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Inside: Explore financial independence: Unveil why a debt-free life could be your path to riches, with practical strategies for lasting wealth without owing. Perfect for millennials or those new to managing money.
In an era where financial burdens weigh heavily on so many, adopting a lifestyle of debt-free living emerges as the modern epitome of wealth.
I’ve come to understand that true affluence isn’t just measured by the amount of dollars in your bank account, but by the freedom from the chains of debt. It’s not just about strict budgeting or cutting corners; it’s about the elevated sense of security and control that comes from owing nothing to anyone.
Encountering the peace of mind that accompanies a debt-free life has indeed propelled our financial well-being and moved us closer to our FI number.
But, the question for today, is being debt free the new rich, and the secret to true wealth. Let’s dig into that answer.
Debt-Free as the Gateway to Modern Affluence
In the past, wealth was often measured by the accumulation of material possessions and the perceived status they conferred.
Today, however, there’s a growing recognition that true affluence lies in financial freedom. Redefining wealth to include the absence of debt reflects a holistic understanding of prosperity in today’s economy.
Is being debt-free the new rich?
The question “Is being debt-free the new rich?” is more relevant than ever in a society enmeshed with credit and consumption.
Being debt-free signals a shift from traditional wealth, defined by material possessions, to a contemporary form of richness—one where financial stability and peace of mind take precedence.
Yes, being debt free will lead to increased wealth over time.
Debunking the Myth: Rich vs. Debt-Free
Many hinge their perceptions of wealth on income and assets without considering the crippling effects of debt. Being rich traditionally meant having substantial financial resources, but without considering debt, this view is incomplete.
Many individuals labor under misconceptions about living a debt-free life, believing it to be a goal that’s out of reach or mired in unrealistic sacrifices.
Let’s dispel these myths and highlight how a debt-free life is not only achievable but also a liberating choice that defies conventional financial norms.
Myth #1: You need a credit card to survive in today’s economy.
Many people believe a credit card is essential for building credit and making daily purchases. However, if you are unable to repay that credit card bill at the end of the month, then you shouldn’t use one.
Credit cards are helpful especially if you benefit from the credit card rewards. Many millionaires used the cash envelope system to get where they are at.
Myth #2: Student loans are the only path to higher education.
The notion that college is unaffordable without borrowing is widespread, yet there are numerous alternatives to student loans for funding education.
Learn how to get paid to go to school with scholarships, grants, work-study programs, and attending community college first. These are all viable strategies to pursue higher education without incurring massive debt.
Myth #3: Car payments are an unavoidable monthly expense.
Car payments are often accepted as a normal part of finance management, but it’s a myth that you’ll always have one. This one still makes me cringe – car payments are not considered normal.
By saving up and purchasing a reliable used vehicle, many can avoid the cycle of car loans, and even if a loan is necessary, paying it off quickly can relieve you from years of ongoing payments.
Myth #4: Debt is a necessary tool to achieve financial success.
Contrary to the belief that leveraging debt is how wealthy individuals build their empires, many successful people use debt strategically, if at all.
It’s possible to accumulate wealth through saving, investing wisely, and living within one’s means, all without relying on debt. Building wealth debt-free is slower but more stable and reduces the risks associated with borrowing.
Plus it increases the debt-to-income ratio.
Myth #5: Paying Off Debt is Too Hard and Takes Forever
Paying off debt utilizing strategies such as the debt snowball or avalanche method instead of waiting is crucial for several reasons.
Both approaches provide structured plans that create discipline, making it less overwhelming to tackle debt systematically. Paying off debts faster with these methods typically reduces the total interest paid over time, leading to significant savings.
Moreover, the quicker you become debt-free, the sooner you can redirect your income toward building wealth, saving for the future, or investing in opportunities. Finally, the psychological boost from witnessing debts disappear can be incredibly motivating, improving your financial confidence and relieving stress associated with high levels of debt.
