Sep
03
2026
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The Navy Loan Repayment Program Explained

By | Debt Payoff, Financial Independence, Student Loans, student_loan | Comments Off on The Navy Loan Repayment Program Explained

Under the Navy Loan Repayment Program, those who join the Navy may qualify for a significant amount of student loan relief. The program will pay up to $65,000 toward an eligible service member’s student loans.

Read on to learn more about the Navy Loan Repayment Program.

Key Points

•   The Navy Loan Repayment Program offers up to $65,000 in federal student loan relief for eligible service members.

•   Eligibility requires enlisting for active duty in the delayed entry program and having an eligible rating.

•   The program pays 33.3% of the outstanding loan balance annually for three years of service.

•   Only federal student loans qualify, including Direct Loans, PLUS Loans, Consolidation Loans, and Perkins Loans.

•   Applicants must have a student loan that’s not in default to qualify for the program.

Who Qualifies for the Navy Program?

The Navy Loan Repayment Program is a military student loan repayment program that can provide up to $65,000 of federal student loan repayment assistance for Navy personnel who qualify. The program is offered to service members who are enlisting for active duty in the Navy.

To be eligible for the loan repayment program, service members must meet the following criteria.

•   They must have a high school diploma.

•   They must enlist in the delayed entry program as active duty and have an eligible rating.

•   They must have a loan that is not in student loan default.

How Navy Student Loan Repayment Works

Through the program, the Navy will pay 33.3% of a service member’s outstanding loan balance or $1,500 a year, whichever is greater, for each year of Naval service for up to three years.

Only federal student loans qualify for the loan repayment program. The eligible types of student loans include:

Federal Direct Loans. Subsidized and Unsubsidized Direct Loans are low-interest loans made by the U.S. Department of Education to qualified borrowers for tuition and other college expenses.

Federal PLUS Loans. Otherwise known as Direct PLUS Loans, these loans are offered by the U.S. government to graduate or professional students to cover tuition and college costs. In many cases, Direct PLUS Loans offer funds to help cover education expenses not covered by other financial aid programs.

Direct Consolidation Loan. A Direct Consolidation Loan bundles multiple federal loans into a single loan, streamlining the repayment process.

Perkins Loans. These low-interest loans were geared toward college students who demonstrated exceptional financial need. The Federal Perkins Loan Program stopped disbursing loans in 2018, but Navy personnel may still have outstanding Perkins Loan debt and thus are eligible for help from the Navy Loan Repayment Program.

A Navy applicant is typically given the option to enroll in the Loan Repayment Program at the Military Entrance Processing Station (MEPS).

MEPS, the stations funded by the U.S. Department of Defense to enroll military service members, handle their applications and assess their physical, mental, and emotional health to see if they’re fit for military service.

What Documents Do You Need to Apply?

All documents needed to apply are available at the MEPS recruiting center. Those interested in the Navy Loan Repayment Program can connect with a recruiter for more information.

Filling Out the Loan Repayment Form

The key document when applying for the Navy Loan Repayment Program is DD Form 2475, which is broken down into four sections.

Section 1 is completed and approved by the recruiting officer (i.e., the verifying official). The section includes the naval office address and contact information so the lending institution can forward the proper paperwork. Basically, Section 1 includes the recruiter’s name and signature and the date.

Section 2 includes the applicant’s name, address, telephone number, email address, and Social Security number. This section is completed by the service member/applicant.

Section 3 includes the student loan data (including the borrower’s name, the loan amount, outstanding balance, the original date of the promissory note, the loan holder address, email and phone number, and the loan application number). The section also includes a box noting whether the student loan is in default or not and asks for the name and address of the financial institution where the loan aid is to be sent.

Section 4 is a grid where more information on the loan can be included to expedite processing. Sections 3 and 4 are filled out by the student loan servicing agency.

Important Things to Know

There are two guidelines that applicants for the Navy Loan Repayment Program should be aware of:

Payments are taxable. Any payments made by the Navy to the service member are taxed, as the IRS deems student loan relief as taxable income in the year the money is paid out. There may be state taxes for this loan relief as well.

Lenders only. The Navy will not refund any loan amount that is paid out by other parties aside from the qualified student loan lenders. Private student loans may not be covered by the program.

Other Ways to Repay Student Loans

Borrowers who are uncertain about a military commitment or who may be struggling to make student loan payments, have alternatives to military-supported repayment.

One option for those with federal student loans is income-driven repayment plans, which base a borrower’s monthly payments on their discretionary income and family size. The repayment term is 20-30 years, depending on which plan you’re on, after which any remaining balance is forgiven if you have made a certain number of payments.

Another alternative is student loan refinancing. With refinancing, a borrower’s federal student loans are replaced with one new loan from a private lender.

While there are advantages to refinancing federal student loans, there are disadvantages to know about. If you are thinking of taking advantage of federal benefits such as income-driven repayment or Public Service Loan Forgiveness, refinancing may not be right for you because you’ll lose your eligibility for federal programs.

Borrowers who do not plan on using federal benefits and choose to refinance may qualify for a lower interest rate or lower monthly payments. They’ll have only one payment a month and may be able to either lengthen or shorten the term. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

The Takeaway

The Navy Loan Repayment Program can be a great way to tackle up to $65,000 of federal student loan debt for those who are enlisting for active duty in the Navy. However, if this program doesn’t fit your needs, other options such as income-driven repayment plans or refinancing might help you manage your debt. Just be sure to weigh the pros and cons, especially since refinancing means giving up federal benefits. It pays to explore all your options before deciding.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Does the Navy offer a loan repayment program?

Yes, the Navy offers a military student loan repayment program. Called the Navy Loan Repayment Program, it provides up to $65,000 of federal student loan repayment assistance to Navy service members who are enlisting for active duty.

How does Navy loan repayment work?

The Navy Loan Repayment program offers up to $65,000 of federal student loan relief to Navy service members who are enlisting. Through this program, the Navy will pay 33.3% of a service member’s outstanding loan balance or $1,500 a year, whichever is greater, for each year of service, up to three years.

How much money does the Navy Loan Repayment Program pay?

