and inflation is 8.6%, then you are staying (just barely) ahead in terms of your finances. That raise is helping to protect your money against inflation but unfortunately it won’t stretch much further. This perspective is good to keep in mind so you don’t overspend and wind up with debt.

8. Preparing for Taxes

Getting a bump in your salary can impact your taxes; it may nudge you into a higher tax bracket. If this is the case, your tax rate will rise, and you may need to pay out a higher percentage in taxes. Typically, this will only take your effective tax rate up a couple of percentage points, but it can make a difference to your bottom line.

To offset that, you may want to adjust your withholdings with your employer. If more money is withheld during the year, you could owe less or get a refund at tax time. This could help you avoid an unpleasant surprise (namely, a tax bill) come April.

9. Saving up More for a Large Expense

Are you saving for a far-flung vacation, a wedding, a home renovation, or a new car? If you have a big-ticket item on the horizon, you may want to put part of your raise towards that goal. It can be a good move for your finances in the long-run. The extra money can help you afford what you are saving toward. You can sidestep debt as you make your dream a reality. By doing so, you’re likely improving your credit and building wealth — it’s a win-win situation.

10. Investing Your Money

Investing your hard-earned money is historically one of the best ways to build wealth. The S&P (Standard and Poor’s) 500 has gained a bit more than 10% per year since its initiation in 1957. Compare that to the current standard national savings account interest rate of 0.1%, and you’ll see how big an impact investing can have on your wealth.

Why not allocate some of your raise in this way? By creating an investment portfolio with stocks, bonds, and/or exchange-traded funds and other assets, you can compound earnings on your money over time. The earlier you start to invest, the longer your money has to grow exponentially. This can be a vital part of making your financial plan.

11. Funding and Starting a Side Hustle

If you dream of building your own business from a hobby someday, you could use money from your raise to start a side hustle. If, say, you love making pastry, you might invest in cookware that will take your game up a notch. Or if creating apps is your passion, perhaps there’s a weekend class that could boost your skills. Keep tabs on how much money you allocate toward this side hustle and make sure these funds put you on a path to building a business.

12. Enjoying Your Financial and Career Successes

Many of these tips for using your raise wisely revolve around paying down debt, achieving long-term financial goals, and building wealth. But of course, do use a portion of your raise to reward yourself. You’ve received a financial award because of your hard work and dedication. You deserve to treat yourself! Whether that means having a fantastic dinner out with a couple of close friends or buying a coat you’ve been eyeing for a while now, you should find a way to mark this happy moment.

Managing Your Finances with SoFi

Getting a raise is an exciting life event. It shows that your hard work has paid off and your career is making progress.

Along with managing your work life well, we bet you’d like to manage your money well, too. Consider opening a bank account online with SoFi, and see how your money can grow faster. When you sign up for Checking and Savings with direct deposit, you’ll pay no account fees and earn a competitive APY.

Better banking is here with up to 3.25% APY on SoFi Checking and Savings.

FAQ

How do I avoid spending too much after I get a raise?

Create and stick to a budget. Even though you are making more money, you still have to be conscious over where your cash goes and avoid lifestyle creep, which involves spending more as you earn more. This can make it harder to achieve your financial goals.

Is it okay to treat myself when I get a raise?

It’s definitely reasonable to treat yourself when you get a raise; you earned it! But it’s not a habit that you want to get out of hand. You want to make sure you’re spending within your means and not accumulating debt.

Can a pay raise be a negative?

A raise can potentially be a negative if you spiral into unreasonable spending. You could wind up with debt to deal with. Also, take note if your raise pushes you into a higher tax bracket. If so, you may want to adjust your withholding so you don’t get a surprise tax bill when you do your income tax returns.


Photo credit: iStock/fizkes

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 members with direct deposit can earn up to 3.25% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 2.50% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 11/3/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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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Money Management for College Students

As a student, you may be primarily focused on studying and getting a great education.

But college is also an opportunity to develop money management skills that can help set you up for financial success after you graduate.

You may be living on your own for the first time, holding down a part-time job, and also handling bills, along with college loans and/or financial aid.

Setting up some good financial habits now can help ease the financial stress of student life, and also help ensure you leave college in solid financial shape.

10 Tips for Managing Your Money As a College Student

Here are 10 money management tips that help you spend less and save more both during and after college.