Myth #6: Pointless to Pay Off Debt if Making More on the Money
Paying off debt can sometimes seem counterintuitive, especially if you’re making more on your money through investments or savings compared to the interest on your debt. While from a purely mathematical standpoint, it may make financial sense to keep the debt and grow your investments, the freedom from being debt-free transcends numbers.
However, the psychological benefits of not owing money—such as reduced stress, increased mental well-being, and the peace of mind that comes with financial security—often outweigh the potential financial gains from investing.
Debt can feel like a burden, and removing this can lead to a clearer mindset, freeing up mental energy and resources to focus on other aspects of life.
Myth #7: I’ll Be Broke Forever
Overcoming “I am broke” mindset to achieve debt freedom often requires a substantial shift in both behavior and perspective.
It involves breaking the cycle of living paycheck to paycheck and resisting instant gratification by prioritizing financial goals over immediate desires. Replacing impulsive spending habits with disciplined budgeting and intentional saving can be a challenging, yet empowering transition.
This transformation not only demands goal-setting but also a deep understanding that possessions do not measure true wealth but by financial security and the freedom it brings.
Myth #8 – Debt Won’t Limit Your Financial Freedom
Debt often acts as a chain that restricts monetary mobility.
Carrying debt means committing future earnings to past expenses, limiting the ability to invest in opportunities or save for unforeseen events.
True financial freedom can only be found when these chains are broken, unlocking the full potential to use your income to shape the life you desire. This is what you will learn here at Money Bliss.
Strategies for Achieving a Debt-Free Life
Achieving a debt-free life involves setting clear, attainable goals, exercising self-restraint to avoid unnecessary expenditures, and creating a focused plan of action to eliminate existing debts.
By embracing contentment and understanding that happiness isn’t tied to material possessions, one can redirect funds towards paying off debts, paving the way for a life with greater financial independence and security.
Tip #1 – From Calculating Debts to Making a Payoff Plan
Embarking on the journey to debt freedom begins with a clear assessment of your financial landscape. It’s essential to compile a comprehensive list of your debts, noting balances, interest rates, and minimum payments.
Armed with this information, constructing a tailored payoff plan becomes your blueprint to financial liberation. Taking this active step forward is where the climb back to solvency begins.
Tip #2 – Overcoming Social Pressures and Lifestyle Inflation
Social pressures and lifestyle inflation are formidable obstacles in the pursuit of debt freedom.
The urge to spend is often magnified by the fear of missing out (FOMO) and the desire to match others’ spending habits (aka Joneses). Overcoming these cultural norms is critical for individuals determined to maintain financial health and resist the lure of indebtedness.
Tip #3 – Budgeting, Saving, and Earning More
Budgeting is the roadmap to tracking and controlling your spending while saving ensuring you’re prepared for the future. Consider it carving a path to financial freedom.
Earning more, whether through advancement in your current role or side hustles, accelerates debt repayment. Balancing these pillars is key – spend wisely, save diligently, and earn aggressively to break the chains of debt.
Tip #4 – The Shift Towards Minimalism and Non-Materialism
A growing number of individuals are embracing minimalism, finding richness in life’s experiences over the accumulation of goods.
This paradigm shift from materialism to non-materialism spotlights the value of simplicity and intentional living. It’s a conscious choice to prioritize quality over quantity, creating space for financial freedom and personal growth.
Tip #5 – Investing and Saving: The Vehicles for Sustainable Wealth
Once debt is cleared, saving and investing become the twin engines driving the journey toward sustainable wealth. This is the #1 overlooked thing I see too often.
The idea of investing in stocks is overwhelming to too many; thus, you are doing nothing with your money.
A savings account offers a cushion against life’s uncertainties, while investments can grow your wealth exponentially over time. By harnessing the power of compound interest and diversification, you’re not just avoiding financial pitfalls but actively building your monetary legacy.
Tip #6 – The Necessary Sacrifices for Long-Term Gain
Achieving debt freedom often requires sacrifices that can test your resolve in the short term. I can attest to this over and over. But, then I see progress on my journey and I’m grateful.