The maximum repayment amount is $65,000 for the Navy Loan Repayment Program. The payments are 33.3% of a service member’s outstanding federal student loan balance annually for each year of service in the Navy for up to three years.


This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Sep
01
2026
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Rollover IRA vs Traditional IRA: What’s the Difference?

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on Rollover IRA vs Traditional IRA: What’s the Difference?

If you’re leaving a job, you may hear the term “rollover IRA.” But exactly what is a rollover IRA? Employees have the option of moving their retirement savings from their employer-sponsored 401(k) plan to an individual retirement account, or IRA, at another financial institution when they leave a job. This IRA, where they transfer their 401(k) savings to, is called a rollover IRA. If the 401(k) plan was not a Roth 401(k), you’ll likely want to open what’s called a traditional IRA.

In this scenario, a rollover IRA is also a traditional IRA. But they aren’t always the same. You can have a traditional IRA that is not a rollover IRA. Read on for the differences worth noting between a rollover IRA and a traditional IRA.

Key Points

  • A rollover IRA is an individual retirement account created with funds rolled over from a qualified retirement plan, like a 401(k), usually when someone leaves a job.
  • A traditional IRA is funded by direct contributions by the account holder, and contributions are tax-deductible up to a cap and subject to eligibility limitations.
  • Directing rollover funds from an employer-sponsored plan to a traditional IRA that holds your direct contributions is called commingling funds, which you may not want to do, especially if you want to transfer the rollover funds to a new employer’s plan.
  • Withdrawals from either a traditional IRA or a rollover IRA before age 59 ½ are subject to both income taxes and an early withdrawal penalty, aside from certain eligible exceptions.
  • The IRS requires owners of both types of IRAs to start making withdrawals at age 73 (for people born in 1951 through 1959) or age 75 (for people born in 1960 or later); these withdrawals are also called required minimum distributions (RMDs).

What Is a Rollover IRA?

A rollover IRA is an individual retirement account created with money that’s being rolled over from a qualified retirement plan like a 401(k). Generally, rollover IRAs happen when someone leaves a job with an employer-sponsored plan, such as a 401(k) or 403(b), and they roll the assets from that plan into a rollover IRA.

In a rollover IRA, like a traditional IRA, your savings grow tax-deferred until you withdraw the money in retirement. And because you choose the provider rather than your employer, you can compare your options on investment selection, fees, and account access.

Moving the money through a direct rollover, where the funds go straight from your old plan to the IRA, keeps that tax-deferred status intact and avoids taxes and penalties.

What Is a Traditional IRA?

A traditional IRA is an individual retirement account that you can fund with your own contributions. If you or your spouse have taxable compensation for the year, you may be able to contribute up to the annual limit set by the IRS.

When you open a traditional IRA, your contributions may be tax deductible, depending on your income and whether you or your spouse is covered by a retirement plan at work.[1] Your savings then grow tax-deferred, which means you owe no tax on earnings while they stay in the account. You pay ordinary income tax on the money when you withdraw it in retirement.

This is advantageous to some retirees: Upon retirement, it’s likely one might be in a lower income tax bracket than when they were employed. Given that, the money they withdraw will be taxed at a lower rate than it would have when they contributed.

Is a Rollover IRA the Same as a Traditional IRA?

When it comes to a rollover IRA vs. traditional IRA, the only real difference is that the money in a rollover IRA was rolled over from an employer-sponsored retirement plan.

Otherwise, the accounts share the same tax rules on withdrawals, required minimum distributions, and conversions to Roth IRAs.

Recommended: Types of Retirement Plans and Which to Consider

Rollover IRA vs. Traditional IRA: A Side-by-Side Comparison

  Rollover IRA Traditional IRA
Source of contributions Created by “rolling over” money from another account, most typically an employer-sponsored retirement plan, such as 401(k) or 403(b). For the rollover amount, annual contribution limits do not apply. Created by regular contributions to the account, not in excess of the annual contribution limit, although rolled-over money can also be contributed to a traditional IRA.
Contribution limits There is no limit on the funds you roll over from another account. If you’re contributing outside of a rollover, the limit is:
•   $7,500 for tax year 2026 plus an additional $1,100 if you’re 50 or older.[2]
•   $7,000 for tax year 2025 plus an additional $1,000 if you’re 50 or older. 		•   Up to $7,500 for tax year 2026, plus an additional $1,100 if you’re 50 or older.[2]
•   Up to $7,000 for tax year 2025, plus an additional $1,000 if you’re 50 or older.
Withdrawal rules Withdrawals before age 59 ½ are subject to both income taxes and an early withdrawal penalty (with certain exceptions , like for higher education expenses or the purchase of a first home). Withdrawals before age 59 ½ are subject to both income taxes and an early withdrawal penalty (with certain exceptions , like for higher education expenses or the purchase of a first home).
Required minimum distributions (RMDs) You’re required to withdraw a certain amount of money from this account each year once you reach age 73, or age 75 if you were born in 1960 or later[3] (thanks to the SECURE 2.0 Act of 2022). You’re required to withdraw a certain amount of money from this account each year once you reach age 73, or age 75 if you were born in 1960 or later[3] (again, thanks to the SECURE 2.0 Act).
Taxes Since contributions are from a pre-tax account, all withdrawals from this account in retirement will be taxed at ordinary income rates. If contributions are tax deductible, all withdrawals from this account in retirement will be taxed at ordinary income rates. (If contributions were non-deductible, you’ll pay taxes on only the earnings in retirement.)
Convertible to a Roth IRA Yes Yes

Should You Roll Over to an IRA or Leave Your Money in an Employer Plan?

Because a rollover IRA generally follows the same tax rules as a traditional IRA, the bigger decision is whether to move money from your old employer plan into an IRA or leave it in the plan.

Reasons to Roll Over Into an IRA

There are several advantages to rolling your employer-sponsored retirement plan into an IRA, vs. into a 401(k) with a new employer:

  • IRAs may charge lower fees than 401(k) providers.
  • IRAs may offer more investment options than an employer-sponsored retirement account.
  • You may be able to consolidate several retirement accounts into one rollover IRA, simplifying management of your investments.
  • IRAs offer the ability to withdraw money early for certain eligible expenses, such as purchasing your first home or paying for higher education. In these cases, while you’ll pay income taxes on the money you withdraw, you won’t owe any early withdrawal penalty.

