MoneyGen Archives | Page 5 of 95

Dec

2024

10 Signs That You Are Financially Stable

By Rebecca Lake | Budgeting & Goals, Financial Independence, money | Comments Off

Financial stability can mean different things to different people, and there’s no single way to measure whether someone is financially secure. There are, however, certain money behaviors that can indicate when you’re on the right track. These can include following a budget, growing your savings account, and living within your means vs. accruing high-interest debt.

Knowing how to recognize the signs of being financially stable can help you fine-tune your money plan.

Key Points

• Financial stability can be defined differently for each person, but there are some common indicators of being financially secure.

• Signs of financial stability include following a budget, living below your means, saving money consistently, prioritizing debt repayment, and paying bills on time.

• Financially stable individuals typically have clearly defined financial goals, regularly invest, have the right insurance coverage, make decisions based on their own needs vs. FOMO, and stress less about their finances.

• Achieving financial stability can take time and effort. In addition to making smart money decisions, you may find advice from a financial professional helpful as well.

What Is Financial Stability?

If you search online for a definition of financial stability, the results are usually geared toward organizations or governments, not individual people. For example, the Federal Reserve defines financial stability as “building a financial system that can function in good times and bad, and can absorb all the good and bad things that happen in the U.S. economy at any moment.”

That’s an institutional way to define financial stability, but it’s possible to adapt that to fit personal finance. For instance, creating a budget and adding money to an emergency fund can help you manage money wisely during the good times. It can also allow you to be prepared for the unexpected, such as a job layoff or an emergency expense.

The best way to define financial stability is in a way that has meaning for you. For instance, you might create a personal financial mission statement that outlines your ideal money vision for yourself. For some people, that vision might involve having six months’ worth of expenses in an emergency fund. For another, it might involve putting enough money in their savings account to take a two-week vacation or meeting goals for funding their retirement.

Why Does Financial Stability Matter?

Being financially stable is important because it can influence your overall financial health. When you feel financially secure, it may be easier to pay bills without stress. Or you might have developed the discipline to save money and be excited about it, versus spending everything that you make.

In a nutshell, being financially stable can help you to:

• Have the money that you need to cover day-to-day expenses while working toward financial goals

• Avoid costly debt

• Manage your money without it feeling like a chore or a cause for anxiety

If you’re interested in how to become financially independent, then becoming stable with your money is likely an important first step.

Signs That You’re Financially Stable

Chances are, you might be doing some of the things on this list already. And if you’re not, then these moves could help you to overcome your personal financial challenges.

1. Following a Budget

A budget is the foundation for your financial plan. When you make a budget, you’re dictating where your money goes instead of simply spending without a plan. If you don’t have a budget yet, then making one should be a top priority.

There are a number of budgeting methods you can use, including:

• Cash envelope budgeting

• Zero-based budgeting

• The 50/30/20 rule (you can use a 50/30/20 budget calculator to help you utilize this)

Experimenting with different budget systems can help you find one that works for you.

2. Living Below Your Means

Here’s one of the secrets to how to have financial freedom: Live below your means. This simply means spending less than you earn. Making a budget is central to living below your means because without one, you may not have a clue how much you’re spending each month.

Tracking expenses can be a great way to determine if you’re living below your means. You can write each expense down in a notebook, use a spreadsheet, or link your bank account to a budgeting app. It’s a good idea to track expenses for at least one month to get a realistic idea of what you spend, which can help you to better define your budget.

3. Saving Money Is a Consistent Habit

You may have heard the expression “pay yourself first,” and it’s a wise move. This simply means that before you spend any money on payday, you first deposit some of your earnings into savings. Paying yourself first is a sign of financial stability as it suggests that you have money reserved for emergencies and are also saving for longer-term financial goals.

Setting up direct deposit into savings or scheduling automatic transfers from your checking account each payday are easy ways to automatic savings. When the money is directed to savings automatically, there’s no opportunity for you to spend it.

4. Paying Down Debt Is a Priority

Debt can be a roadblock to reaching your financial goals and too much debt could make you financially unstable. Making an effort to pay down debt (or avoid it altogether) is a sign that you’re committed to living within your means instead of spending money unnecessarily.

If you have debt, consider the best ways to pay it off. For example, the debt snowball method involves paying off debts from smallest balance to highest. The debt avalanche, on the other hand, advocates paying off debts from highest APR to lowest in order to maximize interest savings.

When choosing a debt repayment method, consider how much of your budget you can commit to it. If you’re only able to pay the minimums to your debts, you may need to review your expenses to see where you can cut back or look into debt consolidation.

5. Bills Get Paid On Time

Paying bills late can trigger nasty late fees. What’s more, late payments can lower your credit scores.

A good credit score is a sign of financial stability because it means that you’re responsible with how you use credit. On-time payments can work in your favor while late payments can hurt your score.

If you’ve fallen behind, getting caught up on late payments as soon as possible can help you turn things around. From there, you can commit to paying on time each month. Scheduling automatic payments or setting up payment reminders is an easy way to keep track of due dates.

6. Financial Goals Are Clearly Defined

Setting financial goals can help you to make the most of your money. Financial goals can be short-term, like saving $10,000 for an emergency fund. Or they might be long-term, like saving $1 million for retirement.