Whether it’s forgoing a luxury purchase, downsizing your living space, or choosing a staycation over a lavish holiday, these decisions contribute to a greater financial objective. Embracing necessary sacrifices paves the road to long-term gain and a richer future, free from financial constraints.
Tip #7 – Leveraging a Debt-Free Status for Financial Growth
Living debt-free opens doors to financial opportunities previously blocked by loan repayments and high interest rates. You are focused on improving your liquid net worth.
This status can be leveraged for growth by increasing investments, acquiring assets, or starting a business without the drag of debt. It’s about transforming newfound liquidity into channels that foster wealth expansion and provide long-term financial security.
Real Stories: Transformations from Debt to Wealth
The tales of debt freedom resonate with hope and inspiration.
Imagine the relief of one less bill in the mailbox or the pride in finally owning your car outright. These personal anecdotes serve as powerful testaments to the life-altering impact of paying off debt.
Scott Alan Turner felt trapped by student loans for years, only to transform their financial narrative by dedicating extra payments to their debt and eventually questioning every single impulse purchase.
Each story underscores a unique journey of dedication, strategy, and eventual liberation that changes lives fundamentally.
The Ripple Effect on Families and Future Generations
Debt freedom not only transforms individual lives but also sends ripples through families and across generations.
Free from financial burdens, parents can invest in better education for their children, save for their own retirement, and instill the value of living within one’s means. Creating a new family legacy.
FAQ: Embracing a Debt-Free and Wealthy Outlook
Being truly debt-free means you have no outstanding financial obligations—no loans, no credit card balances, and no debts lingering over your head.
It reflects a clean slate of financial commitments, allowing for unrestricted use of your income and providing a robust platform for financial growth and security.
While happiness is subjective, studies consistently link less debt to higher levels of contentment. 1
People without debt often report a greater sense of peace and well-being, liberated from the anxieties and constraints associated with debt. Freeing oneself from financial liabilities allows for a lifestyle focused on experiences and personal fulfillment, factors known to enhance happiness.
It is generally advantageous to be completely debt-free, as it alleviates financial stress, increases disposable income, and contributes to a solid foundation for building wealth. Without the burden of debt repayments, individuals can allocate funds to savings, investments, or personal passions, enhancing their overall quality of life and financial stability.
Avoiding debt is often seen as countercultural because society promotes a credit-fueled economy, where debt is normalized for consumption and lifestyle enhancement.
Challenging this norm by rejecting debt goes against these ingrained beliefs, embracing financial independence and self-reliance over societal expectations and instant gratifications.
Freedom from Debts
Clearing up this confusion underscores the significance of being debt-free as a true indication of financial health and prosperity.
Embracing a debt-free life is not merely about financial stability—it’s about the profound sense of freedom and the joy that comes with it.
Being free from debt is your ticket to robust retirement savings, potentially leading to an earlier and more comfortable retirement.
The ultimate luxury lies in this liberty; the contentment from knowing you live within your means, free from the shackles of debt. Achieving this might require discipline, setting clear goals, and a commitment to self-restraint, but the payoff is unparalleled.
If this vision inspires you, why not start that journey to financial independence today? Each step, no matter how small, moves you closer to realizing your dreams without the weight of debt steering your course.
Now, the time is for you to become the next millionaire with no money.
Source
Motley Fool. “Study: The Psychological Cost of Debt.” https://www.fool.com/the-ascent/research/study-psychological-cost-debt/. Accessed March 14, 2024.
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Mortgage rates are trending about the same across the board. Here are today’s average mortgage rates:
30-year fixed: 7.26%
15-year fixed: 6.48%
30-year jumbo: 7.32%
*Data accurate as of March 27, 2024, the latest data available.
30-year fixed mortgage rates
Today’s 30-year fixed mortgage rate is 7.26% which is about the same as last week’s 7.26%, according to data from Curinos. This is a decrease from last month’s 7.52%. Last year around the same time, 30-year fixed rates were 5.84%, which makes today’s rate much higher than it was a year ago.
