Guide to Community Development Financial Institutions (CDFIs)

Guide to Community Development Financial Institutions (CDFIs)

Looking for affordable loans and access to bank accounts may not be as easy for some people, especially those of lower income and in rural or underserved areas. That’s where Community Development Financial Institutions, or CDFIs, step in. These organizations aim to serve economically disadvantaged communities.

Here, take a closer look, including:

•   What a CDFI is and how they work?

•   What are the different types of CDFIs?

•   What CDFIs offer?

•   Pros and cons of CDFIs.

What is a Community Development Financial Institution?

Community Development Financial Institutions, or CDFIs, are financial institutions — mainly banks and credit unions — that help those in underserved communities in rural and urban areas. CDFIs were established by the Riegle Community Development and Regulatory Improvement Act of 1994. At the same time, a CDFI Fund was formed to assist these institutions in providing loans (business and personal) and other types of financial assistance to those in need.

To promote accessible products and services, CDFIs typically rely less on common factors such as credit scores and monthly fees when providing loans and bank accounts. (For instance, economically disadvantaged people may have trouble opening a standard checking account if they have a low credit rating and typically be given access to a second chance checking account. A CDFI may offer more options.)

CDFIs may also help invest in the local community by providing tools to build credit, encourage savings, and share other financial literacy tools. Currently, there are around 1,000 CDFIs across the U.S.

How Do CDFIs Work?

CDFIs work by providing products that, among other things, offer individuals and businesses the opportunity to borrow funds at a lower cost and to build their credit. The CDFI Fund, part of the U.S. Treasury, allows financial institutions to offer low-cost loans and mortgages for small businesses and first-time home buyers. CDFIs also can offer credit builder loans to help borrowers build a positive credit history.

Here’s an example of how a CDFI might help underserved communities build financial literacy and save money. If a person needs $400 to pay for a car repair, they might not have the cash available and would instead need a loan. Instead of seeking banking alternatives and, say, heading to a payday loan lender that offers a 350% interest rate, a CDFI might offer a loan with a rate of 20%. Doing so can save the borrower a significant amount in interest and contribute to their financial wellbeing.

What Are the Types of CDFIs?

There are several types of CDFIs; they tend to have similar, but not identical, missions. If you want to understand the specifics of what a CDFI is, you’ll find a few options:

Community Development Banks

Community development banks tend to be for-profit organizations that provide loans to those who are in distressed or underserved communities. Most commonly, borrowers are small businesses, non-profit organizations, local entrepreneurs, and housing developers.

Insured through the FDIC, these loans include business and non-profit loans, mortgages or home improvement loans, and some banking services.

Community Development Credit Unions (CDCUs)

CDCUs are financial institutions that are non-profit and member-owned, offering products and services to both business and consumers. Some of these may include credit counseling, consumer banking products like checking and savings accounts, and business planning for lower-income folks who are members of the CDCU. Given that these services are designed for the economically disadvantaged, customers may not have to deal as often with such issues as figuring out why a bank account is frozen and instead get support and financial literacy training.

They might also gain more services, such as being able to wire money to others.

Community Development Loan Funds (CDLFs)

CDLFs are typically funds that work with small businesses, non-profit organizations, and social-service provider facilities in lower-income communities. These mostly non-profit funds tend to provide pre-development, start-up, and business expansion loans at a lower interest rate. Typically, they also offer extra guidance such as help with business planning.

Community Development Venture Capital Funds (CDVC)

CDVCs provide funds, both equity and debt, for medium-sized businesses to encourage them to create jobs and other resources that help benefit lower-income and other types of underserved communities. Borrowers also tend to be businesses with a high potential for growth to which the CDVC will also provide extensive guidance.

Microenterprise Development Loan Fund

This type of loan fund offers loans and assistance, such as technical support, to lower-income entrepreneurs and self-employed individuals who can’t access conventional loans. These funds are usually non-profit and offer a peer lending model.

Community Development Corporations

Community development corporations are non-profit organizations usually formed by the local community and run by a volunteer board. They aim to use funding and investments to revitalize lower-income communities by offering affordable housing, providing social services, and creating jobs.

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Requirements for CDFI Certification

To be eligible for CDFI certification, a financial organization must have a main mission of offering services to lower-income and underserved communities.

Other eligibility requirements include:

•   Providing financial and educational support services

•   Serving in a minimum of one eligible target market

•   Need to direct a minimum of 60% of their services to at least one eligible target market

•   Maintaining accountability to their defined eligible target market

•   Being a non-governmental and legal entity (except Tribal government entities) when applying for CDFI certification

How Do CDFIs Help People of Lower Income?

These mission-driven financial organizations work specifically to help underserved communities, particularly those who are lower-income. By offering financial services, such as bank accounts and loans, they can elevate the community. Even if funding goes towards businesses, the loan proceeds need to be able to help lower-income communities, whether that’s through job creation or other forms of assistance.

What Do CDFIs Offer to Communities?