Reasons to Leave Your Money Where It Is

There are also some rollover IRA rules that may feel like disadvantages to putting your money into an IRA instead of leaving it in an employer-sponsored plan:

  • While you can borrow money from your 401(k) and pay it back over time, you cannot take a loan from an IRA account.
  • Certain investments that were offered in your 401(k) plan may not be available in the IRA account.
  • There may be negative tax implications to rolling over company stock.
  • An IRA requires that you start taking required minimum distributions (RMDs) from the account at age 73, or age 75 if you were born in 1960 or later, even if you’re still working, whereas you may be able to delay your RMDs from an employer-sponsored account if you’re still working.
  • The money in an employer plan is protected from creditors and judgments, whereas the money in an IRA may not be, depending on your state.

Recommended: 4 Step Guide to Retirement Planning

Can You Contribute to a Rollover IRA?

Yes, a rollover IRA can accept new contributions just like any other traditional IRA. You can make contributions to a rollover IRA, up to IRA contribution limits. For tax year 2026, you can contribute up to $7,500 (with an additional catch-up contribution of $1,100). If you do add money to your rollover IRA, however, you may not be able to roll the account into another employer’s retirement plan at a later date.

Can You Combine a Traditional IRA With a Rollover IRA?

A rollover IRA is essentially a traditional IRA that holds money rolled over from an employer-sponsored retirement plan. Because of this, you can generally combine a rollover IRA and a traditional IRA by moving the assets from one account into the other.

How you move the money matters. With an indirect, or 60-day, rollover, the money is paid to you and you generally have 60 days to deposit it into another eligible retirement account.[4] With a trustee-to-trustee transfer or direct rollover, the money moves directly between financial institutions, so it never passes through your hands and there’s no 60-day deadline to manage.

One catch applies when money from an employer-sponsored retirement plan is paid directly to you. The plan generally must withhold 20% for federal income taxes, even if you intend to roll over the full amount. To complete a full rollover, you would need to replace that 20% with money from another source within the 60-day period. Any taxable portion you don’t roll over generally counts as a distribution and, if you’re under age 59½, may also be subject to a 10% additional tax unless an exception applies.

There are a few other considerations when combining accounts. Mixing regular IRA contributions with rollover assets may make it more complicated to move those assets into a future employer-sponsored retirement plan, depending on the plan’s rules. Also, you generally can make only one 60-day rollover between IRAs in any 12-month period. That limit does not apply to trustee-to-trustee transfers, rollovers from an employer plan to an IRA, rollovers from an IRA to an employer plan, or conversions from a traditional IRA to a Roth IRA.

How to Open a Rollover or Traditional IRA

Opening a traditional IRA and a rollover IRA are identical processes — the only difference is the funding. You can open a traditional or rollover IRA by doing the following:

  • Decide where to open your IRA. For instance, you can choose an online brokerage where you can choose your own investments, or you can select a robo-advisor that will offer automated suggestions based on your answers to a few basic investing questions. (There’s a small fee associated with most robo-advisors.)
  • Open an account. From the provider’s website, select the type of IRA you’d like to open — traditional or rollover, in this case — and provide a few pieces of personal information. You’ll likely need to supply your date of birth, Social Security number, and contact and employment information.
  • Fund the account. You can fund the account with a direct contribution via check or a transfer from your bank account, transferring money from another IRA, or rolling over the money from an employer-sponsored retirement plan. Contact your company plan administrator for information on how to do the latter.

The Takeaway

Both a rollover IRA and a traditional IRA allow investors to put money away for retirement in a tax-advantaged way, with very little difference between the two accounts.

One of the primary questions anyone considering a rollover IRA should consider is, will you keep contributing to it? If so, that would prevent you from rolling the rollover IRA back into an employer-sponsored retirement account in the future.

Whether it’s a rollover IRA you’ve created by rolling over an employer-sponsored retirement account or a traditional IRA you’ve opened with regular contributions, either account can play a key role in your retirement game plan.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Easily manage your retirement savings with a SoFi IRA.

🛈 While SoFi does not offer 401(k) plans at this time, we do offer a range of individual retirement accounts (IRAs).

FAQ

Can you take money out of a rollover IRA?

Yes, but if you take money from a rollover IRA (or a traditional IRA for that matter) before age 59½, those withdrawals are subject to income tax and an early withdrawal penalty of 10%. There are certain exceptions, however. If you withdraw the money for certain higher education expenses or to buy your first home, for example, the penalty may not apply.

Why would you rollover an IRA?

A rollover is when you move money between two different types of retirement plans. Typically, you might roll over an IRA if you leave a job with an employer-sponsored plan, such as a 401(k) or 403(b). You would roll the assets from that plan into a rollover IRA where your savings grow tax-deferred until you withdraw the money in retirement.

You could instead choose to leave the money in your former employer’s plan, if that’s allowed, or roll it over into your new employer’s 401(k) or 403(b) plan, if they have one. However, a rollover IRA may offer you more investment choices and lower fees and costs than an employer-sponsored plan.

Can I roll over assets into my traditional IRA?

Yes, rolled over money can be contributed to a traditional IRA. It’s also worth noting that you can also combine a traditional IRA and a rollover IRA. You can do this with a direct transfer from one account to another, or by rolling money from one IRA to another, for instance. Just keep in mind that there is a limit of one rollover between IRAs in any 12-month period.

About the author

Kate Ashford

Kate Ashford

Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, Real Simple and Parents, among others. Read full bio.

Article Sources
  1. IRS. IRA deduction limits.
  2. IRS. 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500.
  3. IRS. Distributions from Individual Retirement Arrangements (IRAs).
  4. IRS. Rollovers of retirement plan and IRA distributions.

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Aug
28
2026
Someone sipping a coffee and using a tablet to research historical volatility.

What Is Historical Volatility? How Do You Use It?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is Historical Volatility? How Do You Use It?