Someone who’s financially stable understands the value and importance of setting goals and how to set them effectively. For example, they may follow the SMART rule for goal setting and create money goals which means they are:

• Specific

• Measurable

• Actionable or achievable

• Realistic

• Time-bound

If you’re not setting financial goals yet, consider what you want to do with your money or what kind of lifestyle you’d like to have. If you created a personal financial mission statement that can be a good guide to deciding what kind of goals to set.

7. Regular Investing Is Part of Your Financial Routine

Investing money and saving it are two different things. When you invest money, you’re putting it into the stock market. Investing can help you grow your money faster and build a higher net worth thanks to the power of compounding interest.

There are different ways to invest. If you have a 401(k) or similar retirement plan at work, for example, you may defer 10%, 15%, or more of your income into it each year. At a minimum, it’s a good idea to contribute at least enough to get the full company match (which is akin to free money) if one is offered.

You might also open an Individual Retirement Account and a taxable investment account. With an IRA, you can save for retirement on a tax-advantaged basis. A taxable investment account, on the other hand, is useful for trading stocks, mutual funds, exchange-traded funds (ETFs), and other securities without restrictions on how much you can invest.

8. You Have the Right Insurance

Insurance is designed to protect you financially. There are different types of insurance a financially stable person might have, including:

• Homeowners or renters insurance

• Car insurance

• Health insurance

• Disability insurance

• Life insurance

Having the right coverage in place can help to minimize financial losses in a worst-case scenario. If your home or apartment is damaged because of a fire, for instance, then your insurance policy could help you to rebuild or replace your belongings.

Life insurance is also important to have, especially if you have a family. Life insurance can pay out a death benefit to your loved ones if something should happen to you. That means they’re not in danger of becoming financially unstable after you’re gone.

9. FOMO Doesn’t Drive Decision-Making

FOMO, or fear of missing out, can be a threat to financial stability. It’s the modern-day equivalent of keeping up with the Joneses: What it means is that you make financial decisions out of peer pressure or societal pressure. Trying to mimic the lifestyle of social media influencers, for example, can wreck your finances if you’re going into debt with FOMO spending on things that you can’t afford.

Someone who’s financially stable, on the other hand, is relatively immune to FOMO. They don’t buy things on impulse (or at least not often). And they don’t make financial decisions without considering the short- and long-term impacts.

10. There’s No Worrying About Money

Worries about money can keep you up at night if you’re fretting over the bills or debt. Financially stable people don’t have stress over money because they know that they’re in control of their situation. They approach money with a calm, confident attitude.

So how do you reach that zen state with your finances? Again, it can all come down to making smart money decisions like sticking to a budget, saving, and avoiding debt. The more proactive you are about making your money work for you (and finding the right banking partner and financial advisors, if you like), the faster money worries may fade away.

If You’re Struggling to Become Financially Stable

If you recognize that your financial situation isn’t as stable as you’d like it to be, it’s important to consider how you can improve it. Working your way through this list of action items is a good starting point but what if you’re overwhelmed by debt or struggle to make a budget?

In that case, you may benefit from talking to a nonprofit credit counselor or a financial advisor. A credit counselor can help you come up with a plan for budgeting, paying down debt, and getting into a savings routine. And once you begin to gain some stability, you can think about things like investing or insurance.

In addition, you can consult these government sources for more insight:

• Making a budget

• Sticking to a budget

• How to save and invest

• How to save for retirement

The Takeaway

Achieving financial stability can take time, but it’s typically possible if you’re using the right approach to managing money. Taking small steps, such as setting one or two money goals or changing bank accounts, can add up to a big difference in your situation over time.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

How much money is considered financially stable?

The amount of money needed to be considered financially stable is subjective and depends on a person’s individual situation. But generally, having a net worth of $1 million or more can indicate that someone is financially stable or secure and has a good grasp of money management.

What are the signs of a financially stable person?

The most common signs of a financially stable person include having little to no debt (or at least avoiding high-interest debt), being able to make and stick to a budget, having a healthy amount of money in savings, and having a good credit score. Financially stable people tend to see their net worth increase year over year. What’s more, money generally isn’t a source of stress or worry.

At what point are you financially stable?

Someone could be considered financially stable when money is no longer a cause for anxiety or frustration. A financially stable person isn’t necessarily measured by how much money they have. Instead, their stability is based on their overall financial situation and their approach to managing money. They are likely to have savings for emergencies, as well as short- and long-term goals.

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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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Dec

2024

How Long Does It Take to Build Credit?

By Dan Miller | Credit, credit card, Financial Independence | Comments Off

Building good credit (or any credit at all) doesn’t happen overnight. Instead, if you’re starting from scratch, you may need to have an open credit account for around three to six months before you first get a credit score.

From there, a good credit profile and good credit score can take a while to build. In reality, it can be much faster and easier to lower your credit score, which is why it’s vital to aim to make solid financial choices, like consistently paying your bills on time. Building and maintaining good credit isn’t always easy, but by following a few simple steps, you can improve your standing.

Key Points

• Establishing a credit score takes three to six months after opening a credit account.

• On-time payments are essential for a good credit score.

• Credit scores depend on payment history, credit utilization, account types, age of accounts, and inquiries into accessing credit.

• Opening too many accounts at once can harm credit scores.

• Beware of scams promising quick credit improvement; building credit is gradual.

How Long It Can Take to Build Credit From Scratch?

