Whether you need to pay for an emergency root canal or have unexpected home repairs, sometimes life can’t wait for your next paycheck.
If you’ve researched how to access cash quickly, you might wonder if online payday loans are the answer. Lenders that offer payday loans typically promise you things like quick applications, no credit checks, and expedited approvals. They may say you’ll get the cold hard cash you need the very next day.
It’s an easy solution, right? Not so fast.
How Do Payday Loans Work?
Payday loans are called that because they’re meant to be paid back the next time you get a paycheck. They’re generally for small amounts, and usually don’t require collateral or even necessarily a credit check.
The catch? Payday loans come at a price — and a high one, at that. They can have interest rates of more than 600%, depending on the lender you choose and which state you’re in. (Some states have stronger protective laws, including rate caps.)
Such high-interest rates and other associated fees can quickly lead to situations where you end up getting behind on the loan. You may end up having to borrow more and more in order to pay back the money you borrowed, especially since the loan might come due in only two weeks or a month. Soon you may be in a hole so deep you might not know how to get out. It can be costly, greatly damage your credit, or even lead to bankruptcy.
The short answer: a lot. But let’s look at an example.
Say you take out a $500 payday loan at an annual percentage rate (APR) of 300%. You would only pay that full 300% if you took a whole year to pay off the loan because the APR is what you would be charged in interest over 12 months.
However, even if you only borrow money for one month, you’d have to pay 1/12 of 300%, which translates to 25%. Here’s where the math gets ugly: 25% of $500 is $125, which means that when your loan comes due at the end of its very short term, you’ll owe $625. This amount might be tough to meet, especially if you’re in a situation where you needed a payday loan in the first place.
What Is a Direct Payday Loan?
Payday loans are offered by a wide variety of vendors, but for the most part, they break down into two categories: direct payday loans and those offered through a broker.
With direct payday loans, the entire loan process, from application to funding to repayment, is all managed by the same company. Although these can be slightly better than indirect loans — which may involve multiple fees, longer funding wait times, and harder-to-pin-down communication — they’re still generally considered a bad idea.
Why Is it Best To Avoid Payday Lending?
Other than the possibility that you can get money quickly if you have bad credit, there aren’t many benefits associated with payday loans. You’ll end up paying a significant amount in interest, and you’re usually expected to pay the money back in a very short period of time — usually within two weeks or so.
The interest on your loan can also compound daily, weekly, or monthly. This means that interest charges will start accumulating on the interest you already owe, which will inflate your loan balance even more.
Depending on how much you borrowed and your financial situation, compounding interest can make it incredibly difficult for you to pay back the loan. Many times borrowers end up taking out additional loans to pay off the payday loan, which can lock them into a seemingly endless cycle of debt.
You’re also unlikely to be able to borrow a large amount of money because payday and fast cash loan lenders typically have low maximum borrowing amounts.
What’s more, you won’t even be building your credit if you do manage to pay the loan back on time, because most of these lenders don’t report your behavior back to credit bureaus. In contrast, above-board lenders will report back to credit bureaus when you’re paying your bills on time and in full, and that can boost your credit score.
What Are Some Alternatives to Payday Loans?
In an ideal world, you’d avoid any kind of consumer debt. But sometimes it’s simply unavoidable. There are financially favorable alternatives to consider before you sign up for a risky payday loan.
Paycheck Advance
The best kind of money to borrow is money you’ve already earned. While not every employer offers it, a paycheck advance can be a relatively low-risk way to fund last-minute emergencies. An advance on your paycheck basically means getting paid earlier than you normally would, with the balance deducted from your future paycheck.
But tread carefully: Many employers offer paycheck advances through apps and platforms that may assess a one-time fee or even charge interest. While the rates may not be as astronomical as payday loan rates, it’s still worth taking a second look at the paperwork to ensure you understand what you’re signing up for ahead of time.
Another option is debt settlement, which is where you offer a creditor a lump sum payment on a delinquent debt — a lump sum that often ends up being far less than the original amount you owed.
However, doing this does require some negotiating, and sometimes even some legal know-how, which is why many people seek the help of professional debt settlement companies. This, too, is tricky, because scams abound, and some debt settlement companies may try to charge exorbitant fees to “eliminate your debt,” all without actually doing any work on your behalf. The Federal Trade Commission has more information on debt settlement and how to look for a reliable firm if you choose to go this route.
