InvestUn Archives

May

2023

Getting Through Financial Hardship

By Kim Franke-Folstad | Budgeting & Goals, Financial Independence, money | Comments Off

Many people hit a period of financial hardship at some point in their lives. Maybe there’s a medical emergency and big bills, a job layoff, or a family member in serious need: These and other scenarios can put your money management in a precarious position.

Approximately 70% of Americans report feeling stressed about money, according to a CNBC/Momentive survey. This can be centered on anything from living paycheck to paycheck to worrying about saving for one’s (and one’s family’s) future.

Here, you’ll learn more about what happens when financial hardship hits and how to take steps to improve the situation, from applying for assistance to negotiating with lenders to discovering new sources of income.

What is Financial Hardship?

Everyone probably has their own definition of “economic hardship” that’s based on their own needs and wants. And the federal government has its own criteria for what counts as a “hardship” when it comes to taking an IRA distribution, looking for tax relief, or requesting a student loan deferment.

But generally, a financial hardship is when an individual or family finds they can no longer keep up with their bills or pay for the basic things they need to get by, such as food, shelter, clothing and medical care.

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Warning Signs

Sometimes financial difficulties can sneak up on a person, and catch them completely off guard. And sometimes, the warning signs have been there for a while, but were missed or ignored.

Identifying the root cause of financial distress can help give you a head start on working through your money issues. Here are some red flags that might signal a person is headed for financial distress:

Having Credit Card Balances At or Above the Credit Limit

While using credit cards may seem like a good way to get around a short-term lack of funds, the practice could lead to extra fees and a lower credit score. The percentage of available credit someone is using — known as a credit utilization ratio — can indicate to lenders how heavily they’re depending on credit cards to get by. And because it’s one of the major factors in determining a person’s overall FICO score (a credit score lenders use to determine whether to extend credit to a borrower), financial advisors typically recommend keeping card balances at or below 30% of the limit.

Juggling Which Bills Get Paid Each Month

It may be tempting to skip a payment from time to time, hoping to catch up eventually — but there can be short- and long-term consequences for juggling bills. Insurance coverage may be lost. There may be a late fee, or a bill could be turned over to a collection agency.

Utilities can also be shut off, and a deposit might be required to restart the account. Making late payments on a credit card could lead to a higher interest rate on the account. And late payments and defaults can hurt credit scores.

Only Making Minimum Payments on Their Credit Cards

It may be necessary to make minimum payments if times are especially tight, and there likely won’t be any short-term harm. But even if the cardholder stops making purchases, just the interest charged will keep the account balance growing, possibly extending the amount of time it takes to pay down that debt by months or years.

Often Paying Late Fees or Overdraft Fees

A one-time mistake may serve as an annoying reminder to be more cautious with money management, but if late fees, overdraft and non-sufficient funds fees, and overdraft protection transfers become a regular thing, they can add another layer of worry to a person’s financial burden. (Using alerts, automatic payments, and apps from your financial institution may offer a more effective method to track bills as well as deposits and withdrawals.)

Having a High Debt-to-Income Ratio

Lenders often use a person’s debt-to-income ratio — a personal finance measure that compares the amount of debt you have to your income—to determine if a borrower might have trouble making payments. If a person’s debt-to-income ratio is high, it could make it more difficult to borrow money, or to get a good interest rate on a loan.

Tapping Retirement Savings to Pay Monthly Bills

In certain cases, the IRS will allow an account holder to withdraw funds from a 401(k) or IRA to cover an immediate and heavy financial need (such as medical expenses, payment to avoid eviction or repair home damage) without paying the 10% early withdrawal penalty. But taxes will still have to be paid on those distributions. And taking that money now, instead of letting it grow through the power of compound interest, could have serious repercussions for the future.

Dealing with Financial Hardship

For those who’ve been struggling for a while, or who’ve had a sudden but substantial financial loss, it might feel as though they’ll never recover. But there are several options those who are experiencing financial trouble might consider taking to get back on track. Some they can do for themselves, while others might require getting financial hardship help from others. And while some might be temporary, others take a longer view. Here are a few:

Reducing Monthly Spending

Creating a monthly budget can help individuals and families prioritize and guide their spending decisions. This may involve prioritizing your monthly expenses, starting with the essentials and going down to the “nice to haves.” Once you’ve established which expenses are the most important, you may then be able to look for places to cut back or cut out of your budget altogether. Cutkacks may not feel fun, but they can help jump-start your recovery.

For example, could you cut costs if you cooked meals yourself more often? Are you trying too hard to keep up with what friends and family are spending on clothes, vacations, and cars? Are there monthly bills that could be reduced (could you save money on streaming services, internet, and phone services; manicures and other beauty treatments; or even rent, insurance, or car payments)? It may help to start by tracking expenses for a month or so to get an idea of where money is going, and then sit down and map out a more realistic path for the future.

