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Are you thinking about how to downsize and simplify your life? If so, you’re not alone. Many people are considering how to lower their expenses, ditch some stress, and save more as part of the bargain. Navigating the “new normal” after years in an historic global pandemic has tightened the focus on comforts that got us through: Nesting with family and friends, working from home, shopping local. Paring down the extras to highlight the essentials.

Fortunately, learning to downsize your life is pretty straightforward. From reading books instead of subscribing to an array of streaming platforms to embracing the tiny-house movement, options abound.

You can cut your expenses, which is an important point right now. In a United States Census Bureau survey during the pandemic, 34.4% of American adults reported having difficulty paying their usual home expenses. What’s more, you can put some of the money you save towards long-term goals, and you’ll likely enjoy greater peace of mind.

Read on for advice on how to downsize and simplify your life, including:

•   The financial benefits of downsizing your lifestyle

•   How to live happily with less

•   How to remove non-essential items from your budget

What Does Downsizing Mean?

Downsizing generally means moving from a bigger home to a smaller one, whether an apartment, condo, or house. People usually start wondering “Should I downsize my house?” when they are empty nesters, they realize maintenance is becoming too much work, or they want to lower their housing expenses, such as their mortgage and property taxes.

But the term downsizing can also be about streamlining your life in general, beyond your home. You might opt for a smaller car or a clean-green electric one that doesn’t give you sticker shock at the gas pump. Reprioritizing life could mean phasing out a long commute that takes a toll on mind, body, time, and wallet and working remotely.

In addition, many consumers, whether singles or families, strive to declutter day-to-day life by downsizing. Some are even true minimalists, paring their possessions down to a minimum to free up physical and mental space, plus room in their household budget. Overall, downsizing can wind up improving your financial situation.

Financial Benefits of Downsizing Your Life

The payoff for downsizing your life can help you reach financial goals. Among the rewards may be:

•   Less (or no) debt

•   Improved credit score

•   Reduced monthly shelter costs

•   Lower utility expenses

•   Ability to create a substantial emergency fund

•   Ability to afford travel dreams

•   Knowledge of how to make a financial plan and live on a budget

•   Extra funds to save or invest, for retirement or other goals

•   Economic security

•   Improved credit score

Financially Downsizing Your Life

If you are ready to start downsizing financially, getting rid of excess stuff, and living leaner, take the next step. Consider the following ideas:

Selling Items

If you have items you no longer or never used, chances are, you can sell them. This will free up space in your home and send some cash towards your bank account. Whether it’s a set of silver cutlery you inherited, that exercise bike you no longer use, or brand-new makeup you bought in the wrong shade, why not see if someone else wants to purchase your unwanted items? You could sell them on eBay, Etsy, Poshmark, or other sites. Or try Facebook Marketplace, which can make the process super simpler; shoppers can pick up items from your doorstep.

Declutter by Using Automatic Payments

Part of downsizing your financial life involves easing the time and energy it takes to deal with your money. Signing up for automatic payments (sometimes called autopay) can be a terrific step. Just think, no more billing statements and envelopes to pile up. (It’s kinder to the trees, too.)

Many businesses, from utilities to mortgage companies, offer paperless billing. You can set up automated electronic payments from your bank account. The other perk to this is it helps ensure that you’re paying bills on time, which can boost your credit score. Timely payments are the single biggest contributor to a solid score.

Moving to a Smaller Space

Downsizing your home could have a positive ripple effect on your finances. Relocating to a more compact space or a less expensive neighborhood can save you major money. Beyond your rent or mortgage payment decreasing, any property taxes should similarly declinem as well as maintenance costs. In addition, you’ll have less space to heat in the winter and to cool in the summer, so your utility bills may be lower.

If you’ve been in a place with a home office to get through the pandemic work-from-home mandate, now might be the time to look for a house or apartment that doesn’t include that extra room. If you still need a place to work at times, you might pay a daily or monthly fee at a cowork location. With many companies offering remote workdays now, you might even ask if your employer will cover the bill.