Personal Loans
Many types of personal loans are unsecured loans — meaning no collateral is involved — that can be used to pay for just about anything. And although they tend to have higher interest rates than secured loans, like mortgages or auto loans, those rates are still much lower than payday loans.
With its lower interest rate and longer-term, a personal loan will likely cost you less money than a payday loan in the long run. And some online personal loan lenders can process your application quickly and even get you the money you need in a matter of days.
Unlike payday loans, you have to go through a credit check to qualify and get approved for a personal loan. However, if you have a steady income and meet the lender’s eligibility requirements, you’re likely to qualify for a lower interest rate than you would if you used an online payday loan.
Your repayment timeline could also be less stressful if you opt for a personal loan rather than a payday loan. Personal loans come with the option of longer terms — a few years, for example, instead of a few months.
And because you can pay your loan off over a longer-term, your monthly payments might be more manageable than a payday loan. There also tend to be fewer fees attached to personal loans, and you might be able to borrow more because personal loans have higher loan maximums.
Personal loans aren’t much more difficult to apply for than payday or fast cash loans. You can typically get pre-qualified online by answering a few questions about your income, financial history, and occupation.
When you need money quickly, payday loans — and their promise of fast money — can be tempting. But you’ll want to proceed with caution. These loans generally come with very high interest rates and associated fees, and you may only have a couple of weeks or so to pay back the money you borrowed. There are less-risky alternatives to consider, including paycheck advance, debt settlement, or a personal loan.
If you are thinking about taking out a loan to help you repay debts on time, a SoFi personal loan may be a good option for your unique financial situation. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.
See if a personal loan from SoFi is right for you.
FAQ
What is a disadvantage of a payday loan?
Payday loans generally come with high interest rates and associated fees. What’s more, you typically have to pay back the money you borrowed on your next payday.
Are payday loans a good idea?
Payday loans are usually not the top choice when you need cash quickly. That’s because they often come with high interest rates and tight repayment timelines.
What is the catch to payday lending?
The catch to payday loans is that borrowers are typically charged very high fees and interest rates.
Are payday loans easy or hard to pay back?
With their high interest rates and fees and short repayment timelines, payday loans can be difficult for borrowers to pay back on time.
Can payday loans hurt your credit?
While payday loans are unlikely to help your credit score, they can hurt your credit if you don’t pay back your loan and your lender sends the debt to a debt collector.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
You likely already know it can be wise to save money every month. Whatever your income or age, putting money aside for the future can help you maintain financial stability and achieve your goals.
But how much of your paycheck should you save each month? Financial experts often recommend putting at least 20% of your monthly take-home income into savings for future financial goals, such as buying a home and funding your retirement.
Exactly how much you should save each month, however, will depend on your income, current living expenses and financial obligations, as well as your goals.
Here are some guidelines to help you figure out how much of your income you may want to set aside each month, plus some simple ways to jump start (or build) your savings.
Knowing What You’re Saving For
It can be difficult to know how much money you should save each month without having a sense of what you are saving for. Setting a few financial goals can also help motivate you to save, rather than spend all of your income.
There are some savings goals that can make sense for everyone. If you don’t already have at least three to six-months worth of living expenses stashed in an emergency fund, for example, that can be a good place to start.
Without a solid contingency fund, any financial set-back -– such as a job layoff, large medical bill, or costly home or car repair — can throw you off balance and cause you to rely on high interest credit cards.
Many people will also want to save for retirement. At the very least, savers may want to take advantage of company matches offered in their workplace retirement plan by contributing the maximum amount the company matches.
After emergency savings and retirement, goals may start to look different from person to person. One person may want to save up for a down payment on a home, another may want to save up to start a business, and yet another may be interested in college savings.
💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.
How Much to Save Each Month
A rule of thumb that is sometimes used in personal financial planning is a spending/saving breakdown of 50/30/20. Using this guideline, you would spend 50% of your take-home income on essentials (including minimum payments towards debts), 30% on nonessential (or “fun”) spending, and 20% on savings goals, including debt payments beyond the minimum.