The exact length of time it takes to build credit from scratch varies. That being said, it’s usually around three to six months from the time you first open a credit account.

Even though establishing and building credit can take time, it’s worth it as a way to improve your overall financial situation. Having good credit can make it easier to get approved for loans and secure lower interest rates.

Recommended: How to Avoid Interest on a Credit Card

4 Ways to Build Credit

If you’re hoping to begin building credit, here are some tactics you might consider.

Become An Authorized User

One way to help build your credit is by becoming an authorized user on an account of someone who already has good credit. This might be a trusted friend or family member. As they manage the account responsibly, that can have a positive impact on your credit score as well. Just know that if they miss or make late payments, that can also negatively impact your credit.

Recommended: When Are Credit Card Payments Due?

Apply For a Credit Card

If you’re getting a credit card for the first time, know that it is possible to apply for and get approved for a credit card with no existing credit history. However, you do need to be selective about which card you apply for.

You’re unlikely to get approved for, say, a rewards credit card if you don’t already have excellent credit. Still, there are credit cards that are marketed toward those who have no credit or a limited credit history. You might also consider a secured credit card, where you put down a refundable deposit that then serves as your credit limit.

If you can get approved for a credit card, and then use your credit card responsibly, such as by making on-time payments, can help you build up your credit.

Get a Cosigner

If you aren’t able to get approved for a loan on your own, you might consider applying for credit with a cosigner. Using a cosigner with good credit can help improve your chances of getting approved for a loan.

Then, your loan payments will be reported to the major credit bureaus and hopefully help you start building your credit score. Of course, that depends on your making those payments on time.

Maintain Good Credit Habits

Once you have opened a credit account like a loan or credit card, it’s important to practice good credit habits. This includes paying your statement off in full, each and every month. Demonstrating a pattern of reliably paying your bills over time shows potential lenders that you’re likely to repay your debts.

Factors That Affect Credit Score Calculations

There are five major factors that affect your credit score:

• Credit utilization: Your credit utilization is the amount of the credit you’ve used compared to your total available credit. It’s recommended to keep this ratio to 30% or less.

• Payment history: This indicates how reliably you make payments on your existing accounts.

• Types of credit accounts: Having a good mix of different types of credit accounts has a positive impact on your credit score, as it indicates to lenders that manage multiple types of accounts.

• Your average age of accounts: Having a lengthy credit history is a positive sign. This shows you have experience in responsibly managing accounts.

• New credit: Opening a number of accounts or making a number of hard inquiries in quick succession can suggest to lenders that you’ve overextended yourself and are in need of funding to bail you out.

Recommended: Starting Credit Score for 18-Year-Olds

Things to Keep in Mind Before Building Credit

If you’re looking to build good credit, here are some tips on establishing credit to keep in mind.

Have a Solid Financial Plan

The first thing you’ll want to do is make a budget. Getting a new credit card should not be viewed as a way to fix your budget or dig yourself out of a financial hole. Instead, the best way to use a credit card is as a tool of convenience for money that you already have. Make sure that you have the financial ability and discipline to pay your bills in full, each and every month.

Watch Out For Scams

Usually building credit is something that you do over a period of several months or years. If someone tells you that they can build or repair your credit quickly, it could be a sign of a credit card scam. There aren’t many shortcuts to the simple rules noted above, like regularly paying your bills on time.

Don’t Open Too Many Accounts At Once

You might think that since opening a credit account can help build credit, opening many accounts will help build credit even faster. However, that is usually not the case. Many lenders view a high number of credit inquiries in a short period of time as a negative indicator. They may see it as a potential red flag that someone is in a bad financial situation.

The Takeaway

If you’re just starting out and have no credit history at all, you generally start without an actual credit score. It can take a few months after you open a credit account to start establishing a score. As you continue to show that you’re responsible for the credit you have, your score will likely increase. Building credit can take time, and you should be skeptical of any people or programs that say they can build your credit fast.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What credit score do you start with?

There isn’t a starting credit score for those without any credit history. While you might think that you start with the lowest possible credit score (like 300) and have to build your way up, you actually don’t start with any credit score at all. As you open credit cards or other accounts, you’ll start to establish a credit history and score.

How long does it take to build a good credit score?

It usually takes anywhere from three to six months to start building a credit score after you’ve opened your first credit account. You’ll then continue to build and improve your credit by continually making on-time payments. You can always check your credit score periodically to see where you’re at on your credit journey.

How long does it take to recover from a hard inquiry on your credit?

Usually when you apply for a new credit card or other loan, your potential lender will pull your credit file. This is known as a hard inquiry. Since the number of recent hard inquiries is one factor in determining your credit score, applying for credit cards can lower your credit score. However, these inquiries typically only lower your score by a few points and drop off your report after a few months.

How fast can you build your credit in 3 months?

How fast you can build your credit depends on a number of factors. Generally, it takes a few months after you’ve opened a credit account to even establish any credit. Your credit score will improve as you continue to use your credit responsibly. It’s best to think about building credit as more of a marathon than a sprint.

Photo credit: iStock/YakobchukOlena

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Nov

2024

Does Financing a Car Build Credit? How Car Loans Affect Credit

Does Financing a Car Build Credit? How Car Loans Can Affect Your Credit Score

By Dan Miller | Credit, credit card, Family Finances | Comments Off

Financing a car can help you build credit, as long as you manage the loan responsibly and the loan’s activity is reported to one of the major credit bureaus.