Donating or Giving Away Items

If you are moving to a smaller home or simply want to declutter, you can do so by offering up your extras. In many areas, nonprofit organizations welcome donations of clothing and household items in good condition. Some charities will even take your car, which is immensely helpful when you are downsizing and have a nonworking vehicle to be towed away (free of charge). With any of these donations, be sure to get an IRS tax-deductible donation receipt. That can help at tax time; you might even see a refund.

Some neighborhoods have online “curb alert” sites (search using your town’s name on Facebook) to list items people put out on the curb for giveaway. You could have just what another family needs, from a baby jogger to a cat carrier. It’s a good way to reduce, reuse, and recycle.

Letting Go of Luxury

Sure, we all deserve a treat now and then, but often, the occasional reward becomes a regular thing. From opting for a luxury car, frequent massages and restaurant meals, high-end vacations, or designer clothes, splashing out on purchases can inhibit your ability to save or even afford the basics. It traps you in a situation of living beyond your means and potentially winding up chronically in debt.

Review your credit card and debit purchases to see where you may be overdoing it in your quest for the good life. Is it a weakness for the latest model mobile device or sports car? Does your one-week, lavish summer vacation take you a year to pay off? Do some course-correcting.

Anyone who wants to downsize should seek ways to save money versus overspending. Reorganize and rediscover your clothing, shoes, and handbags so you can “shop your closet” to help curtail fashion splurges. Book an Airbnb off season (seaside towns in the Northeast after Labor Day, for instance) to save money while still having that getaway you crave.

Removing Non-essential Items From Budgets

A key step in downsizing financially is to learn and respect the difference between wants and needs. Ubering everywhere when you could walk or take public transportation is what you want, not need to do. Subscribing to all kinds of food clubs or streaming services: Again, a want, not a need. Look at your spending through this lens, and see where you can economize.

Changing Your Financial Planning to Downsize

Now is the ideal time to review and reevaluate what are the basic expenses of living. These will impact how and whether you hit your financial and lifestyle goals. By reducing some of your expenses (especially high-interest debt, like credit card debt), you should be able to free up funds that can be applied to longer-term goals, whether that means the downpayment for a home, retirement savings, or another purpose.

Here’s another way to look at your money when thinking about downsizing: You may have heard of the 50/30/20 budget rule. This recommends spending 50% of after-tax income on must-haves and must-dos (housing, utilities, etc.), 30% on things you want, and 20% on savings and debt repayment.

When you figure out how to downsize your life, you may discover that you need less than 50% of your income for must-haves in your new chapter. Then you can use the extra funds you have freed up to pump up your savings, squash debt, and include more IRA and 401(k) contributions. This can be especially easy (and pain-free) if you set up automatic transfers to whisk money out of your checking account on payday and into savings. When you don’t see the money reflected in your checking balance, you likely won’t be tempted to spend it.

Managing Your Finances With SoFi

A SoFi high-yield bank account can make it simple to stay on budget with downsizing plans. You can do all of your banking in one streamlined place and eliminate a paper trail, thanks to our website and phone app. And SoFi can help your money grow faster. When you open our Checking and Savings with direct deposit, you’ll earn a competitive APY while paying zero account fees.

FAQ

What is a good age to downsize?

Retirement age has generally been considered a good time to downsize. Moving to a smaller home when kids are grown can make life more manageable and free up funds to pursue travel and personal goals. However, many people of all ages are embracing “small living” or “the new minimalism” and want to spend and consume less.

Does it make sense to downsize?

While housing prices are high, it can make sense to downsize to a smaller space. You can potentially increase cash flow, lower bills, and spend less on maintenance. Also, given the period of high inflation we have been in, downsizing can free up funds to use on your usual expenses. It’s worthwhile to look at your finances and see how you might economize and gain some financial freedom.

How do you know it’s time to downsize?