1. Setting up a Basic Budget

Budgeting may sound complicated, but making a budget is simply a matter of figuring how much is coming into your bank account each month and how much is going out, and making sure the latter doesn’t exceed the former.

To get started, you’ll want to list all of your sources of income, such as from a job or family contributions.

If you are going to be living off a fixed amount of money for each semester, say from summer earnings or money from your family, you may want to divide this lump sum by the number of months you need to make this money last.

Once you know how much you have to live on each month, you’ll want to make a list of fixed expenses that you will be responsible for paying, such as cell phone or car payment, or maybe even rent if you live off campus.

Next, you’ll want to subtract your fixed expense from your monthly spending allotment. This will give you the amount you have left over to cover variable expenses, such as eating out, buying clothes, and entertainment. You can then come up with target spending amounts for each category.

Doing your best to stay within these spending limits can help ensure that your money lasts until the end of the semester, and help you avoid running up costly credit card debt.

2. Opening up a Savings Account

You might feel like you don’t have enough income to start saving money yet, but even just putting a small amount away each month can add up over time.

For example, if you’re able to set aside $50 a month now, you may soon have a decent nest egg that can help pay for something fun, like a road trip over the next school break.

What’s more, being diligent about saving money each month can help cultivate a habit that will serve you later when you can afford to save more in your nest egg and also for retirement.

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3. Buying Used Textbooks (and Selling Yours When Done)

Textbooks can be so expensive! Fortunately, there are a number of ways to save money here.

One option is to buy used whenever you can. You’ll want to be sure, however, that you are getting the version the professor wants. If you have an earlier edition, you might struggle to find the content if the book has since been modified. Getting the digital version of a book can also yield savings.

Another option is to rent what you need from a third-party bookseller, such as Amazon or Chegg. You can often rent textbooks for an entire semester for significantly less than buying new, and may even be able to highlight them.

For books that you purchase (new or used) that you won’t need to refer to in the future, consider selling them when you’re done to recoup some of the expense.

4. Using Credit Cards Sparingly

Credit card companies love college students, and many may try to lure you into applying for cards. You’ll want to proceed with caution, however.

While having a credit card as a student can be a good idea–for convenience, as a backup for emergencies, and to start building credit history (more on that below), you’ll want to be careful that you don’t run up credit card debt.

If you charge more than you can afford to pay off at the end of the month, you can end up paying a high-interest rate on the balance, which can make it even hard to pay off.

As a result, it can be easy for college students to find themselves digging a debt hole that can be hard to climb out of.

If you choose to sign up for a new card, you may want to look for a rewards credit card that will let you rack up points you can use to get products or travel perks–and only charge what you can afford to pay back quickly.

5. Building Your Credit Score

A credit score is a three-digit number, typically between 300 and 850, designed to represent your credit risk, or the likelihood you will pay your bills on time.

Building credit might not seem like a priority when you’re still in school, but you’ll need it in the future if you want to finance a car, buy a house, or qualify for the best credit card offers. Your credit can even affect your job prospects and your ability to rent an apartment

One strategy you can use to build up your credit is to use your credit card judiciously. If you make small purchases and regularly pay the balance off in full, you can avoid racking up interest charges but still get that boost to your credit score.

If you have student loans, you may also want to consider making small payments (even just $25 to $50) while you’re still in school to start paying down interest and have some positive repayment history on record.

If you start building your credit score now, you will likely be able to get better deals on lending products like mortgages, car loans, and credit cards in the future.

6. Finding Free Stuff

One highly effective way to stretch your money is to find freebies.

Facebook has groups where people can post items they no longer want. You might be able to score free clothes, furniture, or room decor.

Freecycle and NextDoor also have listings for things that people are giving away. You can also find free items on Craigslist (you’ll find the “Free” section under the “For Sale” heading on the main page for your city).

7. Learning to Cook–and Eating out Less

You may find you get tired of cafeteria fare and ramen. At the same time, you may not want to don’t blow your budget on eating in restaurants every weekend.

If you have access to a kitchen, you might want to consider purchasing ingredients from your local supermarket and putting together some simple, tasty meals, instead of eating out. This can be a major cost-saver.

If you’re not much of a cook, you may want to go to some food blogs and recipe sites like Allrecipes or Serious Eats to find some easy recipes and watch a few how-to videos. You could also find tons of cooking videos on YouTube.