At the current 30-year fixed rate, you’ll pay about $690 each month for every $100,000 you borrow — the same as last week.
Ready to buy? Compare the best mortgage lenders.
15-year fixed mortgage rates
Today’s 15-year fixed mortgage rate is 6.48%, about the same as last week’s 6.48%. This is a decrease from last month’s 6.71%. Last year around the same time, 15-year fixed rates were 5.16%, which makes today’s rate much higher than it was a year ago.
At the current 15-year fixed rate, you’ll pay about $873 each month for every $100,000 you borrow, down from about $880 last week.
30-year jumbo mortgage rates
Today’s 30-year jumbo mortgage rate is 7.32% which is higher than last week’s 7.24%. This is an increase from last month’s 7.23%. Last year around the same time, 30-year jumbo rates were 5.70%, which makes today’s rate around 2 percentage points higher than it was a year ago.
At the current 30-year jumbo rate, you’ll pay around $691 each month for every $100,000 you borrow, down from about $693 last week.
Methodology
To determine average mortgage rates, Curinos uses a standardized set of parameters. For conventional mortgages, the calculations are based on an owner-occupied, one-unit property with a loan amount of $350,000. For jumbo mortgages, the loan amount is $766,550. These calculations assume an 80% loan-to-value ratio, a credit score of 740 or higher and a 60-day lock period.
Frequently asked questions (FAQs)
On May 3, 2023, the Federal Reserve announced a third interest rate hike for the year — this time by 25 basis points. While the Fed doesn’t set mortgage rates, this increase in the federal funds rate could lead individual lenders to raise their home loan rates, too.
If you already have a mortgage, how this could affect your monthly payment will depend on if your loan has a fixed or adjustable rate. A fixed rate stays the same over the life of the loan, meaning your payments will never change. An adjustable rate, however, can fluctuate according to market conditions — which means you could see a rise in your monthly payments.
For example, if you take out an ARM for $250,000 with an interest rate of 5.5%, your initial monthly payments would be $1,719. But after the initial period is over, and the ARM switches to a variable rate, your payments could increase if the rate rises. If the rate rose just 25 basis points (5.75%), for instance, your payments would increase to $1,750.
If you’re not planning on keeping a home for a long time, an ARM could be the better option — especially if fixed-rate loans have much higher rates at the time. This is because ARMs tend to have lower rates to start than fixed-rate mortgages, though your rate can increase over time.
While a fixed-rate loan will have the same rate throughout the entire term, an ARM will start with a fixed rate for a set amount of time and then switch to a variable rate that can change for the remainder of your loan term. For example, a 5/1 ARM will have a fixed rate for five years (the “5” in 5/1), then switch to a variable rate that can change once a year (the “1” in 5/1).
Whether a mortgage rate buydown is the right choice for you will depend on your individual circumstances and financial goals. If you plan to stay in the home for a long period of time and can afford to pay for the buydown, it could make sense. But if you know you’ll move or refinance your mortgage before you break even on the cost of the buydown versus the lower monthly payments, then buying down your rate might not be worth it.
Buying down your rate can be permanent or temporary, which will impact the overall cost. A permanent buydown is also known as purchasing mortgage discount points — for each point, you’ll typically pay 1% of the loan amount in return for 0.25% off your rate.
Temporary buydowns, on the other hand, will reduce your interest rate to a certain point, and it will then increase each year until you hit the original rate. Some common temporary options are 2-1 and 1-0 terms, with the first number being how much your rate is reduced in the first year and the second number being the reduction for the following year. Unlike discount points that are paid for by the buyer, this type of buydown can be paid for by the lender, seller or homebuilder.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
Jamie Young is Lead Editor of loans and mortgages at USA TODAY Blueprint. She has been writing and editing professionally for 12 years. Previously, she worked for Forbes Advisor, Credible, LendingTree, Student Loan Hero, and GOBankingRates. Her work has also appeared on some of the best-known media outlets including Yahoo, Fox Business, Time, CBS News, AOL, MSN, and more. Jamie is passionate about finance, technology, and the Oxford comma. In her free time, she likes to game, play with her two crazy cats (Detective Snoop and his girl Friday), and try to keep up with her ever-growing plant collection.