Like with most other debt obligations, responsibly making on-time payments can help your credit score. However, making late or missed payments can hurt your credit score, as can the hard pull of your credit report that potential lenders conduct when you apply for an auto loan.

Key Points

• Making regular, on-time payments on a car loan can positively impact credit scores.

• Late or missed payments on a car loan typically have a negative impact on credit scores.

• A car loan adds to the credit mix, which can help build credit.

• Paying off a car loan may reduce credit scores if it affects credit mix or account age.

• Hard credit inquiries from applying for a car loan usually but only temporarily lower credit scores.

How Does Car Financing Work?

While it is possible to pay for a new car with cash, it’s common for many potential auto buyers to use car financing. You may get a car loan for the full purchase price, or make a down payment and get a loan for the rest of the amount.

The lengths of car loans vary but are commonly between 24 and 96 months, with six years (72 months) being the average. After making your payments for the balance of the loan, the loan is paid off and you take full ownership of the car.

Note that your car acts as collateral for an auto loan. This means that if you fail to repay the amount borrowed, the lender can take your car to recoup its losses.

Recommended: When Are Credit Card Payments Due?

How Financing a Car Can Affect Credit Positively

Most car loans are reported to the major credit bureaus, and your payment history and balance is usually included on your credit report. Making on-time payments on your car loan can have a positive impact on your credit. Potential lenders want to see a history of reliably paying your debts, and making payments on a car loan can help with establishing that.

Another factor that makes up your credit score is having a healthy mix of different types of credit. This can be another reason why having an active auto loan can help build credit, as it adds to the types of credit you have.

How Financing a Car Can Affect Credit Negatively

Just as making on-time payments on your car loan can have a positive impact on your credit score, missed or late payments can affect your credit negatively.

Additionally, when you initially apply for an auto loan, the lender will conduct a hard pull on your credit report to verify your creditworthiness. This can drop your credit score by a few points, though those drops usually only last a few months. If you’re working with multiple lenders, keep in mind that hard credit pulls by multiple lenders in a short period of time will usually get combined so it appears as a single inquiry.

And while paying down debt is often a good idea, paying off a car loan affects your credit in some additional ways. If you don’t have other debts or loans, it’s possible that paying off your loan can have a negative impact on your credit score. This is because your on-time payments no longer get reported, and you’ll have one fewer type of credit to your mix. Additionally, if you took out your car loan a while ago, paying it off can impact the average age of your open accounts, which also influences credit.

Factors That Influence Your Credit Score

The biggest factor that influences your credit score is your payment history. Potential lenders want to see that you reliably pay your debts, and making on-time payments is one way to show that. Other factors that influence your credit score are:

• Your average age of accounts

• Credit mix

• How much you owe

• How many recent inquiries appear on your credit report

Tips to Build Your Credit Score

Here are some tips to consider that can help build credit:

• Make sure that you always pay your bills on time.

• As you apply for new debt or credit, only apply for loans that you know you have the financial ability and discipline to pay.

• Aim to keep your credit utilization — the amount of your total credit you’re using — at 30% or lower. Having a higher credit utilization rate can negatively affect credit.

• Remember to check your credit report at least once a year. Not only can this help you to monitor your credit health and understand the impacts of various activities on your credit, it can help you spot any errors or fraudulent activity.

Recommended: Credit Score Needed to Buy a Car

Mistakes to Avoid When Financing a Car

One of the biggest mistakes that you can make when financing a car is applying for a higher loan amount than you can afford. When you take out a car loan, you’re making a multi-year commitment to make those monthly payments. If you take out a loan for more money than you can reasonably afford, you run the risk of destabilizing your overall financial situation and ending up in a situation where you make late payments or, even worse, miss payments.

Recommended: Average Payment for a Car

Is a Car Loan a Wise Option to Build Credit?

A car loan can be a good option to help build your credit. Remember, what potential lenders are looking for when they look at your credit report is a history of meeting your debt repayment obligations. A car loan that you regularly pay on time can be a great way of showing that you are reliable.

Also follow additional tips for getting a car loan to help give you a head start toward building your credit.

Other Ways to Build Credit

Aside from turning to car financing to build credit, here are a few other ways to build credit that you might consider.

Become an Authorized User

Another way that you can build credit is by becoming an authorized user on someone else’s credit card account. When you are an authorized user on a credit card account, you’re not financially responsible for paying the statement, but it still shows up on your credit report. Keep in mind that how the primary account holder manages their account can affect your credit score, either positively or negatively.

Consider a Personal Loan

Another option to build credit is by taking out a personal loan. Unlike a car loan, which is considered a secured loan since the car itself acts as collateral for the lender, a personal loan is an unsecured loan. That means that there is no collateral for the lender to seize if you stop making payments.

In certain situations, this can make a personal loan a great option for building credit. In fact, if an auto loan isn’t the right option, you can consider getting a personal loan for a car.

Apply for a Credit Card

Responsibly using a credit card and paying it off in full each month is another way that you can establish credit. Your credit card balance and payment history are typically reported to the major credit bureaus.

Additionally, some credit cards offer rewards, such as cash-back rewards, with each purchase. Those rewards can be a boost to your monthly budget.

The Takeaway

If you take out an auto loan to buy a new or used car, it will typically get reported to the major credit bureaus. That means making on-time payments on your auto loan can help you build credit. Similarly, late or missed payments can have a negative impact on your credit score.