If you have trouble keeping up with bills and feel as if you have too much stuff to maintain and manage, it might be time to let go. Paring down your life and costs can be financially freeing.

Photo credit: iStock/lechatnoir

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

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

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

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

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

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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBK0622020

Even if you don’t have a safety deposit box, you are probably familiar with how they can be used to stash valuable papers and possessions out of reach, at a bank, for safekeeping. You’ve probably seen movies in which precious jewels or stock certificates are tucked away in these containers. In real life, they can provide a layer of security that many people find valuable.

But you may wonder, “Do I really need a safety deposit box?” Keep reading to learn:

•   What is a safe deposit box and what does it do?

•   What should and should not be kept in it?

•   What are the benefits and disadvantages of having a safety deposit box?

•   Should you ever share access to a safety deposit box with someone else?

What Is a Safety Deposit Box?

A safety deposit box (also known as a safe deposit box) is a secure locked box, usually made of metal, that’s used for storing important documents or irreplaceable items. A safety deposit box generally comes with two keys, one for you and one for the bank.

You can probably rent one of these boxes at a bricks-and-mortar branch of your bank or credit union. The boxes usually resemble drawers that slide out and are secured in an inner vault. They are designed to protect your valuables against theft, natural disasters, and even terrorism.

Rental fees typically vary by the box’s size and by the financial institution. Yearly costs can range from about $15 to $350. If you lose your key, you may have to pay $30 or more to replace it. You don’t necessarily need an account at a bank to keep a safety deposit box there, though some banks offer lower rental rates to customers who hold accounts there.

Recommended: How long does it take to open a savings account?

What Is the Purpose of a Safety Deposit Box?

How do safety deposit boxes work and what might you need one for? If you have valuables you want to protect, these containers are, as the name suggests, a safe place to store them. Here are examples of the kinds of important items to store in the box:

•   Birth and death certificates

•   Marriage and divorce records

•   Citizenship papers

•   Property deeds and mortgage documents

•   Adoption paperwork

•   Military records, including discharge papers

•   Car titles

•   Savings bonds

•   Stock shares

•   Important data stored on USB drives

•   Heirloom jewelry, stamp and coin collections, or keepsakes.

The value of a safety deposit box is that banks and credit unions are generally more secure than your home, which could potentially be burglarized, flooded, or endure a fire. What’s more, putting your valuables in a safety deposit box also means you know exactly where they are and you don’t need to tear the house apart hunting for where you might have tucked them away.

When you need to access something, such as your birth certificate, you would go to the bank, prove your identity and ownership of the contents, present the key, and a staffer unlocks the box. You can usually sit in private to review the contents and remove items or add more.

How Safe Is a Safety Deposit Box?

In most cases, a bank is a safer location than a house or apartment, which could be broken into or could be compromised by, say, flood or fire. How a safe deposit box works is by being a damage-proof container in a solid building that has superior security.

However, some experts say safety deposit boxes could be safer, especially if a banking location changes ownership. Be aware if this happens during the course of your box rental. You may want to monitor your valuables by visiting the bank in person to be sure your box is properly registered under your name and address.

Beyond that, know that the bank does not insure the value of the contents in the box. See below for more details on that.

What Should You Not Use a Safety Deposit Box For?

If you might need access to something quickly, don’t leave it in a safe deposit box. Banks and credit unions are usually not open seven days a week and might close for the day before you finish your work day. What happens if you get sick and need your health care proxy forms? Or what if you need to leave the country unexpectedly and realize you put your passport in your safety deposit box? Lack of access could create serious problems.

The following are items you might need access to ASAP, so do not store them away from home:

•   Living will

•   Health-care proxy papers

•   Passport

•   Any important document you have only one copy of and might need to produce, say, when traveling, proof of legal guardianship.

In addition, most banks and credit unions prohibit the storage of the these items in safety deposit boxes:

•   Firearms, other weapons, and ammunition

•   Explosives or hazardous materials

•   Illegal substances, such as drugs

•   Alcohol

•   Perishable items

•   Cremated remains.