To use the 50/30/20 method to determine how much you should save, you can simply calculate 20% of your monthly after-tax pay. For example, if you earn $3,000 each month after taxes, $600 would go towards savings or other short term financial goals.
You may want to keep in mind that your 20% savings goal can include the money you’re saving for retirement. You can determine how much you’re putting toward retirement each month by looking at your pay stub or electronic payment record. If your employer is automatically depositing money into your 401(k), you may be able to put less into savings each month.
While the 50/30/20 can be a helpful guideline, how much you should — and can afford — to save each month will ultimately depend on your individual circumstances, such as your current income, monthly expenses, and future goals.
If the cost of living is high in your area, for example, you may not be able to swing 20% savings each month.
On the other hand, if you make a significant amount more than you need to live on each month, you may want to put away more than 20%, especially if you’re working towards a large short-term savings goal, such as buying a home in the next couple of years.
The best account for building savings will depend on what you are saving for.
If you are saving up for retirement, for example, you’ll likely want to use a designated retirement account, like a 401(k) or IRA, since they allow you to contribute pre-tax dollars (which can help lower your annual tax bill).
You may want to keep in mind, however, that there are annual contribution limits to retirement funds.
For an emergency fund or other short-term savings goals (within three to five years), you may want to open a separate savings account, such as a high-yield savings account, money market account, or a checking and savings account. These savings vehicles typically offer more interest than a traditional savings account, yet allow you to easily access your money when you need it.
Easy Ways to Boost Savings
Below are some strategies that can help make it easier to start — and build — your monthly savings.
Automating Savings
One great way to make sure you stick to a money-saving plan is to automate the process. You may want to set up a recurring transfer from your checking into your savings account on the same day each month, perhaps the day after your paycheck clears. Even setting aside just a small amount of money each month now can, little by little, add up to a significant sum in the future.
💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.
Putting Spare Change to Work
There are apps that will automatically round-up any amount paid on a credit or debit card and then put that little bit of extra money into savings accounts or even invest it. This “pocket change” can add up over time.
Using Windfalls Wisely
If a lump sum of cash, such as a bonus or monetary gift, comes your way, you may want to consider funneling all or part of it right into savings.
Or, if you get a percentage raise on your salary, you might want to boost your automatic monthly transfer from checking to savings by the same percentage.
Reviewing Your Budget
If you feel like your budget is too tight to save anything at the end of the month, you may want to review your monthly and habitual expenses.
You can do this by combing through your checking and credit card statements and receipts for the past few months. Or, you may want to actually track your spending for a month or two.
You can then come up with a list of spending categories and determine how much you are spending on average for each.
Once you can see exactly where your money is going each month, you may find places where you can fairly easily cut back, such as getting rid of streaming subscriptions you rarely watch, quitting the gym and working out at home, or cooking more and getting take-out less often.
The Takeaway
The right amount to save each month will be unique to you and includes factors such as your financial goals, how much you earn, and how much you spend each month on essential expenses.
One of the most important keys to saving is consistency. No matter how much of your income you choose to set aside each month, depositing small amounts regularly can build to a large sum over time to achieve your goals.
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 4.60% APY on SoFi Checking and Savings.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
If you’re a homeowner considering a range of home improvements, you may not know if what you’re planning is a renovation or a remodel. Does it matter? Yes, because there are key differences.
A renovation is an update of an existing room or structure, while a remodel affects the design and purpose of an area. The more extensive work in a remodel will influence the cost and length of your project.
What Is a Renovation?
During a renovation, one or more rooms are updated and repaired. This might include new cabinets, flooring, and paint.
The bones of the room are typically left intact, though some structural issues may be fixed in a renovation, such as replacing rotting wood or swapping out window frames suffering from water damage.
A kitchen renovation might include replacing appliances, faucets, and knobs, while a bedroom reno might call for paint, new rugs, or new lighting.
Bathroom renovations often involve installing new tile, towel racks, and faucets.
Renovations are typically less costly than remodels, thanks to several factors.
You Can DIY
If you’re handy, you can slash some of the cost of hiring someone to undertake your renovation by doing some of the work yourself.
Because most renovations don’t require structural changes, you likely won’t be on the hook to hire licensed professionals to get it done. That means anything that you’re capable of — painting, wallpapering, floor sanding — you can do and pocket what it would have cost to hire help.