Applying for a credit card and making regular payments can be another way to build your credit.

FAQ

Does paying off a car loan help build credit?

While making regular payments on your car loan helps you build credit, paying off your car loan doesn’t always have the same impact. When you pay off your car loan, you no longer have the monthly payment history showing up on your credit report. Still, paying off a car loan can be a good financial move since it helps lower the total amount of your debt.

How can I keep my payment within my budget when financing a car?

The monthly payment amount of your car loan will depend on a variety of factors — the total purchase price of the car, your down payment, the length of the car loan and your interest rate. If you want to keep your monthly payment below the average payment for a car, you can get a cheaper car, make a higher down payment, or take out a longer loan. You can also work on building your credit score to hopefully qualify for a lower interest rate.

How fast can a car loan raise my credit score?

While taking out a car loan can possibly build your credit, you shouldn’t count on an immediate positive impact. In the short-term, it’s possible that your credit score may decrease from the new credit inquiries and the additional debt that shows up on your credit report. However, over time, making regular and on-time payments on your auto loan could build your credit score.

Does leasing a car build credit?

Most lease payments are reported to the major credit bureaus. That means that regular, on-time payments can help you build your credit in a similar manner to buying a car with a car loan. However, if you make late payments or miss payments on your lease, it can have a negative impact on your credit score.

Photo credit: iStock/Zorica Nastasic

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

SOCC-Q424-009

Nov

2024

15 Ways to Save Money on Clothes

By Marcy Lovitch | Budgeting & Goals, Family Finances, money | Comments Off

For many people, clothing is a favorite purchase, and shopping for new looks is practically a hobby. Fashion is a way to express your personal style; a new pair of jeans or boots can be a major mood-lifter.

But let’s face it, clothes can be expensive. If fashion is your weakness, it can take a big bite out of your budget. According to the Bureau of Labor Statistics, the average American household spends $1,945 a year on apparel and related services. But some people spend considerably more, ringing up bigger bills by buying the latest designer clothes, shoes, and accessories. These purchases can add up over time, leading to credit card debt and making it difficult to get ahead and achieve your goals. Here’s a look at some ways to reduce the amount you spend on clothing without giving up your love of fashion.

Key Points

• Save money on clothes by shopping end-of-season sales and hosting clothing swaps.

• Extend clothing lifespan by following proper care instructions and mending minor damages.

• Create a capsule wardrobe with versatile, high-quality pieces.

• Upcycle old clothes and buy or sell used clothing to save money.

• Set a clothing budget and consider no-spend challenges to curb expenses.

Money-Saving Tips for Buying Clothes

There are ways you can cut down on your clothing expenses but still score some pieces you can’t wait to wear. Here’s 15 suggestions on how you can save money on clothes without feeling deprived or out of sync with the latest styles.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

1. Shop the End-of-Season Sales

Ever notice how spring and summer clothing seems to go on sale in June or July? Or fall and winter clothes in January? The reason is because stores need to sell that merchandise so they can make room for next season’s items. Time it right, and you can scoop up current seasonal clothing at steep discounts. Just don’t go shopping the second that next season’s looks hit the racks.

2. Host a Clothing Swap

You know the saying, someone else’s trash might be your treasure. A cost-free way to get some new pieces is by arranging a clothing swap. The ground rules: Everyone brings clean, gently used clothes they’re looking to unload, and attendees get to sift through other’s clothing and add to their wardrobe for free.

A clothing swap is a great way to combine socializing and “shopping.” If you want to host one, heed this advice:

• Make sure you’ve got a big enough space where everyone can comfortably peruse and try on items.

• Invite people who are roughly the same clothing size.

• Set a minimum number of pieces they need to bring.

• Don’t feel like being the coordinator? Check out Meetup.com and Eventbrite.com to find swaps near you.

3. Ask for a Discount on Damaged Clothing

A handy tip for how to save money when shopping for clothes: If you find something you love but notice slight imperfections such as a small tear, loose thread, or a flaw in the fabric, bring it to the attention of a store employee. You might be able to get some dollars knocked off the retail price. If the salesperson doesn’t offer this, you can politely ask if the price can be lowered to reflect the garment’s condition.

Think it’s not worth the trouble? Remember why saving money is important. Every little bit of extra cash you sock away can be used to pay down debts or go towards a goal like funding a summer vacation.

4. Look for Coupon or Promo Codes

Before making a purchase, do an online search to see if the retailer offers a store coupon or promo code you can use when shopping online. You can find available coupon or discount codes at sites such as Retailmenot.com, Rakuten.com and BeFrugal.com, which all offer cash back for purchases made. Many times, if you are a first-time customer, you can snag a discount and/or free shipping by signing up for emails or text messages.

5. Mend Your Clothes

Are there things hanging in your closet you’re not wearing simply because a button is missing or the garment has a small hole? Instead of taking it to a tailor, buying something new, or avoiding it altogether because it needs repair, try fixing it on your own. Basic mending doesn’t require a lot of tools and is pretty easy.

As long as you’ve got the basics such as a needle, thread, scissors, or buttons (if needed), you’re good to go. If you’re not sure about your hand sewing skills, you can find a slew of how-to videos on YouTube.