Creating a Debt Reduction Plan

Along with a budget, it also may be useful to come up with a plan for paying down credit card balances, student loans and other long-term debt. It’s important to always make the minimum payment on all these bills, if possible, but a personal debt reduction plan could help with prioritizing which bill any leftover money might go toward after all the household expenses are paid each month — or the money might come from a tax refund, bonus check from work, or a gift. Knocking down debts that include high amounts of interest can eventually free up more cash to put toward short- or long-term savings goals.

Looking for Ways to Earn Extra Income

Is there a way to turn a hobby, skill, or interest into some extra funds? Maybe a favorite local business could use some part-time help. Or, if a second job is out of the question, perhaps a side hustle with flexible hours is a possibility. Writers, artists, and designers, for example, may be able to turn their talents into a side business. Babysitting the neighbor’s kids or running errands for an older person are also options. And, of course, on-demand services like Uber and DoorDash are employing drivers, delivery persons, and other workers.

Considering a Loan to Consolidate Bills

Getting a personal loan for debt consolidation won’t make money problems go away completely—but it might make managing payments a little simpler. With just one monthly payment (instead of separate bills for every credit card or loan) it can be easier to keep tabs on how much is owed and when it’s due.

Because interest rates for personal loans are typically lower than the interest rates credit card companies offer (especially if a rate went up because of late payments), the payoff process for that debt could go faster and end up costing less. (Generally, lenders offer a lower interest rate to those who have a higher credit score, borrowers who are already behind on their bills may pay a higher interest rate or have more trouble getting a loan.)

Student loan borrowers also may want to look into consolidating and refinancing with a private lender to get one manageable payment and, possibly, save money on interest with a shorter term or a lower interest rate.

Refinancing may be a solution for working graduates who have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans.

Federal loans carry some special benefits that private loans don’t offer, including public service forgiveness and economic hardship programs, so it’s important for borrowers to be clear on what they’re getting and what they might lose if they refinance.

Notifying and Negotiating

Ignoring credit card payments and other debts won’t make them disappear. Borrowers who can clearly see they’re headed for financial trouble may wish to notify their credit card company or lender and try to work out a more manageable payment arrangement. (There are debt settlement companies that will do the negotiating, but they charge a fee for their services.)

A credit card issuer may agree to a reduced, lump-sum payment or a repayment plan based on the borrower’s current income, or it may offer a hardship program with a lower interest rate, lower minimum payments, and/or reduced penalties and fees. The options available could depend on why a customer fell behind, or if they’ve had problems before.

Financial hardship assistance is sometimes offered by mortgage lenders. Because these lenders generally don’t want their borrowers to foreclose on their homes, it’s in their best interest to work with borrowers when they get in trouble. The lender may be willing to help the borrower get caught up by forgiving late payments, or they may change the interest rate of the loan or lower the payment.

If you have federal student loans and are experiencing financial hardship, you might qualify for a special repayment plan, such as pay-as-you-earn, or an income-based repayment plan.

It can also be helpful to reach out to service providers (such as water, electricity, internet) and let them know you are experiencing financial difficulties. Providers may be willing to work with you and you may be able to come to an agreement well before any shut-off actions go into effect. This can also save you from late fees, or going into collections.

Getting Financial Help

There are also a number of government programs designed specifically to help people overcome sudden financial hardships. Those who’ve lost a job may be entitled to unemployment benefits. If that job provided health insurance, you may want to look into COBRA to see if you can maintain affordable health insurance. Those who were injured at work may be entitled to workers’ compensation.

Also, some people facing financial hardship may qualify for state or federal benefits like Medicaid or Social Security Disability.

Though not free, a financial professional who specializes in planning, saving, and investing may be a worthwhile investment. He or she may be able to offer a fresh perspective and help create a path to financial freedom. There may also be free or low-cost debt counselors available via non-profit organizations.

Preparing for Current and Future Challenges

Once you’ve developed your personal plan for overcoming financial hardship, you can begin working on your goals of becoming more financially independent. If the cause of your hardship is temporary (you were out of work but quickly found a new job, for example), it may take just a few months to get back on your feet. If the problems are more difficult to overcome (you’ve lost income through a divorce, or you or a loved one has an ongoing medical condition that requires expensive treatment), the timeline could be much longer. Once you’ve put your plan in place, you may want to review it on a regular basis, and perhaps do some fine-tuning.

The Takeaway

Many people go through periods of financial hardship, and often for reasons that are beyond their control. But that doesn’t mean they are out of options. There are many simple and effective steps people can take. Cutting monthly expenses, consolidating debt, and getting outside assistance are moves that can help them get back on the right financial track.