Just make sure you are skilled enough; hiring a professional to redo what you couldn’t complete may cost you money you didn’t plan on spending.
You May Get a Better Return on Investment
Since a renovation doesn’t call for major expenses like hiring licensed professionals or other construction-related outlays, in some cases the project offers more bang for the buck than a renovation does.
Renovation-related tweaks will still improve the look and feel of your home, and thus increase the value of your home, without the major expense a renovation entails.
You Can Expect Fewer Hidden Costs
When you’re renovating a room, your action plan is pretty cut and dry, and there aren’t likely to be surprises that require you to spend more than you planned.
Not so with a remodel, which, due to its scope, may result in additional costs to fix unforeseen problems such as hidden water damage, termites, or asbestos. These surprises can also lengthen the time of your project.
What Is a Remodel?
Remodels are typically more extensive than renovations. They include altering the function and sometimes the structure of an area of the house.
If your project calls for tearing down or adding walls, or changing the layout of a room, you’re planning a remodel.
Some examples of remodels: changing a powder room into a laundry room, knocking down a wall between a dining room and kitchen to create a great room, building an addition to your existing home, or expanding a closet into a dressing room.
Even if you’re not tearing down or adding walls, your project may be a remodel. This might include moving kitchen appliances around to improve room flow for a kitchen remodel, tearing out a tub and installing a walk-in shower in a bathroom, or turning a small guest bedroom into a home office.
Advantages of a Remodel
Many homeowners find there are pluses to a remodel as opposed to a renovation.
You Have the Opportunity to Customize Your Home
As homeowners grow with their home, they may find that their needs change.
Some may want an addition to accommodate an aging parent, while others may have expanded their families and need to convert a home office into a nursery or finish an attic and turn it into a bedroom. Empty-nesters may want to use one of their bedrooms as a study or gym.
A remodel affords them more options than a renovation does because they can make the necessary changes — however major — to achieve their needs.
You May Experience Hidden Benefits
Adding an island to a kitchen and removing a wall to create a larger space might mean more than increased room to prepare meals. You may find your family spends more time together in rooms that are spacious and inviting.
Similarly, retrofitting your heating and cooling system, adding under-floor heating, and replacing insulation might result in lower utility bills, freeing up money for hobbies or vacations.
Thanks to the extensive nature of most remodels, many cities require homeowners to secure a permit before they begin work, especially if the project involves creating an addition to the home, or if new walls or new roofs are being installed. This is to ensure that building codes are followed.
If you need permits, you will want to factor the time it takes to secure them into your timeline. Once the permits are approved, the project may begin. And once it is completed, it will likely need to be approved by a local inspector.
You May Need Professional Help
If your remodel requires electrical, duct, or plumbing work, you will likely need to hire a licensed professional to complete it.
You may also need a general contractor to hire and oversee these workers and others for larger remodels like adding a guest suite to the home or converting an attic to a home office with an en-suite bathroom.
These vendors, while necessary, can be costly since you are paying for their time in addition to any materials.
You May Be Dealing With Construction
While it can be exciting to imagine what your home will look like after a remodel, getting there can be taxing. That’s because you may be living in a construction zone as the project is underway.
It can be difficult to have to eat multiple takeout meals because your kitchen is being worked on, or deal with dust from work being done in the next room over.
If their remodel is especially extensive, some homeowners find they need to rent a home nearby until the remodel has been completed.
Whether you’re undertaking a renovation or remodel, you’ll want to have a budget and a payment plan. Some renovations are small enough that homeowners can pay upfront.
Those tackling remodels and larger renovations might tap a home equity loan or home equity line of credit, when the home is used as collateral.
Undertaking home improvements can be exciting for homeowners. But before you embark on a project, know whether you’re looking at a renovation or a remodel, how much inconvenience you’re willing to put up with, and what you are willing to pay.
SoFi offers personal loans of up to $100,000. If a cash-out refinance makes more sense, SoFi offers that as well.
Or if you’re in the market for a home loan, SoFi has that covered, too, with competitive rates and flexible terms.
With SoFi, you can find the right loan option for your remodel or renovation needs.
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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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.
You probably know how easily you can tap to pay for items when shopping and click to send a friend money for your share of a dinner tab. Why can’t most of your financial transactions be that easy?