Are Possessions Insured With a Safety Deposit Box?

Items held in a safety deposit box are not insured by the bank. If you have a costly heirloom diamond bracelet, for instance, contact your home insurance company and have the bracelet (and other treasures) specifically insured on your policy.

You might also want to make copies of and safely store any documents you put in your safety deposit box for reference purposes. For instance, you might need information from your birth certificate vs. the original document itself when filling out a form and not want to make a trip to the bank

Recommended: How old must you be to open a bank account?

Benefits of a Safety Deposit Box

Safe deposit boxes can be an important way to protect your valuables. Here are some of the upsides of renting one:

Contents are protected against natural disasters and theft

If your home were flooded, had a fire, or another bit of “crazy weather” occurred, or a burglar broke in, your important papers and possessions would be safe.

Less chance of losing track of valuable items at home

When trying to stash away important documents, like the deed to a property, or a special item, like your grandmother’s engagement ring, there’s the risk that you’ll hide it so well at home, you’ll have trouble finding it again. This is simply not an issue when you store things in a safety deposit box.

More secure than a home safe

A safe deposit box is typically a better, more theft-proof bet than a home safe, which could be taken away or broken into during robbery.

Convenience and peace of mind

What if, in a worst-case scenario, you were to be incapacitated or die? A safety deposit box can be where family members would naturally look to find documents and items you want them to have.

Recommended: How much money do you need to open a bank account?

Disadvantages of a Safety Deposit Box

Now that you know the pros of having a safe deposit box, here are some cons to consider:

Only the owner has access to the contents

Part of what makes a safety deposit box so secure is the limited access. But there could be a number of scenarios in which you want someone else to have access. In this case, you might want someone else close to you to have official access. Or it can be wise to tell a trusted relative, friend, or the attorney managing your estate where the key is kept in case of emergency.

Limited hours

If you need to get something from a safety deposit box, you must do so within the bank or credit union’s business hours, which may not align with your schedule perfectly.

Lost key

If you lose the key to your safe deposit box, you will have to expend effort to get a new one and pay for it as well.

Limited size

Safety deposit boxes are typically the size of a small desk drawer. If you have a considerable number of items you want to store securely, these containers may not be big enough. You might rent a larger one at a higher fee.

Recommended: What can someone do with your routing number?

Can Safety Deposit Boxes Be Jointly Shared?

Safe deposit boxes can be jointly shared, just as you can open a joint bank account with someone. In both of these cases, it’s key that the person you share ownership with is trustworthy and reliable. It should likely be a relative or someone you have known for a long time. Both of you ought to be on the same page about why the contents are in the box; when or if they should be removed; and which people are entitled to them.

Alternatives to Safety Deposit Boxes

If you are looking for an option to a safe deposit box, here are a few other ways to store important, valuable items:

Personal home safes

Fire-rated home safes are available from many retailers (Amazon, L.L.Bean) as well as office supply stores, like Staples. They are available with keypads or keys for access. While these add a layer of security, there is the chance that a thief would try to get away with the whole safe or find a way to break into them.

Private safe deposit box companies

These are not banks or credit unions but private companies that rent secure spaces. They may be an expensive option. A small storage box can cost $400 a year or more. To find one of these businesses, search online.

Banking With SoFi

For stashing vital papers or valuable possessions safely, a safe deposit box at a bricks-and-mortar bank or credit union can be a wise move. This secure container can safeguard items that could otherwise be stolen, damaged by a flood or fire, or be lost.

When it’s time to stash your money securely, however, take a look at SoFi. When you open an online bank account with direct deposit, you’ll earn a competitive APY and pay zero account fees. That means your money could grow that much faster. And, since we’re an online bank, we’re open 24/7 for your convenience.

FAQ

How much do safety deposit boxes cost?

The fee to rent a safety deposit box generally ranges from $15 to $350, depending on size and the financial institution.

What can I use instead of a safety deposit box?