5. Buy Generic Brands for the Basics

When it comes to certain articles of clothing, purchasing a generic brand over a name or designer one can save you money without jeopardizing your style. Any item you wear under something, like a tank top or a tee shirt, doesn’t need a fancy label to serve the purpose. Why buy a white tee at a high-priced store for $50 or $90 when a similar one at a national chain retailer costs only $5?

6. Create a Capsule Wardrobe

Having a capsule wardrobe means you’ve created a streamlined clothing collection that features well-made, non-trendy pieces that can all be mixed and matched. The idea is to spend a little more on the items initially. In the long run, however, you save money because these higher quality garments will last longer and not have to be replaced every few months.

A capsule wardrobe also offers timeless, versatile clothing choices instead of a closet full of flash-in-the-pan styles. Not having a large wardrobe can also help reduce the stress of getting ready every day.

7. Wash Your Clothes Properly

Laundry mistakes can damage your clothes. For instance, washing certain fabrics in hot water can cause shrinkage, fading, and wrinkling, as well as cause dye to run. However, using cold water is generally more clothing-friendly, reducing the risk that you will ruin a garment in the wash. You can also save on your gas or electric bill, since around 90% of all of the energy used in your washer goes to heating up the water.

Another way to extend the life of your clothes is by not washing every single item after one wear, with the exception of course, of underwear and socks. Why? Each time you wash your clothes, you’re putting stress on the fabric. By wearing your clothes a few times before washing, you can minimize any damage. As an added bonus, you’ll also spend less on laundry detergent.

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

8. Borrow from a Friend

Going to a gala event or attending a wedding but have nothing to wear? Consider asking that generous, stylish friend if you might be able to borrow from their closet. This can spare your bank account and allow you to get dressed up in something new and fresh to you. The only cost you might incur is taking the garment to the dry cleaners after.

Don’t have a friend with a fab wardrobe? Consider renting an outfit for your big night out.

9. Figure Out Cost Per Wear

To ensure you get your money’s worth out of the clothing you buy, pay attention to how often things get worn. If a piece is costly and you’ve only worn it once, you’re not reaping its full value.

You can figure out if your money was well spent by calculating the cost-per-wear ratio. Just divide the item’s cost by how many times you wear it. For example, if you buy a coat for $100 and wear it 100 times, your cost per wear is $1. On the flip side, if you’ve only worn it five times, each wear is equivalent to $20 which probably hasn’t given you the most bang for your buck. Before you buy the clothing, take time to do the math to assess how many times you realistically expect to wear it.

10. Upcycle Your Clothes

Upcycling clothing is taking something old, recycling it, and making it into something new to wear. Repurposing clothing is one of the many creative ways you can save money.

Upcycling clothes can include sewing, cutting, dyeing, or even updating a cardigan with new buttons. Fun examples of upcycling include hand-painting a jean jacket, cutting a pair of jeans into shorts, creating a tote bag from a sweatshirt, or transforming a wool blanket into an autumn coat or cape.

Upcycling is also eco-friendly. According to the Council for Textile Recycling, the average American throws away 70 pounds of clothing and other textiles every year. Not only does upcycling help you buy less and keep excess fabric out of landfills, it’s a way to save money and live sustainably.

11. Retool Your Clothing Budget

One way to stop overspending on clothing is to figure out how much you’re actually shelling out each month and then set a limit. There are several different budgeting techniques, such as the 50-30-20 rule. This divides your take home money into three categories: needs (50%), wants (30%) and savings and debt repayment (20%).

The needs category encompasses expenses you can’t avoid like groceries, housing, and utilities. Generally, clothes fall into the discretionary wants group along with entertainment, dining out, and monthly subscription expenses. Some financial experts suggest limiting clothing spending to 2 to 2.5% of your take-home pay which equals between 6% and 8% of the 30% wants category. If you make $4,000 a month after taxes, 30% of that amount equals $1,200: 6% to 8% of that figure equals an allotment of $72 to $96 a month for apparel. If that doesn’t sound like enough, you’ll want to see what other non-essentials in the wants category you can scale back.

Recommended: 50/30/20 Budget Calculator

12. Go Shopping in Your Own Closet

Do you really know what’s in your closet or tucked into all your dresser drawers? Go through your entire wardrobe, and you might find things you forgot you had or thought you got rid of years ago. Unearthing items you haven’t seen or worn in awhile can spark creativity with clothing combinations and stretch your wardrobe.

On the other hand, you may realize some pieces lingering in the corners of your closet hold no interest. If that’s the case, keep reading for details on how you might get some money for them.

13. Buy and Sell Used Clothing

There’s no question you can save money by shopping for second-hand clothing. You can find bargains at a variety of places, including thrift stores; consignment shops; garage, yard, or stoop sales; and even for free through community groups such as Buy Nothing. Two sites, among others, where you can sell your old stuff are Poshmark and Depop. There are also vintage and used clothing shops that buy clothing from people like you. Check out Buffalo Exchange and Crossroads Trading; you might get cash for your gear or be able to swap it for pieces you love.

14. Try a No-Spend Challenge

One way to curb clothes spending is to put a temporary kibosh on shopping for these items. For example, you might commit to a 30-day no-spending challenge on shopping for anything to wear. During the challenge, try not to put yourself in situations where you may feel the urge to shop; instead, explore alternative activities (like taking a walk with a friend, doing a hobby, or reading) to stay busy. At the end of the 30 days, you may notice you have more money, less credit card debt, and really don’t miss the items you didn’t buy. This can encourage you to spend less on clothing moving forward.