They can be. You can be freed from much of the usual day-to-day account activity by automating your finances. Doing so can eliminate your wondering whether you have paid bills on time, allocated the right amount to savings, and more.
Automating your finances can be a smart money move that saves you on late fees and reduces financial stress. It may also help you establish and stick to a budget, as well as get on a path to growing your wealth.
Deciding where and when to automate personal finances need not be complicated. Here’s a guide sharing what it means to automate your finances, the different ways you can put your money management on autopilot, and tips for making the process super simple.
What Does It Mean to Automate Your Finances?
Automating your finances means you use today’s technology to pre-schedule and preapprove transfers of your funds. It’s a “set it and forget it” way to pay bills, move money from checking to savings, and even enrich your retirement account.
The beauty of doing so means you can avoid late fees (which many of us, no matter how responsible we are, get hit with sooner or later). You may also become more organized and free your mind to ponder better things. Worrying about when bills are due is so last decade, after all!
Check out our Money Management Guide.
This article is from SoFi’s guide on how to manage your money, where you can learn basic money management tips and strategies.
What Kind of Accounts Can You Automate?
If you’re wondering what kind of accounts you can automate, you’ll probably like this answer: Almost any kind. Here’s a list of some of the most popular:
• Credit cards
• Rent or mortgage
• Utilities
• Investment accounts
• Loans (car, personal, etc.)
• Insurance
• Savings (from short-term vacation funds to your emergency fund to retirement accounts).
Automating payments can spare you late fees and overdraft charges. It can also help you streamline the process of staying active and accountable on your accounts (a great way to avoid winding up with credit charge offs).
It may also help keep your credit score from being impacted by missed payments. In fact, payment history contributes 35% to your FICO® score. You want to protect those digits.
(Btw, it’s a good idea to scan for common credit report errors on an annual basis, just to make sure nothing is amiss.)
💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open a bank account online.
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
Different Ways to Automate Your Finances
When it comes to the set-up of automating personal finances, there are a few different techniques to try. Here, you’ll learn some of the most popular options so you can decide what’s right for you, whether it’s one method or a combination.
Option 1: Sign Up for Automatic Payments with Your Creditor
Here’s how this works: Say your wifi provider or landlord of your rental apartment gives you an automatic bill payment option.
• Through their payment portal, you’ll set up an autopay schedule, connecting the service provider to your bank account. On the agreed-upon date (say, rent is due by the 7th of every month so you select to pay on the 6th), they will automatically deduct the amount from your checking.
• In some cases, you may be assessed a fee for this privilege; it varies with the provider.
• When you opt into this kind of plan, you may be given the opportunity to have the payment charged to a credit card or deducted from an account other than your bank account. Look carefully, though; you may wind up paying additional fees for this.
You may find that some creditors don’t offer you the kind of convenience described above, but your bank may swoop in and help you pay automatically. Many major banks will issue payments on your behalf to a creditor or service provider, which can make your life infinitely easier. No more writing checks every month and digging around for stamps. The steps to take:
• Check with your bank about what they offer. Typically, they will need the account number and address of the business you are paying.
• You’ll also need to assess how long this process will take every month; it may not be instantaneous. You’ll want to make sure the money arrives on time and you are not charged any late fees so your credit score doesn’t suffer.
• Then you’ll sign up for the series of payments to be handled by your bank.
Option 3: Set Up Direct Deposit with Your Employer (if You Have the Option)
An excellent way to automate and fund your personal finances is to set up direct deposit of your paycheck (the vast majority of salaried workers are paid this way). You’ll know your salary is getting sent to your bank account and when it hits. Some pointers:
• You’ll likely need to share your account number and routing number with your employer in order to establish direct deposit.
• You may also need a voided check to get the funds moving to the right place.
• You can then schedule your automated payments for the right dates, when your balance is feeling especially flush.
• A great hack to know about: Some bank accounts will allow you access to your paycheck funds a day or two early if you sign up for direct deposit with them. That’s another great way to keep abreast of those bills.
💡 Quick Tip: As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.
Option 4: Set Up Automatic Retirement Contributions
It’s all too easy to think, “I’ll get around to saving for retirement…someday.” Perhaps that’s why the average American had only $65,000 stashed away for retirement according to the Federal Reserve’s most recent survey. That’s probably not enough if your dream is moving to Hawaii at age 65 and spending your days with your toes in the sand.