CDFIs offers the following products and services to communities:

•   Low-interest loans

•   Affordable housing opportunities

•   Bank accounts for those who may not have access to traditional financial products and services

•   Training such as financial literacy and business development assistance

Benefits of CDFIs

Advantages of Community Development Financial Institutions include:

•   Access to banking services for those who have been denied by conventional means

•   Access to low-interest loans to grow a business or find a more affordable path to homeownership

•   Increased access to financial and business training

•   Potential growth opportunities in lower-income and other underserved communities

Drawbacks of CDFIs

Disadvantages of Community Development Financial Institutions include:

•   Not all areas will have easy access to a CDFI

•   May not always be easy to get loans or funding, depending on the borrower

•   Interest rates may be higher than conventional loans for creditworthy borrowers

•   CDFIs’ ability to provide funds may be limited by investors and the federal government

The Takeaway

Community Development Financial Institutions, or CDFIs, are stepping up to help lower-income and underserved communities access affordable loans and financial products they otherwise may not have. While there are a limited number of CDFIs and funding is not infinite, they are working to improve both funding and financial literacy in some of America’s more vulnerable communities.

For those who are looking to avoid the usual charges that come with personal banking, SoFi has a great fee-free option. When you sign up for Checking and Savings with direct deposit, you don’t pay any fees like monthly, minimum-balance, or overdraft. Need more good reasons to open a new bank account? You’ll also have access to a network of 55,000+ fee-free ATMs and earn a 1.25% APY, which is 41 times the national checking account average.

Watch your money grow faster with SoFi.

FAQ

What is the difference between a bank and a CDFI?

Banks and CDFIs are both types of financial institutions, though the main difference lies in their mission. Banks tend to be for-profit organizations that focus on satisfying their shareholders by generating profits. CDFIs, on the other hand, aim to provide accessible and affordable financial products and services (such as bank accounts and loans) to lower-income and other underserved communities across the U.S.

How does a bank become a CDFI?

A bank can become a CDFI by getting certified by the U.S. Treasury. It needs to meet certain criteria, such as directing at least 60% of its funds towards financial products and services for lower-income communities, as well as navigating other stringent certification processes.

What are the benefits of being a CDFI?

The benefits of being a CDFI include getting additional training resources, networking opportunities with other financial institutions, and some exemptions to lending caps and mortgage rules. Of course, there’s also the benefit of knowing your organization is helping underserved communities grow and thrive.


SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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Can I Switch Bank Accounts if I Have an Overdraft?

Can I Switch Bank Accounts if I Have an Overdraft?

If you have an overdraft at your current bank account, you may wonder if it is still possible to switch to another bank. While you can switch bank accounts with an overdraft, it will cost you. What’s more, you may be limited to second-chance checking accounts or “no-overdraft” accounts that offer limited services and charge a monthly fee.

That’s because checking account reporting companies like ChexSystems and Early Warning Services monitor your banking activity and produce reports about your habits, much like a credit report. When you overdraw an account or have unpaid fees, these agencies will likely add that to your report, indicating to banks and credit unions a certain level of risk associated with taking you on as a customer. And if a bank closes your account because of an overdraft (called an “involuntary closure”), it may portray you as an even larger risk.

In this guide, you’ll learn the answer to “Can I switch bank accounts if I have an overdraft?” and other important insights. What’s ahead:

•   Is it possible to switch your bank account after overdrafting?

•   What happens when you overdraft?

•   How to find a new bank account?

•   What ChexSystems is and how to improve your banking record.

Is It Possible to Switch Your Account After Overdrafting?

Here’s the answer to the question, “Can I switch bank accounts with an overdraft?”: Yes, you can make a change, though your options may be limited. And even when you switch, you are still responsible for paying off your negative balance in your old bank account.

Because of the potential negative impact on your checking account report, it is a good idea to pay off your negative balance with your bank before switching, if at all possible. Doing so may make it easier to find a new checking account.

What Happens When You Overdraft

When you overdraft on your account, your bank may assess certain overdraft fees, depending on the terms and conditions of your account and what you have opted into. You will then be responsible for paying back the overdrawn amount plus the fee.

Agencies like ChexSystems and Early Warning Services will note this on your report. Your banking report is separate from, but similar to, the credit report that is compiled by the big three agencies: Equifax, Experian, and TransUnion. While a credit report tracks how responsibly you use credit (paying bills on time, how much debt you have), your banking report chronicles activity like bounced checks.

If you maintain a negative balance and do not pay the fees, the bank may close the account for you. This situation, when you have an involuntarily closed account on your checking account report, can make it much more challenging to convince a bank to let you open a new account.

Remaining bank account fees can even go to collections. In other words, if you avoid paying off the negative balance now, you may one day have to deal with a debt collector.

Recommended: Does Switching Bank Accounts Affect Credit Score?

How to Find a New Bank Account

If you want to switch bank accounts with an overdraft, perhaps because the current bank’s overdraft policy is not ideal for your situation, you have two options:

•   Pay back the negative balance and any overdraft fees. Doing this will allow you to close the account on your terms. It will also minimize any damage done to your checking account report with ChexSystems and Early Warning Services. Then you can assess what kind of bank account would work better for your needs.