For alternatives to a safety deposit box, consider a fire-rated personal home safe (which may not be as secure as storing items at a bank) or a space rented at a private vault company, which may cost more than working with a bank or credit union.

Are safety deposit boxes anonymous?

Safety deposit boxes are not fully anonymous. You need an ID or Social Security Number to open one, so they could be tracked to your name.

Photo credit: iStock/AlexSecret

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

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

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

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

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

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

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBK0522034

A financial emergency is any situation that you did not anticipate or plan for that affects you financially. Examples of financial emergencies can include a job loss, unexpected car repair, or medical bills resulting from an accidental injury.

Six out of 10 American households experience at least one financial emergency per year, according to the Federal Emergency Management Agency (FEMA). Financial experts recommend planning ahead for life’s curveballs by saving an emergency fund.

Knowing what is a financial emergency–and what isn’t–can help you decide when it makes sense to tap into your cash reserves or turn to credit to cover the gap.

Read on to learn:

•   What qualifies as a financial emergency

•   What doesn’t count as a financial emergency

•   How to build an emergency fund

•   How much money to keep in an emergency fund.

What Is Considered a Financial Emergency?

FEMA defines a financial emergency as “any expense or loss of income you do not plan for.” There are a number of different scenarios that could fit the definition of a financial emergency. Here are some of the most common financial emergency examples that a typical household may encounter.

Home Emergencies or Repairs

In addition to the regular costs of home ownership, it’s also important to be prepared for unexpected expenses that may crop up from time to time. For example, you may need to replace your HVAC system if it stops working or get a new roof if yours springs an unfixable leak. Other financial emergencies examples include appliance repairs or needing to pay your deductible if you have to file a homeowner’s insurance claim for damages.

Car Emergencies or Repairs

If you own at least one vehicle for long enough, odds are that you’ll have a financial emergency at some point. Your transmission might go out, for example, or you find out that you need to replace all four tires in order to pass inspection. These are costs that you may not plan for that but need to pay to keep your car on the road.

Loss of Income

There are different scenarios where a loss of income might constitute a financial emergency. If you’re the sole breadwinner for your household, for example, and you get laid off, fired, quit, or can’t work because of an illness or injury, this situation can directly impact your ability to pay the bills.

Emergencies That Affect Your Health

A health issue, major or minor, could end up being a financial emergency if it affects your ability to collect a paycheck. This kind of situation may also trigger a money emergency if you have to pay for some or all of your medical care out of pocket. Health insurance may cover some of your care if you get sick or injured, but it doesn’t always cover all of your costs. And a financial emergency of this nature can be made worse if you’re unable to work.

Unexpected Loss of a Loved

Losing a loved one can be upsetting enough on its own, but it can also create financial pressure. If you need to travel to attend the funeral or you’re expected to contribute to final expenses, you can find yourself in a scenario that’s a financial emergency.

Natural Disasters

Storms, droughts, floods, and earthquakes seem to be in the news more frequently these days. Any one of these events can disrupt your life and cause loss of income as well as unexpected expenses. If a huge storm floods your town, your home might suffer damage and, even if you’re insured, other expenses could quickly pile up. Also, if your place of business were to be flooded, you might be out of work and therefore income for a while.

What Is Not Considered a Financial Emergency?

Now you’ve learned when to use an emergency fund and how much money you might want to have waiting should you encounter one of these situations.

There are some things, however, you might spend money on that don’t meet the strict definition of an emergency. If you’re curious about what kinds of situations may feel urgent but aren’t actually financial emergencies, here are some examples.

Taking a Vacation

A vacation might feel like a “need,” especially if you could use some time away from a stressful job. But vacations generally are not considered to be examples of financial emergencies because they are not unexpected. Instead, you can plan and save for a trip at a pace that works for your budget.

Going to or Planning a Wedding

Being a guest at a wedding is optional, though you may feel social pressure to RSVP that you’ll be there. The costs of attending can add up, once you factor in gifts, new clothes to wear to the event, and other expenses. Still, those are not financial emergencies since you can always say no. Likewise, the cost of your own wedding is not a financial emergency either in that sense that you can plan and save for it.

