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Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.

With Americans facing over $1.6 trillion in combined student loan balances, many borrowers are on the hunt for ways to ease their debt burden. One option you may have seen was called the Obama Student Loan Forgiveness Plan, which according to some websites, was a way for some borrowers to escape their debt for a small fee.

This offer might sound appealing, but there’s one problem: It’s fake. It’s just one example of real ads that scammers have used to target and bilk borrowers.

Fraudsters have used lines like this to lure in their marks, then charged them hefty fees to fill out forms they could’ve filled out themselves for free. In the worst cases, people end up paying for nonexistent services.

Here are some answers to your burning questions on student loan forgiveness, so you can get a better idea of how the program works:

Does Any Student Loan Forgiveness Act Exist?

Yes. The Student Loan Forgiveness Act (SLFA) was a congressional bill introduced in 2012 intended to help borrowers with paying down their student debt.

In addition to capping interest rates for all federal loans, the proposed law would have introduced a repayment plan that allows borrowers to have their loans forgiven after 10 years if they made monthly payments equivalent to 10% of their adjusted gross income. The bill also would have made borrowers in public service jobs eligible for loan forgiveness after five years, instead of 10.

Sound too good to be true? It was. The bill never made it out of committee.

So, What is Obama’s New Student Loan Forgiveness Program?

Even though you may have heard about it, “Obama’s new student loan forgiveness program” doesn’t exist. During his tenure, President Obama did expand the reach of federal loan forgiveness programs. A bill he signed in 2010 allowed students who took out certain federal loans to have their balances forgiven in 20 years, rather than 25.

The same bill capped annual payments at 10% of adjusted gross income, rather than 15%. It also ushered in loan forgiveness after 10 years for borrowers working in qualified public service jobs.

Those changes preceded the introduction of the Student Loan Forgiveness Act (SLFA), and was never officially called “Obama’s Student Loan Forgiveness Program.” Likewise, there is no “new” student loan forgiveness program in Obama’s name, either, obviously.

Then Why Have I Read About Obama’s New Student Loan Forgiveness Program?

Because it’s a term that debt relief companies use to confuse student loan borrowers. The name seems convincing since President Obama did take action on federal student loans and legitimate federal loan forgiveness programs exist. That’s why some borrowers have been duped into paying high fees for pointless—or nonexistent—services. Don’t be fooled: The program isn’t real!

Debt relief companies advertising the “Student Loan Forgiveness Act” or “Obama’s New Student Loan Forgiveness Program” are bad news. Understanding which programs are real and which are fake can help you avoid being scammed—and find legitimate ways to actually have some of your student loans forgiven.

What Are Some Legitimate Options for Student Loan Forgiveness?

No, Obama’s Student Loan Forgiveness Act never passed. However, there are several real options for having federal student loans forgiven.

In fact, in response to the coronavirus epidemic, the CARES Act suspended federal student loan interest and payment suspension through September 2020. (Update: The pause on federal student loan repayment has been extended through Dec. 31, 2022)

The pending HEROES Act (narrowly passed by the House in mid-May, 2020) proposed $10,000 each of federal student loan AND private student loans forgiveness initially but may have more stringent eligibility requirements if passed by the Senate. While it’s definitely something to keep an eye on, here are some existing programs that may be helpful.

Income-Driven Repayment Plans

The government currently offers four income-driven repayment plans for federal student loans that can forgive borrowers’ balances after 20 or 25 years.

There are eligibility requirements, like making required monthly payments for a designated period of time, which are tied to a person’s income. The plans a borrower qualifies for will depend on the types of loans they have and when they took them out.

These student loan repayment plans are based on borrowers’ discretionary income, or the amount they earn after subtracting necessary expenses like taxes, shelter, and food. Here is a brief overview of each one:

•   Revised Pay As You Earn Repayment Plan (REPAYE): Borrowers’ monthly payment is typically 10% of their income. If all loans were taken out for undergraduate studies, they’ll make payments for 20 years; if they also took out loans for graduate or professional studies, they’ll make payments for 25 years. At the end of 20 or 25 years, the remaining amount will be forgiven.
•   Pay As You Earn Repayment Plan (PAYE): People pay up to 10% of their discretionary income each month, but they never pay more than they would under the 10-year Standard Repayment Plan. After 20 years, the remaining debt will be forgiven.
•   Income-Based Repayment Plan (IBR): People will pay 10% of their discretionary income for 20 years if they became a new borrower on or after July 1, 2014, and 15% for 25 years if they were a borrower before July 1, 2014. They will never pay more than they would under the 10-year Standard Repayment Plan. Borrowers’ debt will be forgiven after either 20 or 25 years.
•   Income-Contingent Repayment Plan (ICR): Borrowers choose whichever repayment plan is cheaper—20% of their discretionary income or what they would pay if they spread their payments out equally over 12 years. Any remaining balance will be forgiven after 25 years.