Ready to get your finances organized? You also may find it easier to track expenses and stay on budget by separating your money into virtual buckets or “vaults.” SoFi Checking and Savings is an online account that features Vaults to allow members to set aside money for different financial goals, track their progress, as well as set up recurring monthly deposits. What’s more, a SoFi Checking and Savings account offers a competitive annual percentage yield (APY) and charges no account fees, plus you can spend and save in one convenient place.

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May

2023

Learn the Basics of Investment Funds

By Matthew Warholak | Growing Wealth, invest, Investing | Comments Off

Investment funds are financial tools that effectively allow investors to pool their resources to buy into a collection of securities. It’s relatively common and easy for beginning investors to dip their toes in the market with investment funds for a variety of reasons.

But there are many types of investment funds, and the purported benefits of a specific fund may not be the right choice for each investor. With that in mind, it’s generally a good idea to have a deeper understanding of investment funds before buying into one.

What Is an Investment Fund?

Broadly speaking, an investment fund is a collection of funds from different people that is used to buy financial securities. Investors get the advantages of investing as a group (purchasing power) and own a portion, or percentage of their investments equal to the money they have contributed.

There are different types of investment funds, including mutual funds, exchange-traded funds (ETFs), and hedge funds. Typically, these funds are managed by a professional investment manager who allocates investors’ money based on the type of fund and the fund’s goal. For this service, investors are generally charged a small fee that is a percentage of their investment amount.

What Is a Mutual Fund?

Mutual funds are a popular type of investment fund for a reason: they are an easy way to purchase diversified assets — from stocks and bonds to short-term debt — in one transaction.

One of the fundamental ideas that led to the creation of mutual funds was to provide individual investors with access to investments that might be more difficult to obtain or manage on their own. A retail investor with $1,000 probably wouldn’t be able to effectively recreate a portfolio that tracks the S&P 500, let alone rebalance it quarterly.

But thanks to the creation of mutual funds, investors can pool all of their money together into a collective fund to invest in the same markets by choosing from custom-packaged funds with specific focuses and inexpensive share prices.

Different Types of Mutual Funds

There are a number of different types of mutual funds, each of which offer something distinct to the investor.

Equity Funds

Also known as stock funds, equity funds are a type of mutual fund that invests in a specific asset class, principally in stocks. Equity fund managers seek to outperform the S&P 500 benchmark by actively investing in growth stocks and undervalued companies that may provide higher returns over a period of time than the fund’s benchmark.

Equity funds have higher potential returns but are also subject to higher volatility as well. It’s common for equity funds to be actively managed and thus typically charge higher operating fees. Funds with higher stock allocations are more popular with younger investors as they allow for growth potential over time.

While equity is a specific asset investment by itself, some mutual funds focus on more precise criteria:

Fund Size (Market Cap)

Some funds only include companies with a defined market cap (market value). Different tiers of company sizes can perform differently in different economic conditions and companies can be viewed as more or less risky based on their market cap. Fund sizes are categorized by the following:

• Large-Cap (Over $10 billion)

• Mid-Cap ($2 billion to $10 billion)

• Small-Cap ($300 million to $2 billion)

Industry/Sector

Funds that focus specifically on a single industry or sector such as technology, healthcare, energy, travel, and more. Owning shares in different sector mutual funds provides portfolio diversity and can potentially enhance returns if a particular industry experiences a tailwind.

Growth vs Value

Some funds differ in their investment style, focusing on either value or growth. Growth stocks are expected to provide outsized returns, whereas value stocks are considered to be undervalued.

International/Emerging Markets

Domestic stocks are not the only equity investment options, as some funds focus exclusively on international and emerging markets. International and emerging market funds provide geographic diversity — exposure to companies operating in different countries and countries with growing markets.

Bond Funds

Like stock mutual funds, bond funds are a pool of investor funds that are invested in short- or -long-term bonds from issuers such as the U.S. government, government agencies, corporations, and other specialized securities. Bond funds are a common type of fixed-income mutual funds where investors are paid a fixed amount on their initial investment.

Seeing as how bonds are frequently thought of as a safer investment than stocks and offer less growth, bond funds are popular among investors who are looking to preserve their wealth as opposed to aggressively growing it.

Index Funds

This type of fund is constructed to track or match the makeup and performance of a financial market index such as the S&P 500. They provide broad market exposure, low operating expenses, and relatively low portfolio turnover. Unlike equity funds, an index fund’s holdings only change when the underlying index does.

Index fund investing has exploded in popularity in recent years due to its low costs, passive approach, and abundance of options to pick from. Investors may choose from a number of indices that focus on different sectors such as the S&P 500 (financial and consumer), Nasdaq 100 (technology), Russell 2000 (small-cap), and international indices.