Megan Horner is editorial director at USA TODAY Blueprint. She has over 10 years of experience in online publishing, mostly focused on credit cards and banking. Previously, she was the head of publishing at Finder.com where she led the team to publish personal finance content on credit cards, banking, loans, mortgages and more. Prior to that, she was an editor at Credit Karma. Megan has been featured in CreditCards.com, American Banker, Lifehacker and news broadcasts across the country. She has a bachelor’s degree in English and editing.
Ashley is a USA TODAY Blueprint loans and mortgages deputy editor who has worked in the online finance space since 2017. She’s passionate about creating helpful content that makes complicated financial topics easy to understand. She has previously worked at Forbes Advisor, Credible, LendingTree and Student Loan Hero. Her work has appeared on Fox Business and Yahoo. Ashley is also an artist and massive horror fan who had her short story “The Box” produced by the award-winning NoSleep Podcast. In her free time, she likes to draw, play video games, and hang out with her black cats, Salem and Binx.
Next time you’re planning a vacation, a travel credit card could defray some or all of the costs if it packs the right incentives. Typically, cards with higher annual fees provide the most value with perks like ongoing rewards, free checked bags, airport lounge access or other benefits. But even cards with low or no annual fees make it possible to earn some value toward travel, if you can qualify.
These cards generally require good credit (scores of 690 or higher), and even if you’re eligible, it’s not worth pursuing one if you can’t pay off the credit card bill in full every month to avoid steep interest charges. And if you’re working toward paying down existing debt, it might not be worth chasing points and miles until you’ve made progress on that front.
But as long as travel credit cards align with your financial goals, their potential savings merit consideration — even if you travel just once or twice per year. Explore the flexibility of a general-purpose travel credit card to book travel anywhere, or a branded credit card to book travel with a favorite hotel or airline. Either option may offer money-saving benefits toward your next trip.
Valuable features can lower costs
Offers will vary among general-purpose travel credit cards and airline- or hotel-branded credit cards, but some savings opportunities may include:
Perks
If a credit card offers a lengthy list of perks, the value can quickly add up. Here are some features to look out for:
A sign-up offer: Travel credit cards generally come with lucrative sign-up offers that let new cardholders earn a pile of points or miles by meeting a minimum spending requirement. It’s easier to snag if you can strategically time a credit card application around planned purchases during a heavy-spend month or season.
Free checked bags: Some airline credit cards offer free checked bags, which can add up to real savings when applied per person on a round trip. This is one way that Doug Figueroa, a content creator at the YouTube channel Zorito y Doug, makes up the cost of the $150 annual fee on an airline credit card. “The savings are $70 round trip per passenger listed in the same reservation,” he says.
TSA or Global Entry credit: Some travel cards issue a credit (up to $100) when you use them to pay for a TSA or Global Entry application fee. These expedited airport security screening programs can save time while traveling.
Travel credits: Depending on the card’s terms, travel credits may be used to save money on a variety of travel expenses like rideshare services, airfare or accommodations.
Airport lounge access: You can skip the pricey airport food with some travel credit cards that offer complimentary airport lounge access. Austin Maxwell, a South Carolina-based content creator at the blog The Maxwells Travel, uses a travel credit card to avoid those costs. “I’m saving $20 to $30 every time I go to the airport because I don’t have to buy food or drinks during a layover or preflight,” he says.
A companion ticket: Some airline credit cards cover the cost of a ticket for a friend or family member. Depending on the card’s terms, you may have to pay taxes and fees on the fare, the companion ticket may have an expiration date and/or a spending requirement may apply.
Automatic elite status: You may earn elite status without much effort on some hotel-branded credit cards. Elite status can add up to valuable savings if the program offers free food, bonus points or suite upgrades.