•   Look for a second-chance checking account. If you cannot pay back the fees and negative balance right now, the bank may eventually close the account for you. With unpaid fees and potentially an involuntary closure on your report, you may find yourself limited to second-chance checking accounts, sometimes called “no-overdraft” accounts (more on these, below).

Pay Back the Overdraft

If you are able to resolve any overdrafts before closing your account, you will likely find it easier to open a new checking account. Without major blemishes on your report, the door will be open to better accounts, potentially even accounts that offer cash back rewards or pay interest.

In addition to offering interest and/or cash back, higher-caliber checking accounts often offer overdraft coverage with no fees to keep you from falling back into your overdraft habit.

There are other reasons to repay that overdraft on your bank account. With a stronger checking account report, you can typically find that doors open to a variety of banking products that reward you for your responsible behavior. For instance, you might be eligible for rewards checking accounts with no fees and protection from overdraft as well.

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning 1.25% APY on your cash!


Look for a Second-Chance Checking Accounts

However, if you are unable to pay off the negative balance or if your account was already involuntarily closed, you are not out of options. Some banks and credit unions do not use ChexSystems and Early Warning Services reports, which can make it easier for you to open an account.

You can often find second-chance checking accounts specifically designed for consumers who have been rejected by major banks because of their checking account reports. Such accounts often come with monthly fees that you cannot waive, and they might have additional requirements. Note: These accounts typically do not allow you to overdraft. Some banks will convert these accounts into standard checking accounts after a year or two of good banking behavior.

As an alternative, certain banks and credit unions may offer a prepaid card that operates like a debit card. You can load the card with money to spend. But unlike prepaid gift cards, these cards allow you to receive direct deposits and fund them with checks.

How You May Improve a ChexSystems Report

If you want to potentially improve your ChexSystems report, it’s important to know that negative behavior can linger for a number of years. ChexSystems, Early Warning Services, and any other agencies that report on consumer checking accounts cannot keep information that is older than seven years; some companies remove information after five years.

But you don’t just have to wait for time to pass to improve your checking account report. Here are a few things you can do to clean up your report now:

•   Dispute incorrect information. First and foremost, you can request one free ChexSystems report every 12 months (or any time you are denied an account). Review this report to ensure the information is correct, and dispute any discrepancies with the financial institution and the reporting company. If you have been a victim of bank account fraud, this is especially important; it’s wise to clear up these issues as soon as possible.

•   Pay off unpaid balances. If you have unpaid balances with a bank or credit union that are showing up on the report, you can pay these off, then request that the bank update the information with the reporting company.

•   Take advantage of your no-overdraft account. While you are waiting five to seven years for negative entries to fall off your report, it’s a good idea to avoid any activities that could lead to further bad marks. Utilizing a no-overdraft checking account, though it might carry monthly fees, can be a good way to ensure that you don’t accidentally overdraft again. In the same way you might build credit over time, you can establish a banking history that is mostly free of bad marks.

The Takeaway

Switching bank accounts if you have an overdraft is possible, but it can have long-term effects on your personal finances. If at all doable, restoring balances to $0 and paying overdraft fees before switching accounts is a good idea. It will help you access more flexible banking options at other institutions. However, if you can’t pay the outstanding balance, you might still be able to switch to a second-chance checking account. These accounts are designed for those whose checking account reports contain instances of risky banking activities and can help you build back good banking behavior after overdrafts and the like.

If you are looking for a checking account that offers overdraft coverage with no fees, consider opening a new SoFi Bank Account. When you open Checking and Savings with direct deposit, you’ll enjoy an amazing 1.25% APY, and access to your paycheck up to two days early. With a minimum monthly direct deposit of $1,000, you also get no-fee overdraft coverage.

Bank smarter with SoFi.

FAQ

Can you close a bank account if you owe an overdraft?

You typically cannot close a bank account if you owe an overdraft. The bank, however, can choose to close your account to protect itself against further risk. This is called an involuntary closure and has a negative effect on your checking account report.

Can you close a bank account with a negative balance?

Generally, you can not close a bank account with a negative balance or unpaid fees. You will need to pay this money back to the bank or credit union before you can close the account.

Can you go to jail for a negative bank account?

A negative or overdrawn bank account is not a criminal offense. However, your account could be sent to collections, and unpaid balances will show up on your checking account report, which could make it difficult to open an account in the future.


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 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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 or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Guide to Demand Deposit Accounts (DDA)

Guide to Demand Deposit Accounts (DDA)

A demand deposit account (DDA) is a type of bank account that is payable on demand. In other words, you can withdraw funds whenever you like. The most recognizable type of demand deposit account is a checking account. That’s right: You probably already have a demand deposit account and didn’t even know it.

While some personal finance sites and experts may conversationally refer to savings accounts as demand deposit accounts, there are key differences that actually keep savings accounts from qualifying.

In this guide, you’ll learn:

•   What is a DDA account?

•   What isn’t a demand deposit account?

•   How to open a demand deposit account.

•   The pros and cons of a DDA.

What Is a Demand Deposit Account?

So what is a demand deposit account (and what is it not)? The Federal Reserve categorizes demand deposit accounts as those that “are payable on demand, or a deposit issued with an original maturity or required notice period of less than seven days, or a deposit representing funds for which the depository institution does not reserve the right to require at least seven days’ written notice of intended withdrawal.”