Balanced Funds

Also known as asset allocation funds, these hybrid funds are a combination of investments in equity and fixed-income with a fixed ratio, such as 80% stocks and20% bonds. Balanced funds offer diversity to different asset classes and consequently trade some growth potential in an attempt to mitigate some risk.

One example of a balanced fund is a target-date retirement fund which automatically rebalances the investments from higher-risk stocks to lower-risk bonds as the fund approaches the target retirement date.

Money Market Fund

This low-risk, fixed-income mutual fund invests in short-term, high-quality debt from federal, state, or local governments, or U.S. corporations. Assets commonly held by money market funds include U.S. Treasuries and Certificates of Deposit. These funds are usually among the lowest-risk types of investments.

Alternative Funds

For those seeking true portfolio diversity beyond traditional stocks and bonds, it may be worth considering alternative investment funds. Alternative funds focus on other specific markets, such as real estate, commodities, private equity, or others.

These asset classes generally make up a small percentage of one’s portfolio, if at all, and serve as a hedge to heavier-weighted allocations to traditional sectors. Rather than investing in companies of a particular index or market cap, alternative funds may be composed of shares of natural gas drilling companies, real estate investment trusts (REITs), intellectual property rights, or more.

Benefits of a Investing in Mutual Funds

While no two funds are the same, mutual funds are a popular choice for investors of all types for a variety of reasons.

Diversification

Mutual funds serve as a sort of investment basket that contains many different assets, some with the same general focus and others with multiple focuses. Rather than being all-in on one particular investment, mutual funds offer diversity across multiple investments.

This allows investors to cast a wider net and benefit when one or multiple of their basket investments performs well. Conversely, when one investment in a mutual fund does poorly, the loss may be mitigated by also having other investments that are performing comparatively well. Some types of funds offer greater diversification across different asset classes, such as stocks and bonds.

Performance

Mutual funds that aim to track indices or focus on growth stocks typically yield similar market performance compared to the benchmark index. This is more or less the same goal of a buy-and-hold strategy, as fund performance often, but not always, mirrors the tracked index.

Low Maintenance

Mutual funds are relatively easy to use and require little to no maintenance. They allow investing in multiple asset classes through one investment vehicle without having the investor sift through and make individual decisions. All of these decisions are usually provided by an active fund manager whose responsibility is to provide profitable returns for investors based on the fund’s general focus or target.

Mutual funds also provide a degree of functionality. One convenient feature is the ability to set a passive monthly investment amount and to automatically reinvest dividends. Many mutual funds pay investors dividends on an annual, quarterly, or even monthly basis. Dividends are calculated based on the underlying companies’ earnings and distributed to the fund which then passes them along to fund investors. Another feature of mutual funds is the ability to reinvest dividends, thus compounding both mutual fund holdings and dividends in perpetuity.

High Liquidity

Mutual funds are transacted frequently. Investors are able to easily buy or redeem mutual fund shares daily at the market open. Shares in funds tend to be relatively affordable as they typically have a low net asset value (NAV), allowing even novice investors to buy shares with a low starting amount. Compare this to ETFs which can be transacted repeatedly at any time during market hours, but the price can rise to seemingly out-of-reach levels for a beginner.

Active Management

Mutual funds are usually actively-managed by a professional fund manager who’s responsible for operating the fund, whether it be to allocate investor money, rebalance the fund’s investments, or distribute dividends to investors.

While mutual funds tend to have relatively low fees, investors are subject to an annual fee, also known as an also known as an expense ratio, that is calculated as a percentage of each individual’s holdings in the fund and automatically paid to the fund manager for their services. Fund fees vary, so in some cases it may be helpful to compare funds based fees before investing.

Can I Lose Money in a Mutual Fund?

With investing, there is no such thing as a sure thing. So, yes, you can lose money in a mutual fund. It is possible to lose all of your money in a mutual fund if the securities in the fund drop in value.

That said, some mutual funds aim to be conservative and designed to offer slow but incremental gains over time. As always, it’s prudent to research exactly what’s contained in a particular mutual fund before investing any capital. Ultimately, it’s every investor’s responsibility to determine their own risk tolerance and investing strategy that meets their personal needs.

The Takeaway

Investment funds are a practical and beginner-friendly way to start investing in financial markets. Even with beginner knowledge concerning what is a mutual investment fund, mutual funds have the propensity to provide a hands-off and a potentially low-cost way to start building wealth. But again, your mileage may vary, as not all funds are alike.

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May

2023

Contactless Payment: What You Need to Know

By Emma Diehl | Budgeting & Goals, money | Comments Off

More than 80% of Americans now use some form of contactless payment, such as a contactless credit card or debit card or a digital wallet feature. Tapping your card or phone when making a purchase has become much more common since the Covid-19 pandemic, and the growth of contactless payment is projected to continue.