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Historical volatility (HV) measures the price fluctuations of a market index or security over a given time period in the past. When an asset’s historical volatility is up, that means its price deviated further away from its average (in either direction).

A stock’s historical volatility is commonly expressed as one standard deviation using daily returns, and it’s one factor that investors often look at to gauge the risk of a potential investment. An asset’s historical volatility is different from its implied volatility, which measures an asset’s anticipated future volatility. Read on to learn what historical volatility is, how historical volatility works, and how to calculate historical volatility.

Key Points

•   Historical volatility measures deviations from a stock’s average price over a period of time.

•   The historical volatility of a stock is typically calculated using the standard deviation of daily returns.

•   Historical volatility is expressed as a percentage, but differs from forward-looking implied volatility.

•   High historical volatility suggests larger price swings, while low volatility indicates smaller movements.

•   Traders can use historical volatility alongside implied volatility — a forward-looking measure of expected price swings — to inform trading strategy or assess risk.

What Is Historical Volatility?

Historical volatility measures how much the price of a stock or index goes up and down over a certain period. Investors calculate historical volatility by measuring how much an asset’s price deviates from its average price during a certain time period. Historical volatility typically looks at daily returns, but some investors use it to look at intraday price changes.

Analysts can use any number of trading days when calculating historical volatility, but options traders typically focus on a time period between 10 and 180 days as their standard lookback window. Options traders may use historical volatility and implied volatility when analyzing trading ideas.

Historical volatility is typically expressed as a percentage that reflects the standard deviation from the average price, based on past price behavior. But there are also other methods they can use to determine an asset’s historical volatility. For example, unstable daily price changes often result in high historical volatility readings.

How Historical Volatility Works

Historical volatility, expressed as a percentage, tracks how much a stock’s price fluctuates in relation to its average price during a certain period. This is usually calculated using the standard deviation of past price returns, which is then demonstrated as an annualized figure.

When a stock sees large daily price swings compared to its history, it may have a high historical volatility reading. Historical volatility does not measure direction; it simply indicates the deviation from an average.

When a stock’s historical volatility is rising or above average, it means daily price changes are larger than normal. When it is lower than average, a stock or index has been relatively calm.

How Historical Volatility Is Calculated

Historical volatility may be measured using a standard deviation calculation. It typically takes a stock’s daily price changes (its daily return) and averages them over a period. There are several steps to calculating historical volatility:

1.    Collect historical prices for a selected time period.

2.    Calculate the return for each day. This may be calculated using logarithmic returns, where:

◦   Pt = price at time (t)

◦   Pt-1 = price at the previous time

Ri = ln (Pt/Pt-1)

3.    Calculate the average of those returns over the selected period.

4.    Find the difference between each day’s return and the average return.

5.    Square those differences.

6.    Find the sum of those squared differences (this finds the squared deviations).

7.    Divide the sum by the total number of returns minus one (this finds the variance).

8.    Calculate the square root of the variance.

You can then calculate the annualized volatility of a stock in two ways:

•   Daily returns: multiply the standard deviation by the square root of 252 (the approximate number of trading days per year)

•   Monthly returns: multiply the standard deviation by the square root of 12 (the number of months per year)

Working through the historical volatility formula can be a lengthy process, but brokerage platforms often automatically calculate it for you. Many brokers even offer historical volatility charts. Historical volatility charts allow for easy comparison of price behavior over time.

For example, if a stock reacted sharply to an earnings release, its historical volatility charts may show a jump right after the earnings date, while implied volatility might drop sharply as the market makes adjustments to its expectations following the earnings results. Implied volatility measures market expectations of price fluctuations for a certain asset in the future, which influences how options written on that asset are priced.

How to Use Historical Volatility

Traders may use historical volatility when analyzing a stock, fund, or index to get a sense of its riskiness. High or low historical volatility stocks are not inherently bullish or bearish. Day traders might seek high historical volatility stocks as candidates for high-profit trading opportunities (but they may also come with high loss potential).

Traders sometimes use historical volatility to help set stop-loss levels, which are predetermined prices at which a trade will automatically close to limit losses. For example, a day trader might use three times a stock’s daily average range — a measure of historical volatility — to set a stop price. This is known as volatility ratio trading.

You can also use historical volatility to help determine whether a stock’s options are expensive to help determine an options trading strategy. If implied volatility is extremely high when compared to a stock’s historical volatility, traders may view options on the stock as overpriced and potentially worth selling rather than buying.

Historical volatility can help traders understand the potential range of price movements, which may inform their risk management strategies and decisions about position sizing or exit points.

Recommended: Increase your buying power with a margin loan.

Historical vs Implied Volatility

Implied volatility and historical volatility both track price fluctuations in an underlying stock or index, but there are key differences between the two indicators. Implied volatility is a forward-looking indicator of a stock’s future volatility.

The higher the historical volatility, the more risk-prone the security has been in the past. Implied volatility, on the other hand, uses option pricing to arrive at a calculation and estimate of future volatility. If implied volatility is significantly less than a stock’s historical volatility, traders typically anticipate a relatively stable period of trading, and vice versa.

Typically, when implied volatility is low, options tend to also be priced lower, which may make them more appealing to buyers who seek to capitalize on potential future price movements. Sometimes investors will use a graph to determine how an option’s implied volatility changes relative to its strike price, using a volatility smile.

Historical Volatility Implied Volatility
Measures past price data to gauge volatility on a security. Uses current option-pricing data to gauge expected future volatility on a security.
Higher historical volatility often leads to higher options pricing and higher implied volatility. Imminent news, like a company earnings report or a key economic data point, may drive implied volatility higher on a stock or index.
May inform traders’ risk management strategies and decisions about position sizing or exit points. Traders may use implied volatility to find stocks expected to exhibit the biggest price swings.

The Takeaway

Historical volatility can be a useful indicator for both institutional and retail investors looking to monitor the level and frequency of a stock or index’s price fluctuations. It measures a security’s dispersion of returns over a defined period. Implied volatility is a similar tool, but it is forward-looking and uses option pricing to arrive at its calculation.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is considered a good number for historical volatility?