Free nights: If your favorite hotel has a branded credit card that offers annual free night awards, it can stretch your vacation budget.
Protections and other benefits
A travel credit card that offers trip delay or cancellation insurance, lost baggage insurance, rental car coverage or other protections may also be of value to you. To qualify for these benefits you typically need to pay for the trip or covered purchase with the eligible credit card. Read the terms carefully to understand the extent of your coverage.
Figueroa says he saved $90 over three days with his card’s primary rental car coverage on a trip to Miami.
“Once you make the online reservation, you must decline all insurance offered by the rental company and pay for everything with your [card],” he says.
High-value reward redemptions
Points or miles on some travel credit cards might lose value if they are used for non-travel redemptions like cash back, gift cards or other options. Travel redemptions typically offer the best value, and you might squeeze out even more value with a general-purpose travel card that allows points to transfer to airline or hotel partners. It’s a strategy that Maxwell uses often to his advantage.
“It’s even better if there’s a transfer bonus associated with that,” he says. “Credit card companies offer transfer bonuses — 15%, 20%, 30% bonus — if you are to transfer points to a specific airline.”
He says he has also transferred points to hotel partners to book hotel rooms with them. “It would be the equivalent of getting a hotel room at $120 that’s actually valued at $500,” he adds.
To determine whether to redeem rewards for travel or transfer them to a partner, compare costs by checking the credit card’s booking platform and the partner’s website. Also factor in whether rewards transfer on at least a 1:1 ratio, meaning that you’ll get the equivalent value in points or miles transferred.
The main differences between checking and savings accounts is that checking accounts are for spending and come with a debit card and checks, while savings accounts are a place to stash and grow your money via interest earned but your access may be more limited. These two kinds of financial products can form the foundation of how you manage your money day to day.
Read on to learn what the difference between a savings and checking account is, how they are the same, and the role each plays in your financial life.
Key Points
• Bank transfers move money from one bank account to another.
• These can be done by online transfers, checks, peer-to-peer services, wire transfers, third-party companies, or bank-to-bank money transfer services.
• There may be limits on how many bank transfers you can do in a specific time period and the dollar amount.
• The time it takes to complete a bank transfer may vary with the method.
Quick Comparison of Checking vs Savings Accounts
To help you understand the difference between checking and savings accounts, here is a chart summarizing some key points.
Checking Account
Saving Account
Fees
Varies
Varies
Interest earnings
Minimal (if at all)
Yes
Debit card access
Yes
No
Check writing capabilities
Yes
No
Withdrawal limits
None
May be capped at 6 per month
Maintenance fees
Varies
Varies
Minimum opening balance
Varies
Varies
Best used for
Spending
Saving
There are similarities when you compare checking vs. savings accounts, such as varied minimum opening deposits, maintenance fees, and other monthly fees. Also, both kinds of accounts are typically insured by the FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration), which can give you peace of mind.
That said, there are also three major points of difference between checking and savings accounts: how account holders access their money, withdrawal limits, and interest earnings.
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Three Major Differences to Know
Consider these three important ways that checking vs. savings accounts can differ.
Interest Earnings
When it comes to earning a bit of a return on an online bank account, savings accounts typically offer a higher interest rate than checking accounts. In many cases, checking accounts aren’t interest-bearing, meaning no interest is earned at all. Interest rates for savings accounts vary. The current average is 0.46% APY (compared to a current average of 0.07% APY for checking accounts), according to the Federal Deposit Insurance Corporation, or FDIC. That said, you probably will find higher rates at online banks instead of bricks-and-mortar ones, with rates ranging from 4.35% to 5.15%. By not having physical locations, online banks save money and can pass savings onto their customers.
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Liquidity
Here’s a key difference between a savings and checking account: Checking accounts are usually used by account holders to access their cash frequently, whether paying monthly bills or buying a latte. Checking accounts generally include a debit card, which can be used for purchases or ATM withdrawals. Checks, while not as popular as they once were, are also typically provided.