While contactless payments have a number of benefits, there are also a few drawbacks to this payment method that it’s important to know about.

How Do Contactless Payments Work?

Contactless payment was born out of the credit card chip. Before then, most cards used the magnetic stripe, and consumers had to swipe at checkout.

When a chip card is inserted into a payment terminal, the machine reads the card’s security information, completing a safer transaction than the old swipe method. The payment terminal uses RFID (radio-frequency identification), to read the card’s chip.

When payment terminals were upgraded to read the chips, the technology grew by leaps and bounds. The tech that reads chips also enabled machines to accept payment with a simple tap from a card, phone with a mobile wallet, or even a watch.

Consumers can now connect their credit cards to their phone or smartwatch using technology like Apple Pay or Google Pay. Then they can tap to pay from their phone or watch at checkout.

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What Transactions Are Eligible for Contactless Payment?

For contactless credit card payment to work, both the terminal and card have to have the technology.

To determine if a payment terminal is contactless payment enabled, check for the symbol that looks like a WiFi signal turned on its side next to a hand with a card in it.

Nearly all plastic forms of payments, debit cards, and credit cards have a chip, but not all are eligible for contactless payment. To determine if your card is, look for the WiFi signal turned on its side somewhere on the card.

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Pros of Contactless Payment

Contactless payment comes with some pros for the cardholder:

• Ease of use. With contactless payment, users just have to tap their chosen payment method on the terminal. There’s no swiping or inserting for the transaction to go through.

• Speed. Since there’s no swiping or inserting, contactless payments tend to be faster.

• Leave the wallet at home. If smartphone users have uploaded their credit and debit card information to their phone, they can pay for things using their phone.

• Security. Contactless payment with chips is more secure than traditional magnetic-strip credit cards. Contactless payments are encrypted. This system makes it much harder for credit card scammers to steal people’s credit card information.

• Hygiene. Dollar bills are dirty and can serve as host to germs. Alternatives like contactless payments keep touching to a minimum.

Overall, contactless payment may make for faster transactions, and might not even require you to pull out your wallet.

💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

Cons of Contactless Payment

However, just like mobile banking has pros and cons, contactless payments do have some drawbacks, including:

• Glitches in technology. A card and point-of-sale system might not line up from time to time, resulting in glitches.

• It’s not available everywhere. While contactless payment is being adopted more and more, not every store has it. If there’s no symbol, customers will have to insert or even swipe to pay.

• Privacy. Contactless payment is generally secure, but when customers use payment apps on their smartphone or watch, they may be unknowingly sharing data from their device. In addition, scammers may also be able to skim a user’s credit card information from close proximity. You can buy protective sleeves and wallets to help prevent this.

• Limited transactions. It largely depends on bank policies, but because tap to pay doesn’t require authentication like signing or a PIN, there may be limits on withdrawals and purchase amounts. For more details on transaction limits, contact your bank or credit card company.

The Takeaway

While contactless payment isn’t foolproof, it can make purchasing transactions faster, easier, and more convenient. It’s also becoming commonplace as a payment method, and it’s more secure than cards with magnetic stripes. You can weigh the pros and cons of contactless payment to determine if it’s right for you.

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May

2023

Creating Better Buying Habits

By Stacey Leasca | Budgeting & Goals, Financial Independence, money | Comments Off

Shopping can be a fun activity, no doubt. There’s so much to look at, so many items that promise to make life a little better…it can be hard to stay focused on what we need vs. what we want and on what we can afford.

But those impulse buys, even a new conditioner here and a spiffy new phone case there, have a way of adding up. That can leave you wondering why your credit card bill is so high and can derail your bigger-picture financial goals.

It’s OK to give in now and then and splurge on small treats, but it’s also wise to develop better buying habits so you don’t get in the groove of overspending.

Here, you’ll learn just how to do that. Read on for advice on fine-tuning your routine; you’ll see how to make smarter buying choices without feeling deprived.

9 Tips for Building Better Buying Habits

Here are nine tips for building better buying habits that can help those interested in becoming more mindful consumers.

1. Having a Financial Goal in Mind

Motivation is a wonderful tool. To kick off new buying habits people may want to think about what their financial aim is and what they want to save money for in the first place.

This could be as small as wanting to save money for a handbag they really want or to save up to go to a fancy restaurant instead of their usual haunt.

Or, it could be something much larger like saving for a vacation, a wedding, a home, or even for retirement somewhere down the line.

Having a financial goal might make it easier for consumers to prevent an impulse purchase or spend money on something they don’t actually need.

To double-down on this habit try writing down any and all financial goals in a notes app, diary, or even on a piece of paper. Then, stick it in a wallet so it’s with you wherever you go.