These four plans are designed to help borrowers make monthly payments they can actually afford. Some people may assume that an income-driven repayment plan that results in forgiveness is best for them, when in reality, this might not be the case.

Note that if the remaining balance of your loan is forgiven, you may be responsible for paying income taxes on that amount.

A repayment calculator can be a useful tool to help determine enrolling in an income-based forgiveness program that would be beneficial. After a borrower plugs in their information, they could discover that they would pay less, in the long run, should they enroll in, say, the government’s Standard Repayment Plan.

Public Service Loan Forgiveness

Borrowers can have their loans forgiven in 10 years under the Public Service Loan Forgiveness (PSLF) program. To potentially qualify, they must work full-time for a qualified government organization, nonprofit, or certain public-interest employers, such as a public interest law firm, public library, or public health provider.

Over those 10 years, borrowers must make 120 qualifying monthly payments, and the payment amount is based on their income. Those 120 payments don’t necessarily have to be consecutive. For example, let’s say a borrower works for the local government for three years, then switches to the private sector for a year.

If they decide to go back into public service after that year, they can pick up where they left off with payments rather than start all over.

The PSLF program can be difficult to qualify for, but some people have successfully enrolled. As of March 2020, 145,758 borrowers had applied for the program. Only 3,174 applications were accepted. 171,321 applications had been rejected, and the remaining applications were still processing.

Teacher Loan Forgiveness Program

Qualifying teachers can also get up to $17,500 of their federal loans forgiven after five years teaching full-time under the Teacher Loan Forgiveness Program. The American Federation of Teachers has a searchable database of state and local loan forgiveness programs.

To qualify for the full amount, teachers must either teach math or science at the secondary level, or teach special education at the elementary or secondary level. Otherwise, borrowers can have up to $5,000 forgiven if they are a full-time teacher at the elementary or secondary level.

NURSE Corps Loan Repayment Program

Health professionals have access to other loan assistance programs. The federal government’s NURSE Corps Loan Repayment Program pays up to 85% of eligible nurses’ unpaid debt for nursing school.

To receive loan forgiveness, borrowers must serve for two years in a Critical Shortage Facility or work as nurse faculty in an accredited school of nursing.

After two years, 60% of their nursing loans will be forgiven. If a borrower applies and is accepted for a third year, an additional 25% of their original loan amount will be forgiven, coming to a total of 85%.

Borrowers interested in the NURSE Corps Loan Repayment Program can read about what qualifies as a Critical Shortage Facility or an eligible school of nursing before applying.

Indian Health Services’ Loan Repayment Program

The Indian Health Services’ Loan Repayment Program will repay up to $40,000 in qualifying loans for doctors, nurses, psychologists, dentists, and other professionals who spend two years working in health facilities serving American Indian or Alaska Native communities.

Once a borrower completes their initial two years, they may choose to extend their contract each year until their student loans are completely forgiven.

In 2019, the Indian Health Service’s budget allows for up to 384 new awards for two-year contracts, and around 392 awards for one-year contract extensions. The average award for a one-year extension is $24,840 in 2019.

Even those who aren’t typical medical professionals, like doctors or nurses, may still qualify. The IHS has also provided awards to people in other fields, such as social work, dietetics, and environmental engineering.

The National Health Service Corps

The National Health Service Corps offers up to $50,000 for loan repayment to medical, dental, and mental health practitioners who spend two years working in underserved areas.

Loan forgiveness programs are generally available for federal loans, as opposed to private ones. In rare cases, such as school closure while a student is enrolled or soon after, they could qualify to have their loan discharged or canceled.

Health Professional Shortage Areas (HPSAs) include facilities such as correctional facilities, state mental hospitals, federally qualified health centers, and Indian health facilities, just to name a few. Each HPSA receives a score depending on how great the site’s need is.

Scores range from 0 to 25 for primary care and mental health, and 0 to 26 for dental care. The higher the score, the greater the need.

Borrowers have the option to enroll in either a full-time or part-time position, but people working in private practice must work full-time. Full-time health professionals may receive awards up to $50,000 if they work at a site with a score of at least 14, and up to $30,000 if the site’s score is 13 or below. Half-time employees will receive up to $25,000 if their site’s score is at least 14, and up to $15,000 if the score is 13 or lower.

Interested in learning more about your options for student loan repayment? Check out SoFi’s student loan help center to get the answers you need about your student debt. The help center explains student loan jargon in terms people can understand, provides loan calculators, and even offers student loan refinancing to hopefully land borrowers lower rates.

Refinancing student loans through a private lender can disqualify people from enrolling in federal loan forgiveness programs and loan forgiveness programs, and disqualifies them from CARES Act forbearance and interest rate benefits.

Check out SoFi to see how refinancing your student loans can help you.

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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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When it comes to your finances, the old saying rings true: Don’t put all your eggs in one basket. The vast majority of financial planners advise investing in many different types of stocks, bonds, and other assets, not just a couple that sound interesting.