That’s why learning how to automate your finances for retirement savings can be such a helpful practice. Experts agree that 10% to 15% of your pretax income is a good amount to have deposited into your retirement plan every paycheck. Some tips:
• You can authorize your HR or payroll department to automatically whisk away a certain amount of your pre-tax income every paycheck and put it toward retirement. You won’t miss what never hits your checking account, right?
• Aim for the maximum amount allowed, or at least put in enough to get any company match that’s offered. Otherwise, you’re leaving free money on the table.
If you’re self-employed, you can also automate your savings with recurring transfers into such vehicles as a solo 401(k), SEP IRA, or SIMPLE IRA as you save for your future.
Option 5: Put Your Savings on Autopilot
Your non-retirement savings are another important account to automate. Again, if your salary hits your checking account, you may feel rich and go spend more than you should. By automating your savings and funneling money from your paycheck straight into an account, you may avoid going on shopping sprees.
This can be a very effective tool. In one study by financial psychologist Brad Klontz, people who visualized their goals and set up automatic withdrawals enjoyed a 73% increase in their savings after just one month.
Into what kind of account can you direct those funds? That’s up to you. Perhaps you want to have a few separate accounts that feed different goals. You might have one account for a down payment fund, one for vacation savings, and one for your child’s future educational expenses. You can direct how much and how often you want each transfer to be.
Of course, there are options about where exactly you keep your savings. Some possibilities to consider:
• Standard savings accounts are good, but a high-yield savings account can be even better. These tend to pay a significantly higher annual percentage yield (APY) than a standard account and are often offered by online vs. traditional banks.
• CD accounts can be another good option. These are time deposits, meaning you commit to keep the funds with the financial institution for a specific period of time, which may typically range from a few months to several years. In return, you are assured a specific interest rate. However, there may be penalties if you withdraw funds early.
• A TreasuryDirect account can allow you to make recurring purchases of electronic savings bonds directly from your paycheck. You can learn more about this at the TreasuryDirect website .
Option 6: Set Up Regular Contributions to Your Emergency Fund
Your emergency fund is another bundle of cash that can benefit from automated infusions of money. An emergency fund is a stockpile of easily accessed cash that can tide you over when unexpected circumstances hit. Perhaps you get a major car repair or medical bill or are laid off from your job. An emergency fund can let you pay bills without accessing a high-interest line of credit (say, ringing up too much debt on your credit card).
In terms of emergency funds, keep the following in mind:
• It’s wise to have at least a few to several months’ worth of basic living expenses in the bank. That means mortgage or rent, utilities, insurance payments, food, childcare, and other must-have goods and services, plus minimum debt payments.
• Most people can’t create this fund with a single, lump-sum deposit. Making regular transfers into your account (even if it’s only $20 per paycheck or per month) will get you started. Any contribution is better than nothing!
• Where to keep your emergency fund? Since you want it to be available almost immediately in urgent situations, a high-yield savings account or standard savings account can be a good option. Either way, you’ll earn some interest. A money market account may also serve this purpose.
Option 7: Sign Up for Automated Investing with Your Brokerage
If you currently have an investment portfolio or are planning on starting one, that’s another task that can be made simpler by technology. Automated investing can allow you to achieve consistency with minimal effort, which can help you build your net worth over time.
Some examples:
• As noted above, you might set up recurring transfers into a retirement plan that invests the funds for you.
• You can automatically transfer money from your checking account into a brokerage account.
• You might work with a robo-advisor that picks investments based on your needs and preferences and also rebalances your portfolio.
• Investing apps are another possibility. These can be as simple as the ones that round up the price of purchases and then invest the change for you.
Tips to Successfully Automate Your Finances
Now that you have a good grounding in the benefits and how-to’s of automating personal finances, consider these success strategies:
Create a Budget Based on the Balance You Get Paid
Look at where your money stands after you deduct your retirement and savings amounts. With the remaining funds, you can plan out ways to budget. There are various techniques out there, like the 50-30-20 budget rule, among others. Do an online search and see what resonates with you.
A budget will guide your saving and spending and can reveal how you are doing in terms of setting financial goals and meeting them on other fronts, such as a vacation fund or a retirement account.