2. Giving Every Purchase — Big or Small — a Little Time

Sometimes all it takes to reverse a buying decision is to just sit and think about it for a second. Is this magazine really worth the read, or can the articles be found online? Is this new dress really all that great, and will it be worn more than once?

For larger purchases try to employ the “take a walk” method, which is to literally leave a store, go for a walk, and think about the item a bit more. This way, the initial adrenaline rush and excitement wear off just a bit so a consumer can clearly consider the purchase with fewer emotions attached.

Then, come back, look at the item again. If it still elicits butterflies then it could be worth the purchase. If not, that’s great. Confidently walk away.

If anyone is looking to take this habit to the next level, try employing the 30-day rule. Just as the name implies, those looking to purchase anything nonessential must put the product back on the shelf and step away for a full 30 days.

If at the end of that time he or she still wants the product badly enough they can then return and purchase knowing full well it will bring them a little more joy.

Here’s one more trick to try when using the 30-day rule. Over the 30 days, try saving little by little to purchase the item. At the end of the month, if you decide that product is no longer needed, that cash could be put right into savings.

Recommended: Different Types of Budgeting Methods

3. Coming Up With a Personal Spending Mantra

If taking a walk just isn’t an option, it may be time to come up with a personal spending mantra. Think things like “Keep the memory, get rid of the object,” or Marie Kondo’s, “Does this spark joy?”

Use Kondo’s phrases, or come up with a unique one to use before making any purchase. By repeating the phrase over and over again it will help determine if that object really deserves to take up space in your life and in your monthly budget.

4. Learning to be a Comparative Shopper

There’s so much information just a click away, you never have to settle for the first price tag you see. Finding a better deal could require just a quick online search.

To become a great comparative shopper, you can start small by investigating prices on everyday purchases like groceries. Try looking up a price comparison for milk between high-end grocery stores versus the neighborhood grocer. Then, think about monthly expenses like the internet, cable, telephone bills, and even things like gym memberships or subscriptions.

Can you find a better price for any of these items or negotiate the price down? Go for it and save along the way.

5. Falling in Love With Coupons and Discount Codes Again

Another better buying habit to adopt: Take a minute when shopping to find a few coupons to use in physical stores and discount codes to use online.

There are a number of coupon websites such as RetailMeNot and The Krazy Coupon Lady that can help shoppers hunt down a few discounts when they need them.

There are also services like Honey, which is a plugin you can add to your dashboard that will automatically scour the web for discount codes and plug them right in at checkout.

Long story short, don’t settle for the first price.

Recommended: Ways to Save Money on Clothes

6. Maintaining the Things You Already Have

A hole in a sweater, a scratched coffee table, and a tiny crack in a dish can be enough for some people to run out and purchase an entirely new item to replace the old.

However, rather than tossing something just because it’s a little faded it’s time to learn how to give things a new life. Or, find an expert who can.

For example, rather than buying all new shoes just because the tread is a little worn down, try bringing them to the local cobbler (aka shoe repair). They may be able to replace the thread for a fraction of the price of new shoes. This same idea goes for big-ticket items too.

Consider keeping a maintenance calendar for things like a car’s oil changes, a home’s roof inspections, and more. That way, things will always stay in tip-top shape for longer, and you may, say, save money on your car or home repair costs.

7. Understanding Shopping Triggers

To create better spending habits, it can be worthwhile to take a bit of time to self-reflect and discover why you like to spend money in the first place.

Do you suffer from FOMO (fear of missing out), spending and buying things because friends, family, or a favorite influencer is sporting it on social media?

Do you shop when bored, or are you triggered by something else? It can be important to delve into why you shop so you can avoid triggers that could lead to overspending.

Doing so could also help you reconcile any tendencies to be a compulsive or impulsive shopper.

8. Getting in on the Financial Buddy System

Everything’s better with friends — including creating better spending habits. Just look to working out for inspiration.

According to one landmark study by researchers at the University of Aberdeen, people who work out with a friend are more likely to hit the gym more often than those who choose to work out alone. That lesson can easily be applied to finances too.

Find a trusted friend or family member who can offer real advice when it comes to creating better buying habits.

Make a pact to call one another every time either of you needs a second opinion when it comes to making big purchases, or when you need someone to talk you out of making a silly purchase.

Don’t worry, odds are you’ll return the favor for your financial buddy in no time.

9. Knowing Where Money Is and Where It’s Going

A major part of creating better buying habits is understanding where your money is right now and where it’s going at all times. Don’t shy away from making a personal budget to see how much money is coming in and where it all goes. Budget tracking apps (perhaps provided by your financial institution) can help in this effort too.

Monitoring your checking account will also help you get in touch with your spending habits. Some people find checking in every couple of days a good move.

These moves can reveal patterns that you might be unaware of and also help you see where you might cut back on expenses. That, in turn, can free up some funds so you feel better about splurging when the opportunity arises.