But especially when you’re starting out, you probably don’t have enough money to spread it across all different types of investments. That doesn’t have to stop you—in fact, that’s exactly where mutual funds come in.
In this guide, we’ll cover everything you need to know about mutual funds: What they are, how they work, and whether they’re right for you.

What Are Mutual Funds?

Mutual funds were designed for people to get started investing with small amounts of money. You can think of them as suitcases filled with different types of securities, such as stocks and bonds. Buying even one share of the fund immediately invests you in all the individual securities the fund holds.

The benefit? Instant diversification. Say you invest in a mutual fund that holds stocks of every company in the S&P 500. If one company in the S&P 500 goes bankrupt, your fund might lose some value, but you most likely won’t lose everything. But if your whole investment was in that one company’s stock, you’d lose all or most of your money.

What Types of Mutual Funds Are There?

Mutual funds can invest in stocks, bonds, real estate, commodities, and more. There are over 20,000 mutual funds that cover every investing strategy you can imagine. Some common strategies include:

Asset Class Funds: Asset classes are groups of similar assets that share similar risks, such as stocks, bonds, cash, or real estate. Some funds specialize in a particular type of investment or asset class—for example, large cap growth stocks or high yield bonds. These mutual funds assume that you or your adviser will choose the strategic mix of funds that’s right for you.t

Sector or Industry Funds: Some funds will attempt to represent all or most of the stocks in a particular sector or industry. What’s the difference? Sectors are broader than industries—for example, oil is an industry, but energy is a sector that also includes coal, gas, wind, and solar companies. The stocks in each industry or sector share similar characteristics and risks.

Target Date Funds: A target date fund will provide you with a mix of asset classes (for example, 20% bonds and 80% stocks). They assume you will terminate the fund at some year in the future, usually when you retire, and they shift to less risky investments as the target year approaches.

Target-date funds are intended to be a generic, low-cost solution to retirement saving and. They can be a good choice for a 401(k) investment if you don’t have the time or expertise to pick funds.

Speaking of picking funds…

How Are Mutual Funds Managed?

Mutual funds can be managed actively or passively. Passively managed funds attempt to track an index, such as the Russell 2000 (an index of 2,000 small-cap U.S. companies). In other words, if one company leaves the index and another one joins, the fund sells and buys those company’s stocks accordingly. The risk and return of these funds is very similar to the index.

Actively managed mutual funds attempt to beat the performance of an index. The idea is that with careful investment selection, they will get higher returns than the index.

What Are the Costs of Investing in Mutual Funds?

All mutual funds have some expenses, but they can vary a lot from one fund to another. It’s important to understand them, because fund expenses can have a big impact on your returns over time.

Another problem with actively managed funds is that they typically cost you more. Why? These funds are paying people who make investment decisions, and they are making more trades, which have transaction costs.

You won’t get a bill, but your returns on the fund will be reduced by the fund’s expenses. Some brokerage firms also charge commission for buying mutual funds.

A good alternative to actively managed funds are index ETFs, which brings us to:

What Are Exchange Traded Funds (ETFs)?

Mutual funds have been around since the 18th century, but the industry is constantly innovating. The latest idea is Exchange Traded Funds (ETFs). Traditional (old-school) mutual funds are issued by the fund sponsor when you buy them and redeemed when you sell them.

They are priced once a day, after the market closes, at the value of all the underlying securities in the fund divided by the number of fund shares—their net asset value (NAV). The investment choices in most 401(k) plans are these kinds of funds.

Exchange Traded Funds (ETFs) trade on stock exchanges throughout the day. You buy them from and sell them to another investor—just like a stock.

Since the assets in the fund are constantly changing value throughout the day, and the fund price is set by market supply and demand, it might trade a little higher or lower than its NAV at different points in the day, but ETFs generally track their NAV very closely. Both traditional funds and ETFs can be actively or passively managed.

ETFs have two advantages—liquidity and cost. Even though you may pay a commission for buying or selling them—just like a stock, they generally have lower expenses that more than make up for it.

Since they can be bought or sold whenever the market is open, you don’t have to wait until the end of the day to buy or sell. This liquidity can be a big advantage on days when the market is way up or way down.

Why Should I Invest in Mutual Funds?

Most investors need growth to reach their goals. Stocks offer the potential for growth, but they can be risky. A lot can go wrong with a company over time. Mutual funds are a better choice because they use diversification to reduce that risk significantly.

For most small investors, index funds may be a great option. With index funds you are not betting on a fund manager to “beat the market”—you own the market. Plus, the expenses of index funds are generally lower than actively managed funds.

What Funds Should I Buy in My 401(k)?

Most 401(k)s and other employer retirement plans don’t offer ETFs and still use traditional mutual funds. No problem—there are plenty of good traditional funds. Funds between U.S. stocks (both large and small), international, and emerging markets stocks, investment grade bonds, and high yield bonds.

Unless you or your advisor have decided on a specific allocation of your assets between stock and bond funds, a target date fund is a good choice. It contains a mix of stock and bond funds tailored to your time to retirement. Plus, if you stay with your company, it will adjust that mix to be less risky as you get older.