Having some go-to recipes in your arsenal can pay off now, and also down the line when you’re working and living on your own (and don’t have to rely on expensive take-out or unhealthy fast food for dinner every night).

8. Starting an Emergency Fund

Starting an emergency fund or back-up savings fund is an important part of anyone’s long-term financial health.

Life can be unpredictable, and your emergency fund serves as a safety net that you can fall back on for those “rainy days” where you find yourself facing an unexpected expense or other financial setbacks.

Having an emergency fund can also help keep you from having to rely on credit cards to get through a financial challenge.

How much you should put aside for emergencies each month is up to you and your financial situation. The key is to start saving something each month–no matter how small the amount may initially seem.

When starting your emergency fund, it’s a good idea to fund the account regularly. Consider setting up an automatic transfer to your savings so you do not have to think about it.

Ideally, your emergency fund should also be set up in a separate savings account so you won’t be tempted to spend the money on something else.

9. Getting the Most out of Your Student ID

You may only think of your ID card as a form of identification and a way to get into college sporting events. But there are actually a number of additional benefits that come with a student ID, and many can help you save money.

You may find that businesses, especially those near universities, will offer students discounts when they show a student ID card.

Next time you go to the movies, shop for school supplies, or get a new haircut, it can be a good idea to ask if they offer any discounts for local college students.

In addition, many national and online retailers–including major clothing, sneaker, and computer brands–offer discounts to college students.

You may also be able to use your student ID to get a better deal on your cell phone plan and streaming services.

10. Getting Started with Investing

Investing when you’re young is one of the best ways to help your money grow over time.

That’s thanks to compound earnings, which means that any returns you earn are reinvested to earn additional returns. The earlier you start investing, the more benefit you gain from compounding.

Investing in the stock market also isn’t as complicated as you may think. You can open a retirement account, like a traditional or ROTH IRA, or a brokerage account (for nonretirement investing) online, often with a minimal amount of money.

You may also be able to schedule automatic withdrawals from your bank account to your investment account each month.

It’s important to keep in mind, however, that all investments have some level of risk because the market moves up and down over time.

The Takeaway

College can provide a great opportunity to develop the money skills you’ll need after you graduate.
By learning some basic money management techniques now, you can feel confident about your ability to handle your finances well after graduation.
In 10 years, you will likely thank yourself for putting in the effort to learn how to set–and stick to–a monthly budget, use credit cards wisely, save money, and build your credit score.

Heading off to college soon? SoFi Checking and Savings® can help you start off on the right foot. This online bank account allows you to earn competitive interest, spend and save–all in one account.

And, SoFi Checking and Savings® doesn’t charge any account fees, monthly fees, or many other common fees.

Get your financial life off to a great start with SoFi Checking and Savings.



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Tips for Financially Surviving a Layoff

Tips for Financially Surviving a Layoff

When you are out of work, it can be difficult to navigate this new financial reality. It’s a surprisingly common occurrence, however: In a recent month, 1.3 million employees lost their jobs permanently and more than 827,000 endured a temporary layoff.

It’s easy to feel stressed since there’s uncertainty around where and when you will find a new source of income. The thoughts that are running through your mind may include: How can you survive without a job? How will you pay your bills? How long will this situation last?

Take a deep breath, and arm yourself with knowledge. When and if unemployment becomes a reality, there are likely adjustments you can make and resources you can tap to weather this temporary challenge. Read on to learn:

•   How to budget when laid off

•   How to file for unemployment benefits

•   How to prioritize debt

•   How to bring in income

Preparing Financially for a Layoff

Not having a steady income after a layoff can increase anxiety about how you’ll pay your daily expenses. Until you find another stream of income, it’s important to keep your budget in order and learn to live within your means. Being financially prepared means having a clear understanding of what your expenses are so you can stay on track, especially with debt, if you have it.

A common strategy is to build up an emergency fund prior to an event like job loss. It’s a way of preparing for a layoff before it happens. An emergency or rainy day fund is typically a savings account that you’ve been adding to on a weekly or monthly basis. Having roughly three to six months’ (or more) worth of monthly expenses is helpful. That sum can tide you over at a moment of job loss and give you peace of mind. Think of it as a form of financial self care.