Wait, what? Bank jargon can get confusing, so let’s break it down more simply. Demand deposit accounts:

•   Don’t have a maturity period.

•   Allow you to access your funds without notice (or less than seven days’ notice).

•   Can earn interest, like a high-yield checking account.

•   Cannot limit the number of withdrawals or transfers you can make.

Because checking accounts do not mature and give you immediate access to your funds (for example, through check writing, debit cards, and ATM withdrawals), these qualify as demand deposit accounts.

Recommended: “>What is High Interest Checking – and How Does it Work?

What Isn’t a Demand Deposit Account?

Checking accounts are a common type of DDA, but what about other types of bank accounts, like savings accounts, money market accounts, and certificates of deposit?

Savings Deposits

Some people consider savings accounts to be DDAs, but there’s a difference to note. The Federal Reserve’s Regulation D (Reg D) previously limited savings account withdrawals to six per month. In response to COVID-19, the Federal Reserve removed this requirement.

Even though the Federal Reserve has eliminated the six withdrawal limit requirement, savings accounts still do not technically qualify as a demand deposit. Because banks have the right to require at least seven days’ written notice for withdrawals on funds in savings accounts, the government instead classifies savings accounts (and money market accounts) as savings deposits.

However, consumers can typically access their savings funds without a required waiting period, so they can often utilize their savings accounts as if they were demand deposit accounts. A bonus is that savings accounts are usually interest-bearing. Just note that many banks still impose a monthly withdrawal limit, despite Federal Reserve changes, so you may wind up getting hit with fees if you make frequent withdrawals.

Recommended: How Do You Calculate Interest on a Savings Account?

Time Deposits

CDs, which have pre-set dates of maturity, are even less like demand deposits. A CD is a time deposit (sometimes called term deposit). They have set maturity dates and are subject to early withdrawal fees, meaning the funds are less liquid than a checking or savings account. Time deposits can be transferable or nontransferable and negotiable or nonnegotiable. In addition to CDs, time deposits can include club accounts (like Christmas and vacation club accounts).

A bit more on how CDs work: The principle for these accounts is that you, the account holder, commit to having your funds on deposit with a bank for a set period of time. Break that agreement, and you may pay penalties.

How Demand Deposits Work

Demand deposit accounts are designed for on-demand access to your funds. Thus, you should be able to withdraw money to cover purchases at any time.

If your demand deposit account is a traditional checking account, you can spend your money with a debit card, checkbook, transfers, or even peer-to-peer payment apps. Each bank will have its own terms and conditions, but some accounts may pay interest, some may charge fees, and some may grant you fee-free access at certain ATMs, so you can grab your money on the go. Research various accounts carefully before selecting a bank or credit union. This involves reading the fine print, but it’s important as it can help you avoid misunderstandings and various fees.

Types of Demand Deposit Accounts

Checking accounts may be the most obvious type of demand deposit account. Some savings accounts can be accessed on demand these days, as outlined above, but many still have restrictions regarding how often you can make withdrawals.

Money market accounts occupy a kind of middle ground: Some experts classify them as demand deposit accounts, but others do not.

How to Open a Demand Deposit Account

Opening a demand deposit account is equivalent to opening a checking account. Each financial institution will have its own processes for opening an account. Typically, you will need a government-issued photo ID, proof of your current residence (a utility bill, for instance), and often an opening deposit to initiate the account. Many banks allow you to complete this process quickly and easily online.

Advantages of Demand Deposit Accounts

Demand deposit accounts offer multiple benefits to consumers:

•   Easy and immediate access to funds: Whether through check writing, an ATM, or the swipe of a debit card, a demand deposit account enables consumers to spend their money as they see fit.

•   FDIC and NCUA insurance: Demand deposit accounts at banks are typically insured by the FDIC for up to $250,000; those held at credit unions are usually insured by the NCUA for the same amount. FDIC and NCUA insurance makes demand deposits safer than cash in your wallet or under the mattress.

•   Interest: Demand deposit accounts can be interest-bearing. The national average APY for checking accounts, according to the FDIC, is currently 0.03%. You can shop around for better returns (over 1%, for instance), largely at online banks. Because these don’t have the expense of bricks-and-mortar locations, they can pass those savings onto their clients.

Disadvantages of Demand Deposit Accounts

Consumers may find some drawbacks to demand deposit accounts as well:

•   Low earnings: Demand deposit accounts are not required to pay interest. While consumers have easy access to their funds, they are trading away higher earning opportunities they might find with a high-interest savings account, time deposits, or even investments in stocks and bonds.

•   Fees: Some demand deposits accounts charge fees, including monthly maintenance fees. Others require minimum balances that some consumers might not want to keep in the account.

The Takeaway

Demand deposit accounts are a type of bank account that give you immediate access to your funds. Checking accounts are the most common type of DDA. With these, you can withdraw money at will, by check, debit card, ATM, bank transfer, or P2P platforms. Demand deposit accounts are often the foundation of an individual’s financial life, allowing them to spend and manage their money seamlessly.