Retirement Hack: Don’t want to pay an advisor? Find a target date fund with a date close to when you plan to retire and use their mix of stocks and bonds. You can also check if you are on track for retirement.

Not sure what the right investment strategy is for you? An investment account with SoFi makes it easy: Our technology helps you determine the right asset allocation mix for you, while SoFi financial planners are available to offer you complimentary, personalized advice.

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SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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.
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.

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You’ve heard about economic inflation — it’s why gas that used to cost $1 per gallon can now be up to five times that amount. But did you know that lifestyle creep is a thing, too? It’s one reason why many Americans keep earning more money, but still struggle with the same debt load.

Here’s how it works: During your college years, you could make a ten-dollar bill last a week. You were flat broke and crafty with your money. But then you graduated to a full-time job with a full-time salary. And all of the sudden, that $10 went from feeding you for a week to buying one fancy coffee.

Because you were earning more, you had the idea that you could afford more — especially as you watched your friends upgrade to nicer cars, clothes, and homes. And each time you earned a raise, or a promotion, or enjoyed some other income, it equaled more purchases, and maybe more debt.

That’s lifestyle creep — upping your lifestyle to match your income. It can be tempting to see those extra digits as “fun money” that doesn’t need to be budgeted, but putting that money to work could potentially set up a more stable financial future.

So what’s wrong with using a raise to fund an artisanal coffee habit or upgrading to a luxury apartment? Letting lifestyle creep eat up that raise could set back important future milestones, like paying for a wedding, buying a house, or funding retirement.

What do you think your individual retirement account would look like right now if you had maintained at least some of that frugal creativity that got you through the lean years?

What Is Lifestyle Creep?

Lifestyle creep can be a common phenomenon experienced as one progresses through their career. Lifestyle creep, sometimes known as lifestyle inflation, is the process by which discretionary expenses increase as disposable income increases.

Disposable income is income that isn’t already budgeted for necessities like housing, transportation, and food.
It could include anything from concert tickets to morning lattes to book buying sprees—basically anything that is likely to fall more into a “want” category rather than something strictly “needed.”

Lifestyle creep can put you squarely behind the 8-ball when it comes to getting out of debt, saving for retirement, or meeting other big financial goals. And it’s one reason people can’t escape the vortex of living paycheck-to-paycheck.

It might seem counterintuitive at first, but here’s a simplified example using a clothing budget. If you make $100 a month and set aside 5% for a shopping allowance, that’s $5 a month. If you earn a promotion at work and are now making $150 a month, that 5% now equates to $7.50 a month.

Lifestyle creep happens when you up your clothes budget to match the percentage, instead of putting the extra $2.50 toward savings or investments. Over time, those numbers can add up. And earning more isn’t all fun and games. It can also mean more expenses, and larger retirement goals.

What Causes Lifestyle Creep?

Graduating from the penny-pinching college life to your first full-time job is only one instance that can trigger lifestyle creep. It also can happen with any type of bump in cash flow that’s not part of your monthly budget, such as a raise, bonus, tax refund, gift, or winning a scratch-off ticket.

There are also psychological factors at play here, including the sometimes compulsive urge to keep up with the Joneses.

And before you blow it off as just envy with a lack of willpower, consider this: A recent examination
of a lottery winner’s effect on the neighborhood found that the larger reward the lucky gambler collected, the more likely their neighbors were to incur more debt and even file for bankruptcy.

Say what?!

The social pressure to keep up with the consumption habits of family and friends, even when it’s conspicuous, can cause real and serious financial stress.

Social media can make matters even worse, with studies showing that post envy could be causing people to live beyond their means just so their feeds can reflect their acquaintances’.

But how do you resist the urge to upgrade your 2000-era sedan when your neighbor rolls up in a shiny new SUV? The answers might be simple on paper, but switching your mindset from “Should I spend this on a shopping spree or a vacation?” to “Should I put this money into savings or invest it?” can be easier said than done.

Discerning Needs Versus Wants

It’s normal to want to celebrate a new raise, but to avoid lifestyle creep, it can be important to make sure not to celebrate with something that will increase costs to the point of making the raise irrelevant.

For example, a person gets a raise that increases their income by $200 a month and then immediately trades in a fully paid-off car for a newer, fancier car (want), which results in a $300 monthly car payment.

Not only is the raise spent, but the amount of money available each month has also actually diminished. Sure, that person might have a car worthy of bragging about, but they may not be any healthier financially, even though they’re making more money.

On the other hand, for someone scraping by month to month, there might not be much of a choice but to fund some lifestyle upgrades with a raise—and lifestyle creep is not always a bad thing for someone working on being financially independent and secure.

Using the same example of the $200 monthly raise above, the recipient of the raise uses that money to buy a car needed to get to work to replace a lengthy public transportation commute each day, or perhaps invests in a professional development class to gain career advancement.