Purchasing Gifts for Someone

Birthdays, holidays, graduations, and other special occasions might call for you to present someone with a gift. But a gift is not classified as a financial emergency since you generally have some advance notice that an occasion is coming up. Plus, it’s up to you how much you spend. While you might want to purchase something lavish, something affordable (a book, going out for coffee or a drink) or simply a heartfelt card can suffice when money is tight.

Putting Down a Down Payment

If you plan to buy a car or a home, putting money down can reduce the amount you need to finance. This will then save you money on interest over the life of the loan. Down payments are money that you save over time, not funds that you have to come up with on short notice. While it may definitely feel like an emergency when you find your dream house but haven’t yet saved enough money to buy it, this doesn’t meet the definition of a true financial emergency.

Replacing Items in the House That Are Not Essential

Some things around the house you may need to replace without much forethought or planning. The list includes appliances, HVAC systems, and roofing that fails to do its job. As mentioned above, these common home repair costs can indeed qualify as financial emergencies. But other household expenditures, like new kitchen countertops or new furniture, are items you can budget and save for, so they’re not financial emergencies.

Determining How Much Emergency Savings to Have

The financial emergency examples listed above underscore why having an emergency fund is important. When you have ample emergency savings in place, it’s easier to handle unexpected expenses without stress and without having to use high-interest credit cards or loans to pay for them.

So if you’re thinking, Should I have an emergency fund? the answer is almost always going to be yes. The next question to tackle is how much to save.

Personal finance experts often answer the “How much should I have in my emergency fund” question by recommending three to six months’ worth of expenses. So if your monthly expenses are $3,000, you’d aim to save $9,000 to $18,000 for an emergency fund. An emergency fund of that size should in theory be able to get you through an extended financial crisis.

Whether that amount is too high or too low will depend on several things. A few examples of important factors: the types of financial emergencies you’re most likely to encounter, how much you’d be able to cut expenses if you had to, and how quickly you’d be able to replace lost income should the need arise.

In the case of something like a job loss, for example, a smaller emergency fund might be sufficient if you can live leanly and no one else depends on you financially. Or you’ll likely be okay if you’re able to find a replacement job quickly and have one or more side hustles to supplement your income. On the other hand, if you’re married with three kids, a much larger emergency fund might be needed to sustain you until you can find another job.

Banking With SoFi

An emergency fund can save the day when a true financial emergency comes along. Knowing the difference between what is a financial emergency and what is not can help you to make the most of the money you’re saving.

If you’re looking for a secure place to keep your emergency fund, SoFi can help. When you open a bank account online with us and set up direct deposit, you can get checking and savings in one place with a competitive interest rate. And there are no fees to detract from the interest you’re earning.

Bank smarter with SoFi and watch your money grow faster.

FAQ

What are some real life examples of financial emergencies?

Real life examples of financial emergencies include an unexpected job loss, an illness or injury that prevents you from working, or an unplanned home repair. A financial emergency may be a one-time expense, like a car repair, or an ongoing situation that requires you to rely on savings to cover expenses.

Why might I need an emergency fund?

Having an emergency fund is a good idea if you own a home or vehicle, have concerns about what might happen if you were to lose your job, or simply don’t want to be caught unprepared when an unexpected expense comes along. You may also want to have an emergency fund if other people (i.e., a partner, spouse, or children) depend on you for income.

Is it recommended that I build an emergency fund?

Yes, financial experts generally recommend that most people have some type of emergency fund in place to cover unanticipated expenses. Going without an emergency fund may only make sense for people who have accumulated substantial savings or investments they can draw on to cover unplanned events.

Photo credit: iStock/Talaj

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Determining whether to open a joint brokerage account with another person, whether a romantic partner, business associate, or relative, can be a difficult decision. Couples often use joint brokerage accounts to simplify household finances and build wealth together. However, this doesn’t mean they are suitable for everyone.