Banking with SoFi can help smooth the path to smart money management. Enroll in our Checking and Savings with direct deposit, and you won’t pay any fees; you’ll have access to more than 55,000 fee-free ATMs via the Allpoint® Network; and you’ll earn an ultra competitive 1.25% APY.

SoFi: Helping your money grow faster.

FAQ

Is a DDA number the same as an account number?

A DDA (or demand deposit account) number is typically the same as your checking account number.

What is a personal DDA deposit?

You can fund your DDA directly with transfers from other accounts, check deposits (mobile, in-person, or ATM), or cash deposits. These are all types of personal DDA deposits.

Is a DDA account a checking account?

In most cases, a DDA account is a checking account. There is some debate about whether other types of accounts, such as a money market account, also qualify as a DDA.

What does DDA mean on a bank statement?

DDA stands for demand deposit account, which indicates that funds in the account are immediately available to the account holder.


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 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. 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.

Photo credit: iStock/jacoblund
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25 Items That Are Worth Saving for

25 Items That Are Worth Saving for

Each of us has our own agenda in terms of what makes stashing our cash away worthwhile. For some of us, it’s the anticipation of doing something fun or buying something beautiful. For others, it’s all about using our cash to secure some quality of life and peace of mind.

Regardless of what gets you saving, you’ll look forward to snagging that reward. You’ll deal with a bit of deprivation to get to your goal, whether you’re stashing funds to buy a new computer, a used convertible, or cool new shoes. And even if what you’re working towards isn’t so fun (think retirement funds to ensure your future), you’re bound to be honing your saving skills. You’re likely boosting your financial wellness as well.

Here, learn more about how to save for items that are well worth your time and effort. Plus, we’ll share 25 ideas to inspire you to amp up your savings account.

Why Saving Is Important

The importance of saving cannot be overstated; it’s a very big part of successful money management. Consistently putting away cash can make a major difference over time, especially in your quality of life. By planning and prioritizing what expenses to fund, you’ll have the means to achieve your goals. It’s incredibly rewarding when you make a plan for your money and then realize it.

To jump start your savings, try one of these creative strategies for turbocharging your savings.

•   Budget first. The mere mention of the word budget can stress some people out, but a budget is simply a plan for how you will spend your money. Having a strategy in place can really help keep your spending and savings on track. There are a number of methods you can use to budget, including the good old cash envelopes system and the 50/30/20 rule, as well as a number of mobile apps. Research your options online, and find the one that works best for you.

•   Automate savings. One of the easiest ways to ensure you’re saving toward your goal may be to automate it. This can take much of the stress out of saving. For instance, you could set up an automatic bank transfer from your checking to your savings account every payday.

•   Save consistently. Over time, you have a great chance of meeting your goal. Maybe it’s only $5 or $25 a pop, but contributing to your savings account regularly is vital. Be consistent and trust the process.

•   Save bonuses, tax returns, and other unexpected windfall amounts. These extras can give your savings account a tremendous boost.

•   Match your own purchases. For every amount that you spend on a treat, transfer that same amount into savings.

•   Save every $5 bill. By setting aside every $5 bill you encounter (as change from a purchase, from an ATM, etc.), you can save quite a bit in a year’s time.

•   Use the 30-day rule to control impulse purchases. Write down that shiny new thing you want, whether it’s a pricey new mobile phone or a designer bag, and wait 30 days to see if you still want it. You may find that your urge to spend on it has passed. If so, you can put the money you save this way into savings to fund something that’s on your wishlist.

Recommended: How Much of Your Paycheck Should You Save?

25 Smart Items to Save Up for

Spending money according to your own personal preferences — whether it’s a vacation, a new car, or a comfortable home for your family — should be the driving force behind your saving goals. This is how to make saving fun: Make a list of cool things to save up for. Create a vision board if you prefer; the idea is to entice yourself to perhaps pass up some unnecessary spending (takeout meals, a multitude of streaming services) and achieve those things you really crave. Not sure what to start saving for? Here are 25 ideas to get you going.

1. Vacations

You may have heard that vacations are good for both your physical and mental health. Even the act of looking forward to a vacation can improve your happiness. Whether the vacation you crave is a week at a nearby beach, a long weekend with your college besties, or a jaunt through Europe, the prospect of travel can be great motivation to save money.

2. Brand New Electronics

Buying new electronics isn’t just a leisure pursuit. New electronics can help with your productivity and ability to earn an income (or a higher one). It may be worth it to you to save for and invest in tools, such as a new laptop or video equipment, that can make your life better.

3. Starting a Business

If starting a business and becoming your own boss is a dream of yours, savings can go a long way toward making it happen. In fact, out of businesses that fail, 38% say it’s because they ran out of cash. Start accumulating capital so you can hopefully avoid becoming part of that statistic.

4. Investing in Real Estate

Want to invest in real estate? Whether it’s a REIT (real estate investment trust), a rental property, or other type of vehicle, you’ll need some cash to get started. Directly owning an investment property, for example, means you may need 15% for a down payment on a conventional loan.