Either of those decisions might be perfectly worthwhile lifestyle changes that someone might be happy to pay for with a new raise. After all, part of financial wellness is investing in oneself when possible to achieve goals.

Tips for Avoiding Lifestyle Creep

It’s true–giving every extra penny of a cash windfall to a credit-card company doesn’t sound like much fun. But just knowing that lifestyle creep exists, and recognizing it in your own life, can put you ahead of the game when it comes to making better decisions with your money.

Here are a few possible ways you can avoid lifestyle creep while still enjoying the good things in life.

Celebrating Small

If you earn a raise, you should absolutely celebrate — especially if it’s higher than the average 2.9%. But to outsmart lifestyle creep, you may want to take a deep breath and resist the urge to run to the store for that expensive thing you’ve had your eye on. (What would Marie Kondo do?) Instead, consider a small way to congratulate yourself, like a dinner with friends.

Creating a Budget

One way to avoid lifestyle creep may be to give all income a job. Yep, that extra $200 a month shouldn’t just be chilling in a checking account with no purpose, like a freeloading cousin camping out on the couch.

Letting that extra money hang out in the checking account too long with nothing to do might lead to unplanned spending on a weekend trip or that budget-busting espresso maker that would be a tempting purchase. Putting that money to work might allow protection against impulse spending.

What exactly is “putting money to work”? It all comes down to budgeting. But don’t panic—gone are the days of lengthy kitchen-table sessions with bills and statements fanned out and calculations done by hand.
With the advent of online banking, most people are likely equipped with everything needed to make a budget right on your phone or computer.

Don’t have a basic budget already? Getting a raise can be a great time to crunch the numbers and be financially responsible with that money. If there’s already a budget in place, a new raise is a great time to reconfigure the budget to make sure it still ticks all the financial boxes.

Avoiding Mindless Spending

Mindless or pointless spending might happen when there is unexpected extra cash sitting in the bank account.
Much like the itch to spend that crisp, new $20 bill included in a childhood birthday card, there may be psychological and emotional temptation to spend money in the bank account without considering whether or not those new, modern table lamps or that brand new gaming system is really needed.

Casually spending money on unnecessary expenses could mean missing an opportunity to put money to work for the future, sustainably upgrading a lifestyle by planning ahead for financial growth.

Tracking Your Spending

When it comes to managing money, one question you don’t want to ask yourself is “Where did that money go?” Losing track of expenses could not only lead to a blown budget, but also overdraft fees, returned checks, or other unnecessary fees that could put you even further behind.

If you really struggle with this one, there’s an app for that. A large number of them, as a matter of fact. SoFi Relay, for example, lets you see all of your accounts in one place to help you categorize and track your spending, set goals, and look for ways to streamline. It also can serve as the central hub for automatic payments to your bills, savings, and investment accounts.

Turn on the Auto-Pilot

One of the easiest ways to ensure that you’re only spending what’s in the budget is to automate as many payments and contributions as possible. After all, money you don’t have is a lot easier to not spend.

This strategy can start at work. If you get a raise, you might elect to increase your 401(k) contribution (or start one if you haven’t yet). And while it means that your take-home pay may not change, your retirement account can painlessly grow.

You also can automate bill payments and savings and investment contributions, all with the intention of getting the money out of your tempted hands ASAP.

Outlining Clear Goals

What’s your endgame? Do you want to retire early with a million dollars or more in the bank? Is owning a home a part of your plan? One key to avoiding lifestyle creep is to set long-term financial goals and keep your eye on the prize.

Two financial goals that can be beneficial to almost everyone include growing a short-term emergency fund and longer-term savings plan. But from there, the sky’s the limit and your goals are entirely up to you.

Avoiding New Debt

This might seem like a no-brainer, but you aren’t likely to get out of debt if you keep adding new debt to the pile. A recent report revealed that consumers are willing to spend up to 83% more using a credit card than they would with cash.

Ditching the credit cards is entirely possible — your parents and grandparents lived without them every day. Modern credit cards weren’t introduced in the U.S. until around 1950 , which means that Boomers and their parents were raised on the philosophy that if you can’t afford it right now in full, you wait until you can.

And as the old saying goes, they turned out just fine.

Getting Your Head in the Game

Lifestyle creep likely isn’t impossible to reverse, but one could argue that the further you’ve allowed yourself to fall into the luxury lifestyle, the harder it could be to pull yourself out.

One way to get your head in the game is to make lists, starting with your needs (electricity) vs. wants (electric car.) From there, you could prioritize your “wants” and start to cut from the bottom.

Are there things in your life that just exist because they can? Consider eliminating them completely, or finding crafty ways to keep them around in more affordable ways, such as shopping consignment vs. retail or eating lunch out one day a week vs. all five.

And the jealousy that can mess with your head? All that glitters isn’t gold.

Choosing Your Friends Wisely

Peer pressure is a powerful motivator, but the perceived wealth of your friends, neighbors and acquaintances can be a far cry from the actual state of their finances.