The Takeaway

SoFi Checking and Savings, a high interest bank account, can help you manage your cash better.

With our app, you can transfer money to pay bills directly online and track weekly spending right on the integrated dashboard. You can work towards savings goals with Vaults and Roundups. Plus, you’ll pay no account fees and earn a competitive annual percentage yield, which can help grow your money faster.

Want to create better buying habits? SoFi Checking and Savings could be a first step to help you get there.

Apr

2023

Can You Negotiate Financial Aid?

By Melissa Brock | Family Finances, Student Loans, student_loan | Comments Off

After you file the Free Application for Federal Student Aid (FAFSA®), you’ll receive a financial aid award from the colleges to which you’ve been granted admission. You may receive scholarships, grants, and loans. When you receive your financial aid awards from institutions, they may not cover every dollar of tuition, room, board, and fees. As a result, you may find that you cannot afford a particular institution.

It may be possible to negotiate your financial aid award with the financial aid office at each institution you’re considering. Continue reading for more information about how to negotiate financial aid awards and how to get more money from colleges.

What Is Financial Aid?

Financial aid is money you receive based on your financial aid award. There are different types of financial aid components that make up a financial aid award. You may want to think of it as a puzzle that could include grants, scholarships, work-study, and federal student loans. You can accept and decline different parts of the “puzzle” to create your own financial aid award. Applying for student loans, grants, certain scholarships, and work-study involves filing the FAFSA.

Grants and scholarships are forms of financial aid that you don’t have to pay back. Grants typically come from the federal government, states or colleges, and the amount you can get in grant money depends on your need and the type of institution you attend.

Scholarships on a financial aid award letter typically come from the institution for various reasons. They may be based on merit (for example, for good grades) or on talents you possess, such as music or athletic talent.

Work-study is a type of financial aid in which students who have financial need qualify for part-time employment on campus.

Federal student loans may also appear on your financial aid award. Federal student loans, which come from the federal government, must be repaid — with interest.

Every college offers a different amount of financial aid to the same student. In other words, if you apply and get accepted to five different schools, you will likely get five different aid awards. It’s worth learning more about how financial aid works at each institution by asking a financial aid professional at each institution you visit.

Recommended: FAFSA Guide

Is Your Financial Aid Amount Negotiable?

Yes, you can negotiate your financial aid amount. However, it’s important to realize that some pieces of the financial aid award are not negotiable. For example, first-year undergraduate dependent students can qualify for no more than $5,500 in subsidized and unsubsidized federal student loans. No more than $3,500 of this amount may be in subsidized loans.

In addition, it’s also important to understand that colleges may be limited in the amount they can offer you for additional financial aid. Even if you ask for all the gaps to be covered between the total cost and the amount you receive in financial aid, colleges may only be able to offer a small amount of additional financial aid.

5 Tips for Negotiating Financial Aid

Let’s take a look at a few tips for negotiating financial aid, from the presentation process to writing a letter for financial aid, as well as providing relevant supporting documentation.

1. Present the Financial Aid Office With a Specific Amount You Need

You can present the financial aid office with a specific amount you need, but before you do that, it’s a good idea to think through a few other factors beyond the numbers you see on your financial aid award. When you review financial aid awards, it’s important to go over each one with a fine-toothed comb.

Each financial aid award will list the financial aid you’ve received, but it’s a good idea to get an idea of the full costs, including tuition, room, board, and fees, before you choose a college. Some fees may not pop up until later, such as lab fees, club organization dues, athletic fees, parking fees, and more. Ask the financial aid office for a comprehensive list of fees that might crop up.

It’s also important to factor in tuition increases. You can ask the financial aid office for the average increase amount.

Note that scholarships usually don’t increase as tuition increases occur, which means that if scholarships don’t change and tuition increases, you’ll be responsible for making a larger tuition payment. Some schools do freeze tuition, so find out more about how that works at the institutions you’re considering attending.

After you’ve done all your homework, you can then decide on a specific amount of money you’d like to see from each financial aid office.

2. Put Everything in Writing

Ask the financial aid department about their financial aid appeal process or consult the website of the financial aid office to find out about the supportive documentation you need to provide to qualify for more financial aid. Following directions may help increase your chances of success.

Write a high-quality financial aid appeal letter to the director of financial aid, using a business letter format, and a formal tone — skip the fancy fonts! Your letter should be as businesslike and respectful as possible, but very direct. Explain how interested in the school you are and identify the forms you’ve submitted.

3. Explain Why You Should Get More Money

It’s important to shore up your desire to obtain more financial aid by demonstrating a need for more financial aid. In other words, you have to have a good reason to need more financial aid — in most cases, you can’t just say you simply want more financial aid. Financial aid offices also will likely not award you more aid just because a parent is unwilling to contribute to education costs or file the FAFSA or if a parent does not claim the student as a dependent.