The emergency fund should only be accessed for emergencies, as its name suggests. (No fair dipping into this kind of savings account when there’s an amazing sale at your favorite store!) If you have the opportunity to contribute more than usual, do boost your emergency savings because you never know when you will need to tap into that account.

Budget, Budget, Budget

If you have an inkling that your company is preparing to lay off some employees or if you lose your job, it’s wise to know what your budget is. This means separating your necessary spending from your discretionary spending. Necessary expenses include things like rent or a mortgage, utilities, food, and health insurance. Discretionary spending may include traveling, dining out, new clothes, and entertainment.

It can be helpful to focus on how much you need to spend each month for necessary expenses (some people refer to this as their monthly “nut.”) Make a list of these basic living expenses and see what they total. Then, pre-layoff, you’ll also see how much you can allocate for activities that you want to do. It’s probably not the best idea to spend every penny each month. You want to have extra money at the end of the month to put toward saving for the long-term. Knowing your budget is the ideal starting point for how to manage your mandatory and discretionary expenses.

Then, if and when a layoff hits, you’ll be aware of what it will cost to keep your basics up and running. Obviously, you will be focusing on necessities and minimizing your discretionary spending (more details below). You can tweak your budget when you’re unemployed to, say, cut back on some long-term savings to get you through this current time when money is tight.

Filing Unemployment Benefits

If you lose your job, you may be able to qualify for unemployment benefits. This can get some funds flowing your way to help tide you over until you land a new job. First, read the eligibility requirements to see if your situation aligns with the rules for unemployment. The eligibility requirements are likely to vary from state to state and may be determined on a case by case basis; payment amounts will vary as well.

Filing for unemployment benefits will allow you to receive payments if you are out of a job due to no fault of your own. (There is a possibility that those who are fired because they don’t meet job qualifications may receive funds as well.)

Generally, to qualify for unemployment benefits, you should be able and available for work, as well as be looking for employment. The job search should entail reaching out to at least two potential employers on a weekly basis. Keep a list of which job prospects you reached out to because the department of employment services may ask you to provide these details. If you quit your job, you are probably not eligible for unemployment benefits.

Once you’ve determined your eligibility, it’s time to file. This can be done at your state’s official government office of unemployment compensation website. To get started, have personal information ready, including your Social Security number, home address, phone number, email, and direct deposit bank information. You will also need to provide your former employer’s information and the reason for leaving. The site should give you guidance on when to expect benefits.

Asking About Severance Packages

Severance pay can be provided for employees after they are no longer employed at a company. Severance is based on the duration of employment, but your employer is not required to provide severance upon termination. If you were terminated through no fault of your own, employers may pay, for example, two weeks of salary for each year of employment. Severance may also include health insurance benefits and even services to help you find a new job. These can be very helpful supports when you have lost your job.

Using Credit Cards for Emergencies

If you become unemployed, it’s wise to stop using credit cards to make purchases. Paying with your credit card creates debt that comes with high interest rates (often approaching 20%), making them one of the least economical payment methods when unemployed. At such high interest rates, debt can really snowball.

Also, when you are out of work, it can be challenging to pay an existing credit card balance. Furthermore, if you manage to pay the minimum balances of your credit card debt rather than paying in full every month, the credit card debt may cost you more over time since you also have to factor in added interest. If you find yourself in this kind of a bind with credit card debt, take action. Consider transferring your balance to a card that offers no or very low interest rates for a period of time or speaking with a debt counselor from a nonprofit organization like the National Foundation for Credit Counseling (NFCC).

Making Sure Emergency Funds Are in Order

Emergency funds are an important part of a financial plan and can be a lifesaver for someone who is unemployed. If you are in a situation where you unexpectedly don’t have a stream of income until you find another job, you’ll be more at ease if you have built up an emergency fund over time, as mentioned above.

In this case, you can dip into your emergency fund for mandatory expenses to fulfill your short-term needs. An emergency fund is for unplanned life events and is the exact life line you need in a scenario where you are laid off. If you don’t have emergency funds, unemployment benefits become that much more important. Borrowing from a close friend or a family member might also be an option.

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Practical Tips for Saving Money After a Job Loss

Saving money after a layoff can certainly be difficult. You don’t have the usual cash infusion to pay your bills and buy groceries. That is why you need to proceed with caution and learn how to economize when you lose your job. Here are strategies for making ends meet during this difficult time.