It depends. Although one stock might have a high historical volatility reading, perhaps above 100%, another steady stock might have a low figure around 20%. The key is to understand the securities you trade. Historical volatility can be an indicator of a stock’s price behavior, but unforeseen risks can make future volatility drastically different from the historical trend.

What is a historical volatility ratio?

The historical volatility ratio compares short-term and long-term historical volatility as a percentage of the price of a financial asset. You can interpret the historical volatility ratio by looking at short versus long historical volatility. If short volatility on a stock drops below a threshold percentage of its long volatility, a trader might think there will be a jump in future volatility soon.

This is similar to analyzing volatility skew in options. It is important to remember that the interpretation and choice of parameters of historical volatility can be subjective by traders.

How is historical volatility calculated?

Historical volatility calculations require finding the average deviation from the average price of an asset over a particular time. An asset’s standard deviation is often used. Historical volatility is usually stated as one standard deviation of historical daily returns.

Many trading platforms automatically calculate historical volatility, so manual calculation may be unnecessary.

Photo credit: iStock/Eva-Katalin


This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

SOIN-Q226-064

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Aug
27
2026
How to Invest and Profit During Inflation

How to Invest During Inflation

By | Growing Wealth, invest, Investing | Comments Off on How to Invest During Inflation

While inflation is commonly associated with the rising cost of consumer goods, inflation also impacts investments like stocks, bonds, real estate, and more.

Just as inflation can reduce a consumer’s purchasing power overall, inflation can also impact the performance of different asset classes — particularly fixed-income assets such as bonds and cash — potentially reducing portfolio returns. It’s important for investors to understand how to invest during inflation, and which assets can provide a buffer against inflationary conditions.

After all, inflation doesn’t have to spell bad news for investors. SoFi’s 2025 investor survey reveals that despite inflation concerns this year, most investors are holding steady or increasing their investment contributions.

Key Points

  • Inflation affects purchasing power, and it can also take a toll on stocks, bonds, and other asset classes, impacting consumers and investors.
  • Inflation can impact the performance of some stocks and bond yields, making it advisable to reconsider some investment choices during inflationary periods.
  • During bouts of inflation, investors may want to consider inflation resistant assets, such as stocks of companies that can raise prices, commodities, TIPS, and I bonds.
  • Inflation doesn’t affect all sectors of the economy in the same way, so investors must consider a range of options when adjusting their portfolios.
  • Long-term investment plans may not need to be drastically changed due to temporary inflation spikes.

What Is Inflation?

Inflation is defined as a steady rise in prices. When economic growth occurs, consumers and businesses have more money and tend to spend it. When cash flows through the economy, demand for goods and services grows, leading many companies to raise prices.

To some degree, inflation is a natural outcome of a growing economy. Historically, economic booms have come with an annual inflation rate of about 1% to 2%, a range that reflects solid consumer sentiment in a growing economy.

An inflation rate of 3%, 4%, 5% or more is associated with an overheated economy.

Conversely, prices fall when demand slides and supply is abundant; the inflation rate tumbles as economic growth wanes.

Key Measures of Inflation

The main barometer of inflation in the United States is the Consumer Price Index (CPI). The CPI encompasses the retail price of goods and services in common sectors such as housing, health care, transportation, food and beverage, and education, among other economic sectors.

The Federal Reserve uses a similar index, the Personal Consumption Expenditures Price Index (PCE), in its inflation-related measurements. Economists and investors track inflation on both a monthly and an annual basis.

Because investors may have less money to put into the markets when prices rise and their budgets become tighter, inflation may impact the people’s decision to buy stocks online or through a brokerage. Overall, it means there may be less liquidity in the markets. The relationship between investing and inflation may further be affected as interest rates are increased to combat rising prices, potentially affecting business profitability.

Recommended: Stock Market Basics

5 Investments to Consider During Inflation

Investors can take several steps to help protect their portfolios during periods of high inflation. Choosing how to invest during inflation is like selecting investments at any other time — you’ll need to evaluate the asset itself and how it fits into your overall portfolio strategy both now and in the future.

1. Real Estate and REITs

In some cases, investing in certain types of real property assets and real estate investment trusts (REITs) can be useful during inflationary periods, because this alternative asset class tends to move in the opposite direction of stocks (which may suffer during inflation).

REITs and some types of real estate tend to see higher prices at these times, and thus pay higher dividends or income to investors. To maintain their tax status, REITs are required to distribute at least 90% of their taxable income to shareholders as dividends.[1]

2. Stocks in Companies With Pricing Power

Investors might consider stocks where the underlying company can boost prices in times of rising inflation. Retail stocks, like big box stores or discount retailers with a global brand and a massive customer base, can be potential investments during high inflation periods. In that scenario, the retailer could raise prices and not only cover the cost of rising inflation but also continue to earn profits in a high inflation period.

Think of a consumer goods manufacturer that already has a healthy portion of the market for certain everyday items, and doesn’t need excess capital as it’s already well-invested in its own business. Companies with low capital needs tend to do better in inflationary periods, as they don’t have to invest more cash into the business to keep up with competitors — they already have a solid market position and the means to produce and market their products.

During periods of inflation, popular investing trends may reflect increased interest in retail or consumer staple stocks.

3. Commodities

Investing in precious metals, oil and gas, and other commodities may also be considered for and an option for inflation hedges. The price growth of many commodities contributes to high inflation. So investors may see returns by investing in commodities during high inflationary periods.

Take the price of oil, natural gas, and gasoline. Businesses and consumers rely highly on oil and gas and will likely keep filling up the tank and heating their homes, even if they have to pay higher prices. That helps make oil — and other commodities — an asset worth considering when inflation is on the move.

4. Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities (TIPS) can be an option to hedge against inflation. By design, TIPS are like most bonds that pay investors a fixed rate twice annually. They’re also protected against inflation as the principal amount of the securities is adjusted based on changes in the Consumer Price Index.[2]

5. I Bonds

During periods of high inflation, investors may consider investing in Series I Savings Bonds, commonly known as I Bonds. I Bonds are indexed to inflation like TIPS, but the interest rate paid to investors is adjustable. With an I bond, investors earn both a fixed interest rate and a rate that changes with inflation. The U.S. Treasury sets the inflation-adjusted interest rate on I Bonds twice a year. Keep in mind that I bonds can’t be redeemed during the first 12 months, you
forfeit the last three months of interest if you redeem before five years, and electronic purchases are capped at $10,000 per Social Security number per calendar year.[3]

How Inflation Affects Stocks and Bonds

Investing during inflation can be tricky, and it can be helpful to have a defensive investment strategy. It’s important to know that inflation impacts both stock and bond markets, but in different ways.

Inflation and the Stock Market

Inflation can have an indirect impact on stocks, partially reflecting consumer purchasing power. As prices rise, retail investors may have less money to put into the stock market, reducing market growth.

Also, when inflation rises, that puts pressure on investors’ stock market returns to keep up with the inflation rate. For instance, consider a stock portfolio that earns 5% before inflation. If inflation rises at a 6.0% rate, hypothetically, the portfolio may actually lose 1.0% on an inflation-adjusted basis, which can make it difficult to find high inflation investments.

Perhaps more importantly, high inflation may cause the Federal Reserve to raise interest rates to cool down the economy. Higher interest rates also make stock market investments less attractive to investors, as they can get higher returns in lower-risk assets like bonds.

However, some stocks and other assets can perform well in periods of rising prices, which can be a hedge against inflation. When inflation hits the consumer economy, companies often boost the prices of their goods and services to keep profits rolling, as their cost of doing business rises at the same time. In some cases, rising prices contribute to higher revenues, which may help boost a company’s stock price.

That said, rising inflation may raise the risk of an economic slowdown or recession. That scenario doesn’t bode well for strong stock market performance, as uncertainty about the overall economy tends to curb market growth.

Recommended: How Do Interest Rates Impact Stocks?

Inflation and the Bond Market

Inflation may be a drag on bond market performance, as well. Most bonds offer a fixed rate of return, paid in the form of interest or coupon payments. As fixed-income securities offer stable, but fixed, investment returns, rising inflation can eat at those returns, further reducing the purchasing power of bond market investors.

Additionally, the Federal Reserve’s response to inflation — higher interest rates — can lower the price of bonds because there is an inverse relationship between bond yields and bond prices. So, bond investors and bond funds may experience losses because of high interest rates.

Strategies for Investing During Inflation

Aside from considering some of the above investments when investing for inflation, there are some strategies that may also be beneficial to consider.

Stay Focused on Your Long-Term, Diversified Plan

While there are some investing strategies that are exclusively focused on short-term results, most investors plan to invest for the long term — an approach that allows for greater stability over time.

An important tenet of long-term investing is to “buy and hold” investments so they have a chance to grow over the target period of time, weathering the markets’ ups and downs. This approach enables investors to maintain a plan that’s based on their financial values, and which matches their circumstances and helps them reach their goals. It also helps investors avoid making needless changes out of fear or other market reactions.

Another component of a long-term investment strategy is to employ the principles of diversification, which means holding a range of different asset types in your portfolio, in order to help manage risk factors.

Consider Dollar-Cost Averaging to Manage Volatility

Dollar-cost averaging is a strategy that helps manage price volatility, which can be a factor during an inflationary period. With DCA, you pick the securities you want to invest in, and the dollar amount you want to invest on a regular basis (e.g., weekly, monthly, etc.). Typically, people invest the same amount each time, to end up buying more when prices are lower — and less when they’re higher.

Over time, however, the average cost of investments tends to be lower, which may yield potential returns.

Using the DCA method may keep your investment strategy on track — and investors may be less likely to react impulsively or emotionally in response to certain events or headlines, which can increase the risk of loss.

How Investors Responded to Inflation in 2025

When facing a period of rising prices, deciding how to invest during inflation is top of mind for many investors. But as the 2025 SoFi Investor Insights Survey shows, many investors plan to stay the course. In fact, nearly two-thirds (65%) of respondents said they feel either optimistic or content about their investments over the past year.

A Steady Approach

Despite inflation concerns, most investors are holding steady or increasing their contributions. In fact, even given the potential impact of inflation, only 19% of investors wanted to invest less, while the 82% planned to invest more or maintain their current strategy, including popular investments in 2025.

How Inflation Influences Investment Strategy.
Source: SoFi 2025 Investor Insights Survey

This speaks to a mindset that can be beneficial when deciding how to invest during inflation or any time, but especially after you start an investing portfolio: It’s important to stick to your strategy — which is based on your financial goals and circumstances — and not make impulsive changes to your investments when there’s a temporary shift in the economy.

The Takeaway

Investors may want to proceed with caution when inflation rises. It may be tempting to readjust your portfolio because prices are rising. Periods of high inflation usually wane, so throwing a long-term investment plan out the window just because inflation is moving upward may knock you off course to meet your long-term financial goals.

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FAQ

Which investments tend to perform poorly during inflation?

Inflation erodes the value of cash, and as such it can impact a range of securities, including long-term fixed-rate bonds, certain types of stocks, and cash as well as low-interest cash accounts.

Did investors make impulsive decisions in 2025?

The tendency to make impulsive choices can occur at any time. According to SoFi’s 2025 investor survey, however, it does seem that the majority of investors are staying the course.

Is gold a good hedge against inflation?

Some investors believe that gold can be a way to hedge against inflation, because gold has intrinsic (i.e., tangible) value, a limited supply, and the price of gold has been known to rise when inflation-wary investors put more money into this precious metal. That said, the price of gold can fluctuate, and there is always a risk with any investment.

Should I stop investing when inflation is high?

Historically, many long-term investors maintain their established strategy during periods of high inflation. Some investors may consider defensive positions, such as rotating into inflation-protected assets or consumer staples, depending on their risk tolerance.

How can interest rate changes by the Fed affect my investments?

When the Federal Reserve raises or lowers interest rates, that can impact stocks and bonds in different ways. When the Fed lowers rates, that lowers the cost of loans, which can boost company performance and stock prices. Bonds with lower yields may be less appealing. When the Fed raises rates, that increases borrowing costs, which can put a damper on stocks, but raise bond yields.