The institutions you’d like more money from could require you to fill out a special circumstances form, which is a form that shares situations that affect your family’s ability to pay for college. A special circumstances form shares your family’s unique financial circumstances with the institution when you appeal.

The following situations may qualify as special circumstances and could allow you to receive more financial aidIf your family is:

• supporting multiple households,

• has experienced a one-time jump in income,

• has secondary or elementary school expenses,

• had to make a retirement fund withdrawal for emergency purposes,

• has funeral expenses or unreimbursed medical and dental expenses, educational debt, a job loss, or has had a significant reduction in income.

Read the instructions carefully to learn how to successfully submit the special circumstances form for your institution.

4. Provide Any Relevant Supporting Documents

When writing your letter and filling out your special circumstances form, you’ll likely need to provide evidence of your family’s situation, which could include:

• Divorce documentation or decree

• Court documentation to substantiate a separation

• Copy of parent marriage certificate

• Copy of family member death certificate

• Letter from employer documenting the last date of employment if no longer employed

• Documentation of year-to-date earnings, unemployment, and/or disability benefits

• Copies of three most recent paycheck stubs

• Documentation of termination of child support payments

• Documentation one-time income or benefits

• Documentation of medical expenses not covered by insurance for family members

• Documentation of elementary or secondary school tuition paid

Follow the instructions your school’s financial aid office includes.

5. Follow Up

You may need to allow several weeks for the financial aid appeal to be processed (sometimes four to six weeks), but if you don’t hear back from the financial aid office about a change in your award letter, you may want to reach back out to make sure you’ve submitted all the required documentation. You may have forgotten a critical component of the financial aid appeal, which could hold up a final decision.

Alternatives to Financial Aid

While financial aid can help you get through school, it’s not the only way to pay for college. There are alternatives to relying completely on financial aid to get through school. Consider working while in school, asking relatives for help, and accessing private student loans. Let’s take a look.

Working While in School

Working while in school or on breaks during the summer can help alleviate some of the costs of college. You may not be able to rely on the work-study award to pay for the full cost of college because work-study is limited to a specific number of hours, as determined by your financial aid award.

Finding a part-time job can help pay for a wide variety of college expenses and can offer valuable professional experiences.

Asking Relatives for Help

Relatives may be willing to help you pay for college. When parents, aunts, uncles, grandparents or other relatives chip in, it can alleviate a chunk of college costs, particularly when combined with a part-time job while in school.

It’s a good idea to make sure both you and your relative(s) agree that these types of payments are gifts, not loans. You don’t want to be surprised by a relative that expects repayment as soon as you’re done with school. You may even want to write down the amount of money, terms, and conditions involved, and have both parties agree and sign before you accept any money for college.

Private Student Loans

Private student loans are loans that, unlike federal student loans, do not come from the federal government. Private student loans typically come from private organizations, such as banks, credit unions, and other organizations. You can also check with the college or university you plan to attend for information about private student loans.

Like federal student loans, however, private student loans must be repaid along with interest payments. Repayment terms and benefits vary depending on the lender, and interest rates could be fixed or variable. (All types of federal student loans offer fixed interest rates only.)

Unlike federal student loans, private student loans may not offer the borrower protections afforded to their federal counter parts, so they are generally considered as a last-resort option. Take the time to shop around among several private student lenders before you land on the right one for you. Learn more about private student loans in our private student loans guide.

Explore SoFi’s Private Student Loan Options

If you think you may need to cover some of your college costs with a private student loan, SoFi offers private loans that could help you pay for your education. Explore and compare federal and private loan options, terms, and interest rates to determine the best option for your educational needs.

Worried about rising interest rates? SoFi offers competitive interest rates for qualifying private student loan borrowers.

FAQ

Can you negotiate your financial aid offer?

Yes, you can negotiate your financial aid offer. Check with the college, university, or other postsecondary institution(s) you receive a financial aid award about the process before you attempt to negotiate. The institution may have very specific requirements in order to negotiate your award.

How can I negotiate more money for college?

Requesting more financial aid can be done by following the financial aid appeals process at the college(s) you’re considering. Typically, you can present a letter to the financial aid office, fill out the special circumstances document provided by the institution, and provide supporting documentation. Follow up if you haven’t heard back from the institution between four and six weeks.

How do I ask a college to match the financial aid another school offered me?

If you received two financial aid awards from two colleges, you can use a negotiating college tuition technique by showing the school that offers you less the better aid award from the other school. Doing this may make the most sense if they are similar institutions, such as if they are both private liberal arts colleges or if they are both large state universities. You’re most likely going to get a better response if you compare apples to apples instead of apples to oranges.

Photo credit: iStock/jacoblund

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