5. Weddings

This is a popular motivation to save. Most people dreaming of their big day know that it doesn’t come cheap. The average cost of a wedding in 2021 was $28,000, according to one survey. Saving for this expense means you can celebrate the special day with loved ones, just the way you want to, while minimizing money stress.

6. Investing in Index Funds

Many people dream of having a financial portfolio that pumps out earnings. Index funds may be able to help you create a diversified portfolio at a low cost. Putting money in an investment fund can help you make your money work for you and achieve your financial goals.

7. Brand New Car

Most people need wheels to get around, but cars aren’t just about function. Maybe you are dreaming of a low-slung sports car or an SUV that’s ready to offroad. When you get the keys to a new car, you’ll likely know that your time and energy spent saving was worth it.

8. Down Payment on a Home

Saving for a home is a top priority for many and for good reason. The typical homeowner who purchased a property just five years ago would see a $144,000 increase in their net worth. Aside from the potential financial benefits, owning your dream home is a major boost to your and your family’s quality of life.

9. Clothing and Shoes

There’s something about fresh clothes and shoes that can give you a psychological boost. For a household, costs averaged $1,434 for apparel for the year. Saving a little toward making yourself look good is one of the fun things you can save up for. It could be a whole wardrobe upgrade or a special splurge piece, but clothes can be excellent saving motivation.

10. Hobbies

If there’s something you enjoy doing in your free time, be sure to save enough money to fully invest yourself in the activity. Do you want a new acoustic guitar or perhaps a pottery wheel? Save for it. You may even be able to monetize your hobby or start a business from it.

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning 1.25% APY on your cash!


11. A Quality Mattress and Mattress Accessories

According to the CDC, one out of three Americans don’t get enough sleep. Being deprived of sleep can have a major impact on how you feel and function. Which is all the more reason to save for the comfiest mattress you can find.

12. Exercise Equipment

The right exercise equipment can help you make your health a priority and work out regularly. It’s not cheap, though. Equipment can cost as little as about $20 for a kettlebell or thousands for a top-of-the-line rowing machine or Pilates equipment.

13. Professional Lessons (Sports, Dancing, Cooking, etc.)

Whether you want to dance more smoothly or perfect your golf swing, saving toward developing those skills can bring a lot of joy and satisfaction.

14. College

So many people feel the thrill of pride and achievement when earning a college degree, and it can help fuel a career. But college costs are up 169% since 1980 — and there’s no telling how much further they’ll go. Saving toward these expenses, whether for yourself or your dependents, can help them get the education they need and dampen the blow of the cost of education.

15. Quality Home Appliances

Maybe you’d like to remove that old eyesore of a dishwasher and replace it with a top-notch new one, or swap out your old washer/dryer for an eco-friendly new model. Or, say, a professional-grade stove is calling to you to live out your gourmet dreams. Once you get the appliance you were dreaming about, you’ll likely feel that saving for it was worthwhile.

16. Home Security

While it may not exactly be a cool thing to save up money for, a home security system can give you amazing peace of mind. As a bonus, you may have fun doorbell footage to post on social media once you buy your system.

17. Jewelry

If you love shiny baubles, they can certainly be worth saving for. Maybe there’s a dream piece you’ve been pining for. With the cost of some custom jewelry ranging from $2,000 to $30,000, you’ll definitely want to have a plan to save for it.

18. Home Furniture

If you value updated and stylish furniture, you’ll want to put it on your list. New furniture can uplift the comfort, function, and look of your home. Not to mention, when (or if) you sell your home, it can possibly help your place fetch a higher sales price.

19. Events & Special Occasions (Concerts, Dinners, Sports Games, etc.)

Many of us look forward to making lifelong memories at special events, from a Stones concert to the Super Bowl to a local gala. These occasions can both entertain and help you feel connected to the people who accompany you. Indulging in tickets every now and then is an incredibly fun and cool thing to save up for.

20. Home, Car and Health Insurance

Putting money toward insurance premiums may not always be fun, but it may give you peace of mind. It helps you know that you’re covered in case of accidents, unexpected health problems, and natural disasters. Saving up to afford a policy is wise if you are, say, planning to buy a house or car or are prepping for a big live event, like marriage or becoming a parent.

21. Retirement

Saving for retirement is a critical part of your financial health. A Federal Reserve survey found that only 36% of workers felt their retirement savings were on track. If you want to give yourself a healthy cushion for some of the most vulnerable years of your life, you may want to add to your retirement savings. While it doesn’t give you a tangible payoff now, you may rest easier knowing you’re prepared for tomorrow.

22. Anniversaries

Have someone (or something) special you want to celebrate? Put aside some money to do it up right, especially if it’s a nice round number that’s coming up. It’s up to you whether the funds go towards a gift, a trip, or a special night out with friends and family.

23. Repairs and Remodels

Home improvements can make your home more comfortable and functional but they are likely a major expense. With the average remodel topping $47,000, it will take quite a chunk of change to make it happen. Saving for this type of cost can help you turn your place into the showplace you know it can be.

24. Birthdays

Celebrating birthdays is a fantastic way to nurture the relationships in your life. Maybe it’s with a candlelit dinner or tickets to a show, but it can be a great excuse to save and then spend some cash.