Article Sources
  1. SEC. Investor Bulletin: Real Estate Investment Trusts (REITs).
  2. U.S. Securities and Exchange Commission. Bonds – FAQs.
  3. Treasury Direct. I bonds.

Photo credit: iStock/pondsaksit

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For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Dollar Cost Averaging (DCA): Dollar Cost Averaging (DCA) is an investment strategy where you regularly invest a fixed amount of money regardless of market conditions. This approach aims to reduce the impact of market volatility and lower your average cost per share over time. DCA does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals and risk tolerance before using this strategy, understanding that past performance is not indicative of future results. Consult with a financial advisor to determine if DCA is appropriate for your individual circumstances.

Investment Risk: Diversification can help reduce some investment risk, but cannot guarantee profit nor fully protect in a down market.

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.

Before investing, carefully consider the investment objectives, risks, charges, and expenses detailed in a Fund’s prospectus. This document contains important information and must be read carefully prior to investing; you can find the current prospectus by clicking the link on the Fund’s respective page.
Alternative investments are highly risky and may not be suitable for all investors. These investments often involve leveraging, speculative practices, and the potential for complete loss of investment. They typically charge high fees, lack diversification, and can be highly illiquid and volatile. Be aware that both registered and unregistered alternative investments, including Interval Funds, are not subject to the same regulatory requirements as mutual funds, and their illiquid nature may restrict your ability to trade on your timeline. Always review the specific fee schedule for Interval Funds within their prospectus.

SOIN-Q325-064

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Aug
25
2026
A graphic of a green dollar symbol on a green background.

What Is Financial Minimalism?

By | Debt Payoff, Financial Independence, money | Comments Off on What Is Financial Minimalism?

Minimalism is a lifestyle choice that centers on embracing simplicity and eliminating physical, mental, or emotional clutter. Financial minimalism is an extension of that idea. It advocates for spending less on material items and investing your time, money, and energy into experiences that enrich your life in some way.

Becoming a financial minimalist may help you to improve your money situation if you’re able to pay down debt, grow savings, and invest to build wealth while still enjoying life. Adopting a minimalist financial approach can take some getting used to but could have a significant payoff, including less financial stress.

Read on to learn:

•   What financial minimalism means

•   What the benefits of financial minimalism are

•   How to practice financial minimalism

Key Points

•   Financial minimalism advocates for adopting a lifestyle of spending less on material items.

•   You emphasize being intentional rather than impulsive about how you spend your money.

•   A benefit of financial minimalism is the potential to use extra money to pay off debt.

•   To spend less, consider canceling unnecessary monthly subscriptions and plan to prepare meals at home instead of eating out.

•   It’s also helpful to create a budget so you have a plan for how you’ll spend each month.

What Is Financial Minimalism?

There’s no set definition of financial minimalism or what it means to be a financial minimalist. Broadly speaking, financial minimalism is about taking a “less is more” point of view when it comes to spending on unnecessary things and focusing more of your attention, money, and energy on experiences and purchases that add value to your life.

Minimalist finance emphasizes being intentional about how you use your money. Rather than spending money impulsively or mindlessly, you consider whether a particular purchase might offer any lasting benefit. Instead of clearing out the junk in your home, you’re clearing out the clutter in your financial life.

In this way, becoming a financial minimalist may help alleviate some money stress. You have guardrails in place for spending, you likely make fewer purchases, and you hopefully have less debt to worry about as well.

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How Does Financial Minimalism Work?

Financial minimalism works by requiring you to be conscious of how you spend money. Becoming a minimalist with money doesn’t mean you live a deprived lifestyle. Instead, you choose to include only those things in your life that are meaningful to you and align with your values and minimalist beliefs.

Here’s what financial minimalists don’t do:

•   Spend money aimlessly, without thought to what they’re spending it on

•   Rack up high-interest credit card debt for unnecessary purchases

•   Live above their means and spend more than they earn

•   Forget about planning for the future and their long-term goals

•   Neglect saving and investing

Because financial minimalists don’t do these things, they also don’t worry as much about money, as mentioned above.

A full 88% of adults feel some level of financial stress, and 77% said they experienced a financial setback in 2025, according to a 2025 survey by the National Endowment for Financial Education. Adhering to a minimalist finance strategy could help you overcome the money stress in your life.

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Benefits of Financial Minimalism

The exact benefits financial minimalism could deliver will depend on how you apply it. But generally, financial minimalism may benefit you in the following ways:

•   Minimalist finance may help you reduce or eliminate unnecessary spending from your budget.

•   Spending less allows you to save more or use extra money in your budget to potentially pay off debt more quickly.

•   You may be less likely to run up new debts if you’re living within or below your means.

•   Minimalism can help you clarify and prioritize needs vs. wants in your budget.

•   Being intentional with spending can help you to plan out your financial goals and direct money toward the things that matter most to you.

•   Your home is likely to be less cluttered with stuff, since you’re cutting back on unnecessary spending.

•   Your mind may feel less cluttered as well if you’re not constantly worrying about how much debt you have or how to stretch your budget and bank account until your next payday.

Those are all good reasons to consider minimalism. It can be an especially wise path if you’re interested in how to gain financial freedom for yourself and your family.

Tips for Achieving Financial Minimalism

Ready to give financial minimalism a try? These tips can help you create a personal financial plan for embracing a minimalist lifestyle.

1. Removing Monthly Subscriptions

Streaming and subscription services can seem like a money-saver if they allow you to cut the cable cord. The problem is these monthly fees can add up, and many people end up paying for subscriptions they don’t use. That can include not only streaming services but also gym memberships, subscriptions for apps or financial products such as credit reporting, magazine subscriptions, and other recurring memberships.

Auditing your subscription services can help you find ones that you aren’t using and can afford to cut out. Even eliminating $25 or $50 a month in unnecessary subscriptions could free up money that you can use for something else.