In fact, the truth is that eight out of 10 working Americans are living paycheck-to-paycheck. That’s a far different reality from the picture they might paint on the internet.

If you seem to find yourself in situations where there’s pressure to overspend, including kids sports activities, nights out on the town, or an invite to a destination wedding, you may want to consider finding a circle of friends who share the same financial goals as you.

After all, it’s a lot easier to say “Let’s just cook at home to save money” to a friend who won’t pressure you to try the trendy new restaurant in town.

Spending a Raise

So what exactly should someone do with extra money after a raise? Paying more into a retirement account, paying off debts, or just putting some extra dollars towards a specific savings goal are some approaches to take.
A checking and savings account might be one helpful way to manage a raise and stay on top of a budget.

An online banking account like SoFi Checking and Savings® allows users to spend, save, and earn all in one place. That means SoFi Checking and Savings® can be used to budget a raise without having to deal with extra accounts or complicated transfers, all while earning interest.

Even better? SoFi Checking and Savings® now offers a vault feature to separate money into various vaults all within one account. Each vault can help with saving for a different goal like a down payment on a car or house, an emergency fund, or a vacation. Want to regularly send a little bit of that raise to each savings goal?

No problem—within SoFi Checking and Savings®, transferring money to each vault is easy and can be set up to be automatic. Moving money into different vaults could help meet savings and financial goals.

With any pay bump, saving for long-term goals in an investment account might be another strategy to consider. SoFi Invest® is one vehicle available to set up recurring deposits, either by linking to a SoFi Checking and Savings® account or several other choices for funding the investment account.

While a raise might often come with unintended lifestyle creep, a smart financial strategy could be budgeting that new money towards paying off debts or saving up for the future rather than blowing it on unneeded lifestyle upgrades.

A bank account online like SoFi Checking and Savings® may help budget and separate money into different vaults—an easy way to make sure that raise is being used to its fullest advantage.

Learn more about how SoFi Checking and Savings® can help with saving to meet financial goals.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC . SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% 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 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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Many people are afraid to start investing because they don’t have a basic understanding of how it works. And that’s smart. You don’t want to invest your hard-earned money in something you don’t understand.

But it’s also not smart to sit on the sidelines. Because, well, simply socking money away in your savings account probably isn’t going to earn you the kind of returns you need to achieve your big financial goals.

If you’ve ever wondered how, exactly, investments make money, we’ve put together this guide to clear up the confusion. Read on to learn about the different types of investments out there and how each of them can work for you.

Basically, investments make you money in one of three ways:

•   Income: Cash paid to you periodically from your investments (as interest and/or dividends)
•   Capital Appreciation: Owning things that could go up in value over time (like stocks, gold, or real estate)
•   Pass Through Profits: Investing in private businesses and real estate, which may pass through the profits from their operations.

Types of Investments

Most individual investors can invest in lots of things: CDs, T-Bills, stocks, bonds, mutual funds, ETFs, limited partnerships, and more. We’ll talk about each of these to take away the mystery.

Bonds

Bonds are loans you make to either a company or a government for a fixed period of time. The specific terms of the deal change, but essentially: You give someone money, they promise to pay it back in the future, and they pay you interest until they do.

For example, you might lend General Electric money for 20 years at 4% interest. For each $1,000 you invested, you would get $40 per year until 2017; then you’d get your $1,000 back.

There are four broad categories of bonds available to most investors:

•   Treasury Bonds: Bonds issued by the U.S. government.
•   Corporate Bonds: Bonds issued by a corporation.
•   Municipal Bonds: Bonds issued by a state or local government or agency (for example, airports, school districts, and sewer or water authorities).
•   Mortgage and Asset Backed Bonds: Bonds that pass through the interest on a bundle of mortgages or other financial assets such as student loans, car loans, or the accounts receivable of companies.
The difference between them is risk (and thus, the expected return). For example, the U.S. government is less likely to go bankrupt than a single company is, so T-bond returns are typically a conservative bet. Corporate bonds are riskier, but typically have higher returns.

Either way, bonds are a relatively safe investment, compared to other types of assets, and also provide investors with regular, fixed income. Both of these things are especially important in retirement.

Stocks

A stock is a single share of ownership in a public company. (Public companies are those that trade on stock exchanges; companies that are not traded this way are privately owned.)

When you buy stock, you own a tiny piece of the company. This can make you money two ways: you might get dividends if the company decides to pay out part of its profits, and the stock might go up in value and you’ll have a capital gain when you sell it.

People invest in different kinds of stocks for different reasons. Most investors are looking for stocks that will go up in value so they can sell the stock for a gain. They are looking for the value of their portfolio to grow because they’re saving for retirement, a house, or some other long-term goal.

There are two strategies for capital appreciation. “Growth stocks” are companies with sales and earnings that are growing year-over-year. They usually do not pay a dividend because management wants to invest the profits in continued growth.

Another way is to find “value stocks” whose price has been cut by events outside its control. At some point, these stocks may become an attractive buy because people think they’re undervalued and may go up.