15. Learn When Retailers Have Their Biggest Sales

You can save significant money on clothing by timing your purchases right. Start paying attention and you’ll see a pattern as to when major retailers host their big sales. Holiday weekends such as Martin Luther King Jr.’ Day, Memorial Day, Labor Day, and the Fourth of July are popular times for stores to feature great buys along with Black Friday. For online shopping, check out deals on Cyber Monday (the Monday right after Thanksgiving) and Amazon Prime Day.

You can also ask a salesperson at your favorite stores to give you the inside scoop on when certain items might be going on sale.

The Takeaway

Clothes shopping can be a fun and creative outlet, but if you’re not mindful, it’s easy to rack up the bills and possibly find yourself mired in unnecessary debt. By shopping with more intention, looking for the best deals, and making the pieces you have last longer, however, you can still feel good about what you wear without spending as much.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

How can I stop spending money on clothes?

One of the best ways to save money on buying clothes is to simply remove the temptation, especially if you’re prone to impulse spending. If you like to shop online, unsubscribe from retailer emails so you won’t be alerted to new items and sales. Feel the itch while scrolling your phone? Put it down; pick up a book, or watch a movie instead. When you’re out and about, resist going into your favorite stores. Vow to commit to a 30-day shopping sabbatical and see how much money you’re able to save as a result.

Are there ways I can take better care of my clothing so they’ll last longer?

Yes, you can make your clothes last longer by following the washing instructions carefully, letting items air-dry when possible (instead of exposing them to a hot dryer), and storing them in a cool, clean, and dry environment out of the sunlight (which can cause fading). It’s also a good idea to fold heavy sweaters instead of hanging them to prevent the fabric from stretching.

Should I only buy cheaper clothes?

Not necessarily. Sometimes spending more means you’ll get a well-made, high-quality garment that will last for years. This can end up costing less than buying cheaper clothes that you only wear for one season. You might look for these pieces on sale at major department stores and at discount retailers.

Photo credit: iStock/Phiwath Jittamas

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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Nov

2024

Guide to Credit Card Purchase Protection

By Jackie Lam | Credit, credit card | Comments Off

If you have a credit card with purchase protection, you may be able to replace an item you paid for with your card should it get damaged, lost, or stolen. Among the sea of valuable credit card perks, purchase protection is one that often gets overlooked but can be a real perk.

However, there are restrictions on what is and isn’t covered under credit card purchase protection, which is why it’s important to understand how it works. You’ll also want to know the pros and cons of credit card purchase protection to determine if it’s the right path for you.

Key Points

• Credit card purchase protection acts as insurance for items bought with a credit card, covering them if lost, stolen, or damaged within a specified period.

• The protection period usually lasts between 90 to 120 days, with varying coverage limits depending on the card issuer.

• Purchase protection serves as secondary coverage, requiring primary insurance claims to be filed first.

• Exclusions often include motorized vehicles, antiques, perishable items, and items purchased for resale, and filing a claim requires specific documentation.

• Understanding the terms and conditions of purchase protection is crucial for maximizing its benefits and determining its suitability for individual needs.

What Is Credit Card Purchase Protection?

Also known as purchase insurance or damage protection, credit card purchase protection is a type of credit card protection. If you have a purchase protection credit card, the credit card issuer might help you replace a stolen, lost, or damaged item that you bought using the card.

Purchase protection doesn’t last forever though — there are generally limits on the duration of the protection period and the coverage amounts. Also note that purchase protection serves as secondary coverage. This means that you must first file a claim with your primary insurance, and then purchase protection may kick in to cover any remaining amount.

How Does Credit Card Purchase Protection Work?

As mentioned, purchase protection only applies to items that you paid for with your credit card. Not all instances of theft or damage are covered.

The protection period offered by cards with purchase protection can last anywhere from 90 to 120 days after the purchase is made. Coverage limits and terms also can vary. For instance, a credit card might have $500 cap per claim, with a maximum benefit of $50,000 per account.

Some card issuers extend this credit card advantage to recipients of gifts that you purchased using the card. For instance, if you bought a computer for your son for his birthday, he may be able to file a claim to get it replaced if it’s covered by purchase protection.

Understanding How to Use Credit Card Purchase Protection

If, for example, the screen on the cell phone you purchased with your credit card shatters, and the incident occurs within your credit card’s purchase protection time frame, you may be able to take advantage of purchase protection. As noted above, purchase protection is typically secondary, which means that if you have primary insurance to cover the item, you must apply there first.

That said, to get coverage, you’d need to file a claim with the credit card. The claim form is usually found on a credit card’s website or listed under “forms” after you log in to your account. If your claim is approved, it typically takes anywhere from 5 to 30 days for you to receive reimbursement for your claim.

What Does a Credit Card’s Purchase Protection Not Cover?

Here’s what credit card purchase protection typically doesn’t cover:

• Items that are excluded under the policy. Each card issuer has varying items that are excluded from coverage. For example, credit card purchase protection may exclude motorized vehicles, perishable items, antique or collectible items, computer software, and items purchased commercially for resale. There are also usually exclusions on the reasons for why you lost or damaged an item — for instance, items that were lost or damaged due to acts of war or fraudulent or illegal activity aren’t usually covered.