2. Budgeting

A budget can be essential for managing your money and pursuing a minimalist lifestyle. When you have a budget, you have a plan for how you’ll spend each month. If you don’t have a budget, it’s a good idea to make one (even a basic line-item budget) before tackling anything else on this list.

Here’s how you make a budget:

•   Add up your monthly after-tax income.

•   Make a list of basic living expenses (your needs, including debt payments).

•   Make a second list of everything else you spend money on (your wants).

•   Subtract expenses from income.

Ideally, you have money left over after doing the math. Those funds might go toward savings goals. If you don’t have money left over, you’ll need to go back to your expenses to see what you can reduce or eliminate in order to bring your budget in line.

3. Being Mindful of All Your Purchases

Financial minimalism is all about not spending money on things you don’t need. If you struggle with impulse spending, you might try imposing a 48-hour waiting period on purchases that you didn’t plan for in your budget. That cooling-off period can give you time to decide if it’s something you really need.

You could also try a no-spend challenge where, for a certain period of time, you challenge yourself not to spend money on anything that isn’t necessary. No coffee to go, movies on demand, and so on. Some people pull this off as a 30-day no-spend challenge.

4. Cutting Eating Out and Focusing on Eating at Home

Eating out can kill your budget and sabotage your financial minimalist efforts. Planning meals at home and grocery shopping only for the items on your list can be an easy way to get food spending under control.

If you’d still like to eat out occasionally, you can set up what’s known as a sinking fund just for dining out and add a little money to it every payday. For example, you could save $20 per month in the fund, then once you hit $100 you could treat yourself to a meal out. That way, you still get a reward while being disciplined about saving and planned spending.

5. Not Showing Off for Social Media

FOMO, or fear of missing out, can lead you to make poor financial decisions in order to keep up with what everyone on Instagram is doing. If you’re tempted to show off on social media and purchase things to do so, consider a social media fast. Taking a break from your social accounts can be a good way to put what matters to you into perspective. You may well feel less pressured and less tempted to spend money on things that don’t align with your financial goals.

6. Reducing Debt if Possible

Paying down debt can allow you to reduce your monthly expenses and stretch your money further. If you have credit card debt, student loans, and/or other debts, consider which ones you’d like to pay off first. Then formulate a plan for paying down the balances. There are ways to pay off debt without using savings.

If you’re struggling with debt and can’t see a light at the end of the tunnel, you might also seek guidance from a nonprofit such as the National Foundation for Credit Counseling, or NFCC.

7. Cutting Out Unnecessary Expenses

Anything you don’t need to live is technically an unnecessary expense. You might try minimizing purchases in certain categories that aren’t vital. Depending on what your budget looks like, that might include new clothes, electronics, online shopping, or anything else that doesn’t add positive value to your life in some way. The more unnecessary expenses you can cut out, generally the better when aiming for financial minimalism.

8. Living Below Your Means

If you’re looking for ways to improve your financial health, take note of this idea. Living below your means simply means that you don’t spend more than you earn. If you’ve done your budget and your expenses are higher than your income, you’ll either need to find ways to cut spending down or earn more money. The wider the gap between what you spend and what you earn, the more money you’ll have to fund the financial goals that are important to you.

Recommended: Guide to Financially Downsizing Your Life and Saving Money

9. Getting Rid of Items You No Longer Need

Extra stuff can make your home feel cluttered and disorganized. Ditching things you no longer need or use can make it easier to breathe and reinforce your commitment to living simply. As you sort through your things, consider what you can donate or give away, what could be trashed, what can be recycled, and what you might be able to sell for a little extra cash. Whether you try a Freecycle site, post things on eBay, or give your excess stuff to a local charity, your loss can be someone else’s gain.

10. Investing if Possible

Saving money is important, but investing it could be a way to build wealth. If you’ve pared down your budget and have money to save and invest, consider putting some of it into the market for long-term goals. While there is risk involved, historically you can reap good rewards this way. Following advice about investing for beginners can help you get started.

11. Embracing Free Time

When financial minimalism is the goal, you sometimes have to be creative about how you spend your time. Rather than going out for a pricey dinner with friends, for example, you may be spending more time at home instead. Hosting a potluck or taking a walk with a friend can be an inexpensive way to socialize.

Finding ways to embrace your free time can be a good reminder of why you’ve chosen to pursue minimalism. Some of the ways you can do that include exploring free (or low-cost) hobbies, getting into an exercise or meditation routine, or contemplating your financial goals and your next steps along the minimalist path.

12. Separating Money for Yourself First

“Pay yourself first” is an oft-repeated piece of financial advice, and it simply means that before you pay any other bills or expenses, you set aside something in savings. How much you should save a month will vary person to person, and where the money goes may differ.

It could mean depositing $50 to start an emergency fund whenever you are paid or contributing 10% of your annual salary to a 401(k) at work. Automatic transfers on payday can help whisk the money to where you want it, rather than have it hit your checking account and tempt you to spend it.

The Takeaway

Financial minimalism is about shifting your focus from mindless spending to intentional living. By creating a clear budget and waiting before making impulsive purchases, you could reduce financial stress and free up funds for what truly matters to you. It’s also helpful to prioritize cooking at home, paying down debt, and cutting out unnecessary subscriptions. Remember, you don’t have to do it all at once. Even small, consistent changes could help you take control of your money and build a more meaningful life.

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FAQ

Can minimalism cause financial freedom?

Minimalism can help you achieve financial freedom if you’re committed to paying down debt, cutting out unnecessary spending, saving, and investing. If you follow minimalist principles, it’s possible to live well on less, build wealth, and perhaps even retire early.

Can minimalism hurt financial freedom?

Minimalism won’t necessarily hurt financial freedom. However, it may take some getting used to in the beginning if you feel deprived because you’re spending less. Implementing one or two steps toward financial minimalism at a time can make it easier to transition to this kind of lifestyle gradually.

Is it OK if I am not a financial minimalist?

Financial minimalism may not be right for everyone, and that’s perfectly acceptable. You can, however, apply some of the principles of financial minimalism to improve your money situation. For example, making a budget and dropping a subscription or two can be relatively straightforward ways to help rein in overspending and avoid debt.

Photo credit: iStock/mphillips007

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