It will help you handle good vs. bad debt more effectively. All are terrific ways to avoid excessive debt and build wealth.
Be Aware of All Your Bill Due Dates
As you automate your finances, do pay careful attention to the due dates on your bills. Who wants to see their hard-earned cash get drained by late fees?
• Look at the calendar; check when your paycheck hits and when certain bills are due. Some creditors may set your due date in stone; others may have some flexibility.
Similarly, some autopay portals may allow you to set the payment date; others may have a specific date on which they will debit funds.
• Make sure you understand if there’s any lag with automatic payments. Be sure they will arrive on time.
• It can be better to stagger autopayments so you don’t risk overdrawing your account. See what best suits your lifestyle and money style to keep your account in good shape.
Review Your Bank Account and Bank Statements Often to Stay on Top of Your Transactions
One of the pleasures of automating your finances is that you are freed from thinking and worrying about your money and your bills on a regular basis. However, daily life involves all kinds of money blips, from treating your bestie to a fancy birthday dinner to (ugh) having fraudulent charges appear on your credit card bill.
So do review your bank account and other statements regularly to make sure everything is as it should be and that your balance isn’t too low. Check in with your accounts often. Should you check your bank account every day? Not necessarily. A couple of times a week can be a good cadence.
Increase Your Contributions When It Makes Sense
While you’re checking your finances and bank balances, don’t overlook whether it’s time to increase your contributions. If you’ve gotten a raise or paid off a student loan, you may have funds available to save more.
Or you might find that a chunk of change has accumulated in your checking account which could do more for your finances if used elsewhere. There are times when you may want to increase your transfers to reflect your positive financial status.
The Takeaway
Automating your finances can be a great way to take control of your money and make bill paying and saving so much more convenient. That kind of organization can let you breathe easier when it comes to managing your money and be more successful in meeting your financial goals.
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 4.60% APY on SoFi Checking and Savings.
FAQ
How often should I review and adjust my automated finances?
You should review your finances and automated transactions regularly, which for some people may mean a couple of times weekly; for others, it might be every other week. Also, it’s wise to check in when you have significant changes in your life, whether you’ve gotten a raise, took out a mortgage, or moved to an area with a higher cost of living. You may want to recalibrate your transfers.
Is it safe to automate my finances?
By and large, it is safe to automate your finances. You should, however, check in regularly to make sure you are not overdrafting or getting close to it, and also to keep in touch with your money. While there is a small risk of glitches or fraud with automatic transfers, it’s not a significant concern.
What are the best tools or apps to use for automating my finances?
There are an array of tools and apps for automating your finances. A good place to start may be with your very own financial institution. They may have roundup apps, automated savings and investing products, and other tools to help you make the most of your money and grow your wealth.
Can I still make manual payments even if I have automatic payments set up?
In many cases, you will still be able to make a manual payment even if you have automated payments set up. This could occur when you have an additional bill to an account that is set on autopay, or when you have a credit and want to pay a lower amount. Check with your creditor or the financial institution handling the transfer for details on how to do this smoothly.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Identity theft happens when someone steals your personal information and uses it to take money out of your bank account, open credit accounts in your name, or receive benefits (such as employment, insurance or housing benefits). Identity theft can have a negative impact on your finances, as well as your credit. And it can happen to anyone, regardless of age or income.
Fortunately, there are many things you can do to protect yourself from identity theft and minimize the fallout if your personal or account information ever does get compromised. Read on to learn what steps you can take if you think your identity has been stolen or notice any fraudulent activity on any of your financial accounts.
Contacting Your Creditors
You’ll want to report any potentially fraudulent credit card activity to the creditor involved as quickly as possible. This can help stop any further fraudulent use of your card and also limit your liability for any unauthorized charges. There may be a phone number printed on the back of the card for this purpose.
You may also want to review the last few months of card statements carefully, identify any transactions you believe to be fraudulent, and write a follow-up letter to the credit card issuer with these details and copies of your statements.
There are federal protections provided to consumers in the case of credit card fraud. A consumer’s liability is limited to the lesser of $50 or the amount of the theft if the actual credit card was used fraudulently. If only the credit card number was used fraudulently, there is no consumer liability.