Two or more people may own and manage joint brokerage accounts. These accounts are used to combine investment activities with multiple people. But before investing together using a joint brokerage account with a spouse or partner, it’s essential to understand how joint ownership works and its potential impacts on your finances.

Investing Together

The reason many couples decide to invest together is fairly simple: they live together, manage a household, and are planning a future together. It can make sense then, not just from a financial perspective but for a healthy relationship, to invest together to build wealth for future goals.

If you’re planning for these long-term financial goals together, like retirement or buying a house, then that might mean having a joint brokerage account in order to plan for your shared desires. But that doesn’t mean couples have to invest together; it could make sense for you to share some accounts as a couple and to keep some separate.

But opening a joint brokerage account and investing together can also be practical in terms of financial returns. Combining your money to invest can potentially help your money grow faster than if investing individually; as you invest a larger pool of funds, the gains can accumulate and go further as you benefit from compounding returns.

💡 Wondering about compounding returns? Here’s our investors guide to compounding returns.

What Is a Joint Brokerage Account?

A joint brokerage account is a brokerage account shared by two or more people. Couples, relatives, and business partners typically use joint brokerage accounts to manage investments and finances together. However, any two adults can open a joint brokerage account.

Joint brokerage accounts typically allow anyone named on the account to access and manage its investments. There are multiple ways people can establish joint brokerage accounts, each with specific rules for how account owners can access funds or how the account contents are handled after one of the joint holders passes away.

In contrast, retirement accounts like 401(k)s or individual retirement accounts (IRAs) do not allow joint ownership, unlike many taxable brokerage accounts.

Advantages of Joint Brokerage Accounts for Couples

There are several advantages that couples may benefit from by establishing and using joint brokerage accounts.

Single Investment Manager

One person can be responsible for all of the investment decisions and transactions within the account. This can be useful when only one member of a couple has interest in managing financial affairs.

💡 Recommended: Should I Hire a Money Manager?

Combined Resources

As mentioned above, combining resources can be beneficial as investment decisions are made with a larger pool of money that can be used to increase compounding returns. Additionally, combining resources into a single account may help reduce costs and investment fees, as opposed to managing multiple brokerage accounts.

Simplified Estate Planning

A joint brokerage account can simplify estate planning. With certain types of joint brokerage accounts, the surviving account owner will automatically receive the proceeds of the account if one account holder dies. This significantly simplifies estate planning and may allow the surviving account holder to avoid a costly legal battle to maintain ownership.

Challenges of Joint Brokerage Accounts for Couples

There are a few challenges that come with joint brokerage accounts for couples.

Transparency and Trust

Both parties who own a joint brokerage account need to be comfortable with the level of transparency that comes with shared ownership. This means that both partners need to be comfortable with sharing information about their investment objectives, financial goals, and risk tolerance.

Additionally, owners of a joint brokerage account must trust one another. Because the other account holder is an equal owner of the assets and can make changes to the account without your permission, they can make unadvised investment decisions or empty out the account without your consent.

Breaking Up

It’s important to remember that a joint brokerage account is a joint asset. This means that if the relationship ends, the account will need to be divided between the two parties. This can be a complex and time-consuming process, so it’s important to be sure that both partners are prepared for this possibility.

Tax Issues

If you open a joint brokerage account with someone other than a spouse, any deposits you make into the joint account could be deemed a gift to the other account holder, which could trigger gift tax liabilities.

💡 Recommended: A Guide to Tax-Efficient Investing

Things to Know About Joint Brokerage Accounts

Before opening a brokerage account with a partner, business associate, or relative, it’s important to understand the differences between the types of accounts.

There are several types of joint brokerage accounts, each with specific nuances regarding ownership. If you are planning on opening a joint brokerage account, pay close attention to these different types of ownership so you can open one that fits your particular circumstances.