• Items that mysteriously disappeared. If an object ends up missing with no apparent cause and without evidence of a wrongful act, then that item generally will not be covered by purchase protection.

• Items damaged, lost, or stolen after the protection period. If an item you bought with your credit card was lost, damaged, or stolen after the coverage time window ended — usually past 90 to 120 days — then it won’t be covered.

• Items that are used or pre-owned. Many credit card issuers exclude used or pre-owned items from purchase protection coverage.

What Does a Credit Card’s Purchase Protection Cover?

As discussed, the terms, items included, and coverage amounts provided vary by credit card issuer. For the most part, a credit card’s purchase protection covers items that were unintentionally lost, stolen, or damaged within a specified protection period.

You’ll also want to mind the cap per claim and per account. Your coverage limits may apply by account or by year. For example, you might have a cap of $500 or $1,000 per claim, and be limited to making $50,000 in claims per account you own.

Read your credit card’s terms and conditions to see what exactly is included under purchase protection and what coverage limits apply. This can also provide other valuable information to credit card holders, such as how credit card payments work.

Recommended: When Are Credit Card Payments Due?

Pros and Cons of Credit Card Purchase Protection

Here’s an overview of the advantages and disadvantages of credit card purchase protection:

thumb_up

Pros:

• Built-in protection with your credit card

• No deductible

thumb_down

Cons:

• Coverage limits generally apply

• May take longer or require more steps than primary insurance

Pros

Here’s a closer look at the upsides of credit card purchase insurance:

• Built-in protection with your card. Probably the most significant advantage of credit card purchase protection is that it is essentially free insurance that comes with your card. As long as an item is covered under your card’s purchase policy, and you file a claim without the protection period, you typically can get some help replacing a lost, damaged, or stolen item, rather than driving up your credit card balance covering the cost.

• No deductible. Unlike primary insurance, you might not need to pay a deductible to get your eligible claim reimbursed.

Cons

Here are the downsides of purchase protection to be aware of:

• Limits. As insurance usually goes, there are coverage caps per claim and per account or year. You’ll need to check with your credit card issuer to determine the limits for your purchase protection policy.

• May take longer than primary insurance. The time to file a claim and get reimbursed could take longer compared to the turnaround for primary insurance. That’s because purchase protection is secondary coverage, meaning you’ll usually have to go through your primary insurance first, whether that’s homeowners, auto, or rental insurance.

Recommended: What Is the Average Credit Card Limit?

Filing a Credit Card Purchase Protection Claim

Here are the steps you’ll need to take to file a claim for purchase protection:

1. Review your card’s policies to see if the item is covered. Before moving forward with filing a credit card purchase protection claim, it’s smart to take a moment to make sure the item qualifies. Also remember that you’ll need to make at least your credit card minimum payment, even while waiting for a response.

2. Fill out a claim form. This is usually found on the credit card issuer’s website or through your account after you log in. It’s recommended to file a claim as soon as you can. Keep in mind that credit cards typically have a time frame in which you can file a claim after the incident, usually within 30 to 90 days.

3. Provide requested documents. When you file your claim, you’ll generally need to provide the following documents:

◦ A copy of the credit card statement that includes proof of purchase

◦ An itemized original receipt showing the purchase

◦ A copy of your insurance claim and insurance declaration page (if you have primary insurance)

◦ A police report (if the item was stolen)

Other Types of Credit Card Protection

Beyond purchase protection, there are other types of protection commonly offered through credit cards. These include:

• Return protection: This perk allows you to return an item, even when the retailer has a no-return policy. While some cards do offer return protection, other cards have phased it out in recent years.

• Price protection: Should you buy something and the item then drops in price within a specific period, price protection will kick in and match the lower, advertised price. Depending on the card, the time frame during which this applies might range from 30 to 60 days. You might get refunded up to a certain amount for specific types of purchases, though price protection usually has limits per item and per year.

• Extended warranty protection: Instead of hopping on a retailer’s pricey service plan or opting for extended warranty at the checkout register, you might be able to take advantage of a credit card’s extended warranty protection. This protection matches the terms of your manufacturer’s warranty. However, it usually extends protection for up to a year, and some cards will even double the manufacturer warranty.

Beyond these protections, credit cards can offer an array of other perks, such as credit card travel insurance and credit card rental insurance, among others.

Recommended: Can You Buy Crypto With a Credit Card?

The Takeaway

Credit card purchase protection can be a valuable perk if a card offers it. The built-in insurance offered by purchase protection can save you should an item you bought with your card get lost, stolen, or damaged, provided the situation meets the eligibility criteria.

FAQ

Do all credit cards offer purchase protection?

Not all credit cards offer purchase protection. In fact, cards offering this perk have become less common in recent years.

How do you get your money back from a credit card purchase?

You’ll need to file a claim and provide requested documents, such as a receipt, a copy of your credit card statement, and in some instances, a police report or proof of primary insurance. Once your claim has been approved, you can expect reimbursement within 5 to 30 days.

Is there a time limit on credit card purchase protection?

Yes, there’s a time window after you’ve made the purchase during which purchase protection applies. This is usually 90 to 120 days. There’s also a time limit as to when you can file a claim after the incident, which can be anywhere from 30 to 90 days. It’s best to file a claim as soon as possible.

Photo credit: iStock/filadendron

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