For debit card or ATM card fraud, the quicker you report the card loss, the less they are potentially liable for. If you report a missing debit or ATM card before any unauthorized charges are made, you’ll have zero liability. The amounts increase the longer the missing card goes unreported.
• Maximum loss is $50 if the card is reported within two business days of the loss or theft.
• Maximum loss is $500 if the loss or theft is reported more than two business days, but less than 60 calendar days after the account statement is sent to the account holder.
• If the loss is reported more than 60 calendar days after the statement is sent, you can be responsible for all the money taken from your account. If money from linked accounts was also stolen, the maximum loss can be more than the account balance.
• If the ATM or debit card number, but not the physical card, was used to make unauthorized charges, the account holder is not liable for those charges if the fraud is reported within 60 days of the account statement being sent.
If you think your social security number or other important personal information has been stolen and used fraudulently, you’ll want to report it to the Federal Trade Commission (FTC) online at IdentityTheft.gov.
Once you create an account and file an identity theft report, you’ll receive a personalized recovery plan with tools like form letters to send to credit bureaus. The site also allows you to update your identity theft account and track your progress. If you were affected by a company-specific data breach, you can get advice from the FTC on how to protect yourself.
When you file an identity theft report, you’ll also get an FTC identity theft affidavit that you can print out and retain it for your records. You may need this affidavit if you file a police report. Banks and credit card companies may also request a copy of this FTC report.
Consider Filing a Police Report
If you believe you know who was responsible for the fraudulent activity, or can provide evidence for an investigation, you may want to file a police report. Filing a police report might also be necessary if a creditor requires the report as part of its investigation. Having a police report can also be helpful when requesting an extended fraud alert on your credit reports (more on that below).
You may also want to contact one of the three credit major consumer bureaus, Experian, TransUnion, and Equifax, and ask them to place a fraud alert on your credit report. This notifies lenders that you’ve been a victim of identity theft so they can take extra measures to verify your identity when they get an application for credit in your name. Contacting just one of the credit bureaus is fine — that bureau will contact the other two automatically.
Fraud alerts are free. If you have a police report or a FTC Identity Theft Report, you may be able to get a free extended fraud alert, which lasts seven years.
You can also request a freeze or lock on your credit report by contacting each credit bureau individually. Putting a freeze on a credit report blocks all access to the report, making it more difficult for a bad actor to use information fraudulently. Credit freezes are regulated by state laws, and credit bureaus are required to offer credit freezes at no charge. A credit lock also acts to protect your financial information from potential identity thieves, but is a program offered by an individual company, which may charge a monthly fee for the service. Credit locks are not regulated by state laws.
Disputing Errors Caused by Identity Theft
Whether you’ve been a victim of identity theft or not, it’s a good idea to periodically request copies of your credit report and read them carefully, checking for any errors or evidence of fraud.
Having misinformation on your reports can have a negative impact on your credit, making it harder for you to qualify for credit cards, mortgages, and personal loans with favorable terms.
Federal law allows consumers to request a credit report at no charge from each of the three credit bureaus annually. As a result of the coronavirus pandemic, however, the credit bureaus have been offering free weekly credit reports through AnnualCreditReport.com and will continue to do so until the end of 2023.
If you notice an error on a credit report, you can contact that credit bureau to file a dispute. All three major credit bureaus provide information on their websites for filing a dispute. It can take up to 30 days for the results of any investigation to be made available.
The Takeaway
There’s a lot you can do to keep your personal information and financial accounts safe, such as opting for two-factor (or multi-factor) authentication in order to access your bank and credit accounts online. If you receive a notification from a creditor of a failed login attempt, it’s a good idea to change your password.
If any of your personal or financial account information does get stolen and used fraudulently, however, there’s no reason to panic. If you report the fraudulent transaction to the appropriate financial institution quickly, you likely won’t be responsible for the charge or loss. You can also help stop any further fraud by locking or freezing your credit, filing an identity theft report with the FTC, and filing a police report.
If you’re thinking about applying for an online personal loan but are hesitant to share your information, know that SoFi takes the privacy and security of its members’ financial and personal information very seriously. We maintain industry-standard technical and physical safeguards designed to protect your information’s confidentiality and integrity. Also keep in mind that checking your personal rate won’t affect your credit.
See if an online personal loan from SoFi is right for you.
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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