25. Holidays

Creating holiday memories is important for many of us. Saving up for the holidays and seeing your vision for your family come to life can be incredibly rewarding. A Gallup poll found that Americans plan to spend around $886 on Christmas gifts each year. On top of this, Americans are spending $231 on things like decorations and food and another $118 on other purchases. Stashing some cash in advance can help alleviate stress during the most wonderful time of the year.

Banking With SoFi

Focusing on a wish-list item can give you the motivation and discipline to start saving. Of course, the goal will vary with each person. One person may want a trip to Bali, another may need a new car, and a third may be focused on getting a down payment together for a home. Whatever the goal, saving for an important purchase can be a great way to build your financial skills and elevate your quality of life.

If you want a partner to help you save, consider opening a SoFi bank account. You can earn an ultra competitive 1.25% APY on your money when you open Checking and Savings with direct deposit. There are automatic savings features too, and you won’t pay any account fees.

Bank better with SoFi.

FAQ

How can I develop the mindset to save long-term?

To develop a mindset to save for the long term, be sure to start with a goal. Brainstorm some cool or vital things to save up for. Then, automate regular transfers to your savings account. If you don’t see that money in your checking account, you likely won’t spend it.

Is saving money long-term hard?

Saving can be hard, and even a small amount stashed regularly can make a big difference in your financial wellness. The Federal Reserve reports the average household saving rate in early 2022 was 5%. It may not be a huge amount, but it can be a good start.

How do I make saving money easier?

Saving money is easier when you have a plan in place. Automating money transfers to your savings account when your paycheck hits is one easy way to start saving towards something fun. You can also experiment with different budgeting methods to help “find” more money to put into your savings.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. 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.

Photo credit: iStock/Borislav
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How Can I Pay My Bills When I Lost My Job?

How Can I Pay My Bills When I Lost My Job?

If you lose your job, it can be challenging to pay your bills, but in many situations, it can be done. Sure, unemployment can feel overwhelming and scary, especially when it comes to figuring out how to pay your bills without your usual paycheck. It’s one thing to temporarily give up on dining out, but it’s another to miss your mortgage or rent payments and risk not having a place to live. Same goes for other necessities such as utilities and transportation.

The good news is that there are ways to manage your finances effectively after you’ve lost your job. Here, learn more, including:

•   Which bills to prioritize.

•   How to create a survival budget.

•   Where to access money until you find a new job.

What Bills Should I Prioritize?

If you’re unemployed, you may wonder how to pay your bills without a job. In this situation, it’s crucial to prioritize certain ones to make sure you can meet your basic necessities. This means looking at your list of bills and determining ones that should be at the top of your list (or close to it). In addition to the bills that keep your daily life running, you also want to consider the damage unpaid charges can do to your credit rating. The goal is to balance these factors with the funds you do have available.

Bills you should probably prioritize include:

Rent

Having a roof over your head is important for you and those who live with you, so contact your landlord as soon as possible to discuss alternative payment arrangements. Perhaps you can negotiate lower payments for a window of time. Otherwise, if you don’t communicate and don’t pay, you could find yourself facing eviction.

Mortgage Payments

If you have a home loan, falling behind on payments can have serious consequences, one of which is foreclosure. Non-payment can lead to default and the bank has the right to recoup their property (aka the home) and sell it to attempt to make back the money it lost. If you’re wondering what to do about loans when you’ve lost your job, contact your lenders as soon as possible. Many offer forbearance or alternative repayment programs.

Student Loans

Falling behind on student loans could mean you’ll go into default. In some cases, the lender may have the right to garnish your wages. If you’re handling student loans during a job loss, consider applying for an income-driven repayment plan for federal student loans or contacting your private lender to see what options are available.

Car Loans

You’ll most likely need your car to run errands or look for work. Staying on top of payments for your loan or lease can help ensure you won’t risk having your vehicle repossessed.

Insurance

Non-payment could result in denial of coverage, which might not be helpful if you need to see medical treatment or are in a traffic accident, for instance.

Utilities

Not paying these types of bills can result in your electricity, water, phone, and internet being shut off. These are obviously vital for daily life and, in terms of connectivity, job hunting.

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning 1.25% APY on your cash!


How to Create a Survival Budget

If you’ve lost your job, it’s important to create a survival budget to help prepare for the lean times ahead. This type of budget only takes into account the bare necessities with whatever savings or income sources like unemployment benefits you currently have.

The main goals of a survival budget: to ensure you and your family are taken care of, and then turn your attention to any creditors as necessary. What this means is that even without a job, you pay the bills that will ensure you can survive first — such as food and housing.

To start, look at all of your current expenses and eliminate anything that isn’t really and truly a necessity. For instance, you can’t get rid of your food expenses, but you can temporarily cut back on dining out. Cook your meals instead, and ditch your takeout coffee habit for now. If you have a cell phone, you can consider downgrading your service for a cheaper plan to save some money.

Look at the funds you have available for the next couple of months as you job hunt. Deduct the priority expenses, and then evaluate what is left and how you can budget those funds. Be strict with yourself: Now is the time to unsubscribe from all those streaming services and save your money for what’s vital.