Other investors want additional income and don’t want to rely only on bonds, so they choose stocks for their dividends. These are often companies in mature industries that are not growing much and return profits to shareholders as higher dividends. Value stocks may also have good dividends.

It’s easy to focus on the price appreciation that comes from growth and value, because it feels good to see your stock’s price go up and not so good to see it go down.

All three ways stocks make money may work for you, but the market tends to favor each one for a time, and then move on to one of the others. This is why a long-term investor should probably have a mix of all three.

Alternative Investments

As your portfolio grows, you might consider moving beyond stocks and bonds. Most of these “alternative investments” generally provide some combination of growth potential and income. Unlike stocks, they usually pass most of the profits they make through to their owners.

They are less likely to move up and down in sync with the stock or bond market, so they can give you an additional dimension of diversification.

The most common types of alternative investments include:

•   Real Estate Investment Trusts: REITs invest primarily in real estate or real estate loans and are traded like stocks.
•   Direct Investment in Real Estate or a Business: Wealthier investors may own investment real estate or a private business.
•   Limited Partnerships: Entering into a limited partnership with other real estate investors limits your legal exposure and offers the ability to diversify with a smaller investment.
•   Master Limited Partnerships: MLPs are a type of limited partnership that is publicly traded, so you can sell it whenever you want.
•   Gold: You can invest in gold and other precious metals directly by buying the metal as coins or bars, or using ETFs that invest in bullion.
•   Peer to Peer Investing: New regulations have made it easier for private companies to raise money from individual investors.

Cash Deposits

By cash, we don’t mean stacks of twenty dollar bills in a safe. It’s the money you keep in bank accounts, certificates of deposit (CDs), checking and savings accounts, and money market funds. In each of these cases, you lend money to the bank or financial institution, and you get interest on those loans.

Since these deposits don’t go down in amount and you can get your money out any time, as opposed to bonds, which need to be sold and can lose value, they are considered a different class of asset than bonds.

Currently, interest rates are so low that you earn very little interest on these deposits. You should consider only keeping in cash the money you need quick and easy access to—for example, your checking account, your emergency fund, or a savings account for a purchase you plan to make within the next couple of years.

Mutual Funds

Financial advisors recommend that people invest in a combination of these asset classes tailored to help them reach a specific financial goal (for example, buying a house or retiring). The specific mix of assets is primarily determined by how long they have to reach their goal.

Of course, most new investors don’t have the cash to spend on all these different types of investments. That’s where mutual funds come in.

Mutual funds and exchange traded funds (ETFs) can make it easier for you to invest in stocks, bonds, REITs, MLPs, gold, or most other legal investments. Think of mutual funds as suitcases filled with different types of investments, such as stocks and bonds. Buying a share of the fund can invest you in hundreds of individual securities the fund holds.

The benefit of mutual funds is instant diversification. If you invest in one company’s stock, and that company goes bankrupt, you’ve just lost your money. If you invest in a mutual fund that contains that stock, you may have lost something, but not everything.

There are a wide range of mutual funds that cover every investing strategy you can imagine—even securities that trade outside the US. They make it easy and inexpensive for a new investor, just starting out, to build a well diversified portfolio of stocks, bonds, and alternatives with just a few thousand dollars.

Investing with SoFi

We hope this article demystified investing a bit. While there are no guarantees, investments can make money many different ways. But, they can’t do any of them if you don’t get started. If you’re not sure what to do next, we can help.

An online investing account with SoFi makes it easy: Our technology helps you determine the right asset allocation mix for you, while advisors are available to offer you complimentary, personalized advice if you need it.

Consider working with a SoFi Invest advisor today.

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SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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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When it comes to budgeting, some of us live by the saying, “Out of sight, out of mind.” If you can’t see those charges coming through on your credit card, did they ever really happen?

Only two in five Americans keep a budget or track expenses, but burying your head in the sand can only go on for so long.

At some point, bills will be due, and everything will need to be sorted out. Instead of letting your spending hit you like an avalanche, consider adopting some smart budgeting strategies that take the stress out of spending.

5 Spending Tactics

1. Track Your Spending

For many implementing smart spending strategies, the first instinct is to enact a strict budget. However, it’s hard to get a true sense of what your budget will look like if you’re not familiar with your spending habits.

You could start by excavating last month’s spending using the highlighter method. Print out statements from credit cards, bank accounts, and ATM cards. Armed with an assortment of fun highlighter colors, go through each statement, highlighting by spending category.

There’s no hard and fast rule regarding categories; you might highlight all food expenses one color, or perhaps you want to drill down and dedicate different colors for spending on meals out versus groceries. A simple category breakdown might look like this:

•   Household expenses (rent/mortgage, ultities, home insurance)
•   Food (groceries, dining out, coffee, etc.)
•   Transport (car payments, rideshares, gas, auto insurance, etc.)
•   Debt and Monthly Bills (student loans, credit cards, not including home utilities)

Once you’ve gone through and highlighted by category, you can add up the totals for each. While the numbers certainly matter, the visual can be just as helpful.