Get Back on LinkedIn and Start Networking

If you’re job-hunting, Linkedin can be a great tool for networking. You can gradually build your network by connecting with professionals in your industry. The platform is set up so you can find and interact with former colleagues, alumni from your college, and professionals at companies you aspire to work for. Start commenting on people’s Linkedin posts and have conversations with existing connections. Build up your profile so recruiters know your job history, your professional skills, and that you are looking for work. These steps can lead to job opportunities.

Prioritizing and Negotiating Any Debts if Needed

Continuing to pay down debt while unemployed should still be a priority. One strategy to pursue is paying off debt that has the highest interest rate. Debt with higher interest rates cost more, so paying this off first will have you saving money in the long-term.

But how can I pay down debt if I don’t have income, you are probably wondering. One answer: Try to negotiate your debt. It can be possible to work with your credit card company to negotiate interest rates, payment amounts, and the terms on your credit card debt. This might also include adjusting a payment date or requesting a temporary payment reduction. Have a conversation with your credit card company to see which options may be available for you.

Avoiding Luxuries Temporarily

Being unemployed can be a frightening experience. You no longer have a steady flow of income and may not feel financially prepared to weather short-term expenses. To ease this burden, work to eliminate spending on luxuries. You may feel as if you need a pick-me-up, but it’s best not to go for a massage or a nice meal out. That can wait until you have cash coming in. Now might be a good moment to downsize streaming services and other subscriptions. Also eyeball what expenses you have on the horizon: If you had booked a vacation house or a cruise for a few months down the line, it may make good financial sense to investigate getting a refund. That money could be allocated toward your everyday expenses as you job-hunt.

Looking at Investments and Retirement

If you are temporarily out of a job, do your best to keep your hands off your retirement funds. You worked hard to save that money, and it’s there to fund a long-term financial goal. That said, some people do tap their retirement accounts as a last resort when unemployed. When you withdraw from your retirement account before the age of 59 ½, you will incur a penalty tax. However, there are some cases where you may be able to withdraw funds when unemployed without paying this. You may be able to set up what’s known as a substantially equal periodic payments (SEPP) over five years or until you hit age 59 ½, whichever is greater. However, if you do receive this kind of distribution, it will likely count as income and may therefore lower any unemployment benefits you may be receiving. Talk with your plan administrator to learn more.

Getting a Side Hustle

You might consider starting a side hustle to bring in some extra cash while looking for full-time work. There are many ways to earn more money. You could rent out an extra bedroom in your home or apartment, sell unwanted items, drive for Uber or Lyft, or market your professional skills on online service platforms such as Fiverr or Upwork. These are viable avenues to get some money coming in until you lock down a new job.

Managing Finances With SoFi

Figuring out how to manage your finances when you are in between jobs can be stressful and overwhelming. But the best way to get through it is by preparing way before you’re in that position.

A smart step is to open an online bank account to save emergency funds ASAP. At SoFi, we make this easy and help your money grow super fast. When you open our Checking and Savings with direct deposit, you’ll earn a competitive APY, and your money won’t be eaten up by account fees because you don’t pay any!

Better banking is here with up to 3.25% APY on SoFi Checking and Savings.

FAQ

How do you manage the emotional impact of getting laid off?

Getting laid off or fired from your job is a tough challenge. You may feel angry and ashamed. Acknowledge those feelings, and remind yourself that millions of others are navigating this situation. You are not alone. Also, taking action can foster feelings of control and personal agency. Updating your resume, networking, reworking your budget, and engaging in self-care rituals (like exercise) may also be positive steps.

​How do you recover after being laid off?

Recognize the shock and upsetting feelings that you are likely experiencing. Then, take steps to improve your situation: Seek unemployment benefits, apply for jobs, start a side hustle, cut some expenses, and perhaps volunteer to build new skills and fill free time. These moves can help you move forward from your job loss.

Is it better to be fired or laid off?

In both scenarios, you don’t have a job, but if you are fired, it is typically due to a performance issue. That means you weren’t able to do the work as needed. Financially speaking, with a layoff, you will likely be able to file for unemployment and you may receive severance pay from your employer. When you are fired, you may or may not be able to receive unemployment funds and you will probably not be eligible for severance.


Photo credit: iStock/skynesher

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 members with direct deposit can earn up to 3.25% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 2.50% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 11/3/2022. 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.
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.
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.
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