Ownership

How the ownership of a joint brokerage account is divided up depends on the type of account a couple opens.

•   Tenancy by Entirety: If the couple is married, they can benefit from opening an account with tenancy by the entirety. Each spouse has an equal and undivided interest in the account. It is not a 50/50 split; the spouses own 100% of the account.

•   Joint Tenants with Rights of Survivorship: This type of joint account gives each owner an equal financial stake in the account.

•   Tenancy in Common: A joint brokerage account with tenancy in common allows owners to have different ownership stakes in the account. For example, a couple may open a joint account with tenancy in common and establish a 70/30 ownership split of the account.

Death of Owner

When an owner of a joint brokerage account passes away, their share of the account may pass on to the surviving owners or a beneficiary, depending on the type of account.

•   Tenancy by Entirety: If a spouse dies, their ownership stake passes on to the surviving spouse.

•   Joint Tenants with Rights of Survivorship: If one owner dies, the ownership interest is passed onto surviving owners.

•   Tenancy in Common: If one owner dies, the ownership share passes to their estate or a beneficiary.

Probate Court

In many financial dealings, it can be challenging to determine who owns what when someone passes away. These questions are often brought into the legal system, with probate courts often resolving issues of ownership for financial accounts and property. This can also occur with joint brokerage accounts, depending on the type of account a couple may open.

•   Tenancy by Entirety: This type of account avoids the need for probate court, as ownership stays with one spouse if the other spouse passes away.

•   Joint Tenants with Rights of Survivorship: This type of account avoids the need for probate court, as ownership interest is passed to the surviving owners when one owner dies.

•   Tenancy in Common: In this type of account, if one owner passes away without a will or a state beneficiary, their ownership share will likely have to pass through probate court.

However, regardless of the type of joint brokerage account, if all owners of an account pass away at the same time, the assets in the account may still be subject to probate court if a will does not clearly state beneficiaries.

Tips for Opening a Joint Brokerage Account

Here are some tips that couples may consider before opening a joint brokerage account with a spouse or partner. These tips apply to almost everything; in the end, it’s all about communication and compromise.

•   Decide on your investment goals for your joint brokerage account upfront. That means deciding what you want to build wealth for, like a house, vacation, or retirement. This can also mean determining how much money you may be willing to set aside for investing.

•   Having goals for your joint brokerage accounts is advisable, but it’s also acceptable to have individual financial goals as long as you’re on the same page. You can set aside some of your discretionary income, like 1%, for each of you to spend as individual fun money. Some couples may also maintain smaller separate accounts in addition to your joint accounts.

•   Take a long view of your joint financial goals. While you may disagree about buying a new couch or how to remodel a kitchen, you should agree on when you want to retire.

•   Establish a system for resolving disputes before you get started investing. Even in the healthiest of relationships, there are bound to be disagreements. Before you open a joint brokerage account, decide how you will resolve disputes about whether to invest in one asset or rebalance your portfolio.

The Takeaway

Just because you’re in a relationship doesn’t mean you have to open a joint brokerage account with a partner. For some couples, combining finances to build wealth for shared goals makes sense, while other couples may benefit from keeping money issues separate from one another. What matters most is determining what’s best for you and your partner, whatever that may look like for your specific financial needs.

If you’re ready to open a joint brokerage account, SoFi can help. With SoFi Invest®, you can open a joint automated investing account with a partner. SoFi automated investing builds a portfolio for you based on your financial goals with no SoFi management fee.

FAQ

Can couples open a joint brokerage account?

Yes, couples can open a joint brokerage account. However, couples are not the only people who can open a joint brokerage account. Any two people, like relatives or business partners, can open joint accounts.

What are the benefits for couples opening a joint brokerage account?

The benefits of opening a joint brokerage account for couples are that they can pool their money and resources to make investments, and they can also make joint decisions about how to manage the account.

How can you start a joint brokerage account?

There are a few ways to start a joint brokerage account. The most common way is to go to a broker and open an account together. Another way is to open an account online.

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