Are you highlighting credit card statements like crazy with transactions on food? Might be time to reconsider your eating out budget. Is there an Uber charge every other line? Maybe your spending weakness is your daily rideshare habit.

The one thing you shouldn’t feel from this exercise is shame or embarrassment. Most of us over-highlight in at least one category, or overspend when it comes to specific items. Pat yourself on the back for highlighting the issue, and addressing it.

Not one for paper and highlighter? Your bank might provide a similar budget tracking feature online. Or, if you’re looking to see big picture spending all in one place, SoFi Relay® can track all of your spending in one place.

2. Create a Budget

After you see where you typically spend, then you can start moving forward with a budget. Budgets can seem complicated and boring, but what it drills down to is spending less than you make each month—it’s as simple as that.

While tracking is about examining what you’ve already spent, budgeting is about looking forward to what you will spend. And just like no two people are the same, neither are budgets. Here are a couple of jumping-off points. Try one out, or mix and match a few to find the perfect fit for you.

50/30/20 Budget

The 50/30/20 rule breaks down your after-tax income into three buckets:

•   50% on needs
•   30% on wants
•   20% on savings

Needs are defined as things you must pay, as well as items necessary for survival, such as:

•   Rent or mortgage
•   Car payments
•   Healthcare
•   Groceries
•   Insurance

It also includes minimum debt payments.

Wants are things you spend money on that are nonessential like dining out or entertainment activities. This includes the “upgrade cost” of things.

For example, you might pay for super fast internet or more data on your phone plan. Beyond the bare minimum pricing, these charges fall into the wants category.

Finally comes savings. This 20% can be divided among a few different accounts, including retirement, emergency funds, and investing. While minimum debt repayments fall under needs, anything above and beyond that monthly charge can be taken from savings.

While it’s not for everyone, the 50/30/20 rule can be a good introduction to budgeting.

Zero-Based Budget

Zero-based budgeting is less about percentages, and more about the big goose-egg: zero. Each month, you’ll want your expenses to match your income, essentially leaving nothing left over by the end of the month. Each dollar will be assigned a job as it comes in. Bottom line, if you make $4,000 a month, your expenses should add up to $4,000 a month.

Sounds simple, right? It can be, with a little practice. After tracking your monthly income, you’ll need to take note of your monthly, then seasonal or annual expenses.

Seasonal planning is essential in zero-based budgeting, you’ll want to plan ahead for these expenses and allocate a little to it every month. Once you have your income and costs down, you’ll subtract the later from the earlier.
If this doesn’t add up to zero right off the bat, you’ll need to balance your budget. That might mean taking a look at your expenses and cutting a few line items.

Now, a word of warning. Just because the concept is called zero-based budgeting doesn’t mean you’ll want to end each month with zero dollars in your bank account.

Instead, you should have zero left to budget—meaning if there’s a month sitting in your checking account, it has a job. That could mean it’ll be spent in a few months, or it’s simply getting transferred over to savings.

Budgeting Apps and Online Tools

For the tech savvy, pen, paper, and spreadsheets might not do the trick. If you’re looking for a way to passively track your dollars and have access to your budget at the swipe of a finger, you might want to use an app to track your budget.

With online tools like SoFi Relay, you can track all of your spending across accounts, as well as set goals for saving. Instead of logging into each account, you can see your charges and debts all in one place.

3. Find the Fun in Saving

Once you’ve started tracking your expenses and budgeting your income, staring at your monthly statements shouldn’t be scary. Instead, find enjoyable ways to maintain your budget and break bad habits around spending.

4. Turn it into a Game

Shoot for a no-spend day once a week, or see how far you can get in your day without spending anything. This doesn’t mean you can’t leave the house, but it will challenge you to find creative ways to enjoy yourself, without pulling out your wallet.

That might mean hosting a pantry leftovers potluck with friends, where everyone brings something from home. Or, it could mean turning to a local library to check out movies, games, or magazines for entertainment. No-spend days will make you reconsider each purchase you make which could help you save a little money.

5. Finding a Partner in Crime

While we tend to be hush-hush about spending habits, getting an accountability partner can help you spend smarter. Maybe it’s someone you check in with a few times a month, or maybe you share budgeting tips, but bringing your spending habits into the open can make it easier to stick to them.

Plus, cluing in a close pal on your smart saving can help reduce that dreaded sense of FOMO you might get when you miss out on spending opportunities.

Spend Smart, Save Smarter

Getting spending under control can bring peace of mind to your pocketbook, but it also makes it easier to save or pay down debt.

Looking for more ways to save smart? SoFi Checking and Savings® is a checking and savings account that has no account fees (subject to change). Plus, withdrawing cash is fee-free at 55,000+ ATMs worldwide to help make smart spending even easier.

Find out more about using SoFi Checking and Savings to save.

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External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC . SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% 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 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet

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