Savings accounts, on the other hand, don’t usually come with debit cards. Some financial institutions offer an ATM card for deposits and withdrawals to a savings account. Similarly, they lack checks. This reinforces the idea that these accounts are not for spending.
Withdrawal Limits
Checking accounts allow unlimited withdrawals, whereas savings accounts may only allow up to six per month. After that point, the transaction could be denied or the account holder charged a penalty. The bank might even convert the savings account into a checking account.
However, in April 2020, the Federal Reserve lifted this limitation of six transactions imposed through Regulation D. Financial institutions are no longer required to limit savings account withdrawals or transfers to six per month, but some may continue to do so. Check with your financial institution to learn the full story.
What Is a Savings Account?
A savings account is an account held at a financial institution such as a bank or credit union, and its primary purpose is to store your funds safely. Most savings accounts allow the account holder to earn interest on the account balance.
A few points to note:
• Savings account rates are generally higher than those offered with checking accounts (if those pay any interest at all). For this reason, they can be a good option as a savings vehicle for money that the account holder doesn’t need to access frequently.
• Common uses for savings accounts are emergency funds, short-term savings goals, and funds for occasional expenses. The cash can accumulate in the savings account and have an opportunity to earn interest.
• As mentioned above, banks can still impose a per-month transaction limit on savings accounts — they’re just not required to by the Fed anymore. There could be fees imposed on these excess transactions, which can add up.
• Some financial institutions may automatically close an account holder’s savings account or convert the savings account to a checking account if too many withdrawals are made each month on a regular basis.
• Other financial institutions don’t charge a maintenance fee or require account holders to maintain a minimum account balance, although they may require a minimum deposit to open an account. It’s wise to check with your financial institution to make sure you understand the ground rules.
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Benefits of Savings Accounts
Here are some of the upsides of opening and maintaining a savings account:
• Savings accounts are low-risk, which means you are unlikely to lose money. Rather, you are likely to make money, thanks to interest, especially when that interest compounds.
• Interest is a plus. By shopping around for high-yield accounts, you may be able to grow your money without the volatility of investing in, say, stocks.
• Savings accounts are usually insured by the FDIC for up to $250,000 per account holder, per account ownership category, per insured institution. In the highly unlikely event of your bank going out of business, you’d be covered. What’s more, some banks participate in programs that extend the FDIC insurance to cover millions1.
• Easy access is another plus. Unless term or time deposits, in which your money can be locked up for a specific period of time, savings accounts allow for easy withdrawal of your funds.
• Peace of mind can come with savings. Having a savings account can help you feel more secure as you work toward your financial goals. For instance, you’ll know that you have funds available if an emergency cropped up.
Recommended: Guide to Using an ATM
What Is a Checking Account?
A checking account is also held at a financial institution, though its primary purpose is to be used for everyday spending. These accounts generally don’t have any withdrawal limits, so account holders can make as many transactions as their heart desires.
• Debit cards typically come with checking accounts, and can be used for purchases at bricks-and-mortar and online retailers and to withdraw cash from an ATM.)
• Checking account holders may also be able to use paper checks, either complimentary or purchased by the account holder, which can be used to pay bills and make purchases.
• Account holders may also access their funds by P2P platforms (such as Venmo or PayPal) and other means.
Checking accounts may not earn as much interest compared to savings accounts, if they earn any interest at all.
Many financial institutions charge the same types of fees for checking accounts and savings accounts, such as monthly maintenance fees. Additional checking account fees may include overdraft or non-sufficient funds fees and out-of-network ATM fees.
Having enough money in the account and sticking with in-network ATMs are good ways to avoid charges like these, but banks are required to disclose certain fees it charges. Take a look at the fee schedule for any particular type of account you are thinking of opening and get acquainted with the details.
Benefits of Checking Accounts
There are many advantages to having a checking account, including:
• You can pay bills and transfer funds online, in person, or by app; there’s no need to carry around cash for such transactions. Checking accounts can make money management very convenient.