If you’re not sure if you have enough cash to pay for the necessities and debt payments, it’s best to seek options like forbearance and deferment — negotiate with your lenders to see what you can do.

Where Can I Turn for Money?

Here are some income sources you can turn to when you’re unemployed. It’s hard to pay bills with no job, but these resources may get you through a tough time:

Credit Cards

Using credit cards or even taking out a personal loan when unemployed can be a quick source of funds if you need to make purchases such as groceries and gas. While the interest rates tend to be high, you’ll have a grace period before your balance is due, giving you a buffer to get another income source.

Otherwise, you can make the minimum payment for the time being and make a plan to pay it back once you’re employed again. Also, make contact and see if you can negotiate with your card’s issuing company; you might be able to delay credit card payments. You may also want to explore balance transfer credit card offers, which give you a window of low or no interest.

Retirement Accounts

Tapping into a retirement account like a 401(k) or an IRA is typically seen as the last resort because the downsides typically outweigh the benefits. However, if you’re running out of resources and you have a decent chunk in there, you may not have another choice.

You can choose to tap into your retirement accounts in the following ways:

•   Take out a 401(k) loan: Depending on the terms of your 401(k) plan, you may be able to borrow up to a certain amount — usually up to $50,000 or half of your vested amount — and pay it back within a predetermined amount of time (in most cases, five years). Keep in mind you could face additional penalties if you don’t pay back the loan, such as the loan amount being subject to taxes.

•   Withdraw from your retirement accounts: If you have an IRA or taxable brokerage account, you can make withdrawals. Keep in mind with IRA accounts, you may be subject to a penalty and taxes on the amount you withdraw.

Government Assistance

You’ll want to find out how unemployment works if you lose your job; it can help get some cash flowing your way. Those funds can help you pay for your necessities as you seek other work.

If you’ve been unemployed for a while or face mounting pressures on things like an unexpected medical bill, you may be able to seek other forms of government assistance. To see what you may qualify for, you can search on Benefits.gov, your local state or municipal office, and even local charity organizations and churches.

How Setting Up a Bank Account Can Help You When You Are Not Working

When you’re unemployed, setting up a bank account may seem like the last thing on your mind, but doing so can help. For one, it can help you to keep track of your finances and apply for products such as credit cards and loans if you need these sources of income.

Plus, many banks offer tools to help you budget your money, a useful feature considering you need to watch your money more carefully. These pros of opening an account can make this moment of unemployment a good one to explore your options.

How to Budget and Save with a Bank Account

Here are some ways in which you can budget and save using a bank account when you are unemployed and navigating the job market:

•   Divide money into multiple checking or savings accounts for each type of expenses so you can ensure you have enough money for necessities as well as bills.

•   Set up automatic transfers so you can ensure you’re setting aside money from any income to save or pay bills on time.

•   Set up direct deposit for unemployment benefits or government assistance.

•   Set up card controls or features from your bank to restrict spending.

•   Turn on balance alerts to notify you when your account falls below a certain balance, so you can decide to pause or delay certain purchases.

•   Earn interest with a high-interest savings account.

Alternative Sources of Possible Income

For some people, the above options for money won’t be a good fit; for others, additional funds will be needed. If you have learned how to apply for unemployment and taken other steps to get money but are still seeking other sources of income, consider these options to get cash flowing:

•   Borrow from friends and family

•   Look for work on freelance marketplace sites like Upwork and Fiverr

•   Sell things you own or make online via eBay, Etsy, or other sites

•   Participate in paid market research

•   Look locally for jobs like dog-walking

•   Explore passive income ideas, including renting out your car or your tools.

The Takeaway

Paying bills when you lose your job can feel stressful, but it’s not impossible. Some key steps may include prioritizing your bills and focusing on budgeting for the bare necessities. It’s also wise to negotiate lower or delayed payments where possible and look for other interim streams of income while you look for your next job.

To help you budget carefully when money is tight, consider opening a bank account that offers you higher interest, no fees, and rewards. When you open an online bank account with SoFi and sign up for direct deposit of funds, you’ll have the opportunity to earn hyper competitive interest of 1.25% APY on your Checking and Savings, plus you won’t pay any fees, like minimum-balance or monthly. If you’re able to direct deposit $1,000 a month, you’ll enjoy fee-free overdraft coverage too.

Bank smarter with SoFi.

FAQ

What happens to debt when you lose your job?

You are still responsible for your debit payments even if you’re unemployed. However, you may be able to negotiate with creditors and pursue options such as forbearance or partial payment plans. That way, it may be able to to help alleviate some of your debt burden.

What bills should I pay first?

If you lose your job, your priority should be to pay for all the necessities and keep creditors at bay. That means prioritizing your rent or mortgage, insurance, utilities, and food.

How do you budget if you are unemployed?

One of the best ways to budget when you’re unemployed is to create a survival budget. To make one, cut out all unnecessary expenses such as entertainment or dining out temporarily. Work to negotiate with creditors so you’re paying as little in debt as possible, and ensure you are doing all you can to pay for priorities like housing, insurance, food, and utilities.


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 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. 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 or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Photo credit: iStock/Delmaine Donson
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