• Checking accounts are typically insured by the FDIC (or, if you bank with a credit union, NCUA), so your money is safe. Even if the financial institution were to go out of business, you wouldn’t lose your money up to $250,000 per account holder, per account ownership category, per insured institution.
• Checking accounts can be an affordable way to conduct financial transactions. For instance, your account is likely to come with checks, which can save you the effort and expense of using money orders or other types of payments in many situations.
• Your checking account may offer rewards, such as cash back opportunities, or if you apply for a loan at the same institution, you may get a better rate.
Recommended: Ways to Avoid Overdraft Fees
The Takeaway
Yes, there are significant differences between checking and savings accounts. They serve quite separate purposes (spending vs. saving) and can be useful in working toward varied financial goals. For many people, however, it’s not a question of which kind of account to open, but where’s the best place to open both.
When you’re looking for the best banks for checking and savings accounts, see what SoFi can offer.
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.
3 Great Benefits of Direct Deposit
It’s Faster
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.
It’s Like Clockwork
Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.
It’s Secure
While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.
FAQ
Are interest rates variable on savings and checking accounts?
Savings and checking accounts virtually always have variable interest rates.
Are checking or savings accounts insured?
Yes, both checking and savings accounts are usually insured by the FDIC (or NCUA) for up to $250,000 per account holder, per account ownership category, per insured institution.
Is it better to have most of your money in a savings or checking account?
When comparing checking vs. savings accounts, know this: If you have a chunk of the money that will sit in the bank for a period of time, a savings account can be a wise choice since it will earn interest.
Photo credit: iStock/AleksandarNakic
1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Personal Capital is a client-centric robo-advisor offering investment and wealth management services. The company distinguishes itself from the competition by combining automation with personal service. With over 2.7 million users, Personal Capital currently holds $16 billion in assets under management.
Unlike many financial apps designed to make investing more accessible, Personal Capital is a robo-advisor for those who already have some established wealth. They’ve gone back and forth on the minimum investment required, which is now set at $100,000.
Get started with Personal Capital
on Personal Capital’s secure website
Its goal is to provide a more transparent and affordable investment platform. However, its wealth management service does target clients with larger assets, with higher fees being assessed with the fewer assets you let the company manage.
In this Personal Capital review, we’ll get into the specifics shortly, but the upside to potentially paying higher fees is the access you get to financial advisors to help with your investment strategy.
The company utilizes five principles for investing:
the modern portfolio theory
personalized asset allocation
tax optimization
equal sector and style weighting
disciplined rebalancing
No matter how much in assets you’re looking to invest, consider Personal Capital if you prefer a hands-on experience or if you have a large portfolio to open or transfer. Either way, we’ll take you step-by-step through the different types of accounts you can have with Personal Capital, as well as the fees you’ll pay at different asset levels.
You’ll also learn about the special features that make Personal Capital unique, including financial tools and expertise. If you’re looking for an online advisor for any or all of your wealth management, see if Personal Capital is right for you.
Available Plans at Personal Capital
There are three different plans available at Personal Capital, which are divided up based on the amount of investable assets you have. If you know how much you’d like to invest, find the correct category to learn about the benefits and services you’d receive from Personal Capital. Then keep reading to learn more about the fee structure.
Investment Service Plan
The first plan is targeted for those with up to $200,000 in assets to be invested. Services include access to a financial advisory team, a tax-efficient ETF portfolio, dynamic tactical weighting, 401k advice, and cash flow & spending insights.
You’ll also get to use Personal Capital’s free wealth management tools. You do, however, need a minimum of $100,000 to get started investing with Personal Capital.
Wealth Management Plan
The next option is the Wealth Management plan, for those with investable assets between $200,000 and $1 million. You get access to all the benefits from the Investment Service plan, plus several others.
The Wealth Management service includes two dedicated financial advisors, customizable stocks and ETFs, a full financial and retirement plan, college savings and 529 planning, tax-loss harvesting and tax location, and financial decisions support.
The financial decisions support refers to help with insurance, home financing, stock options, and compensation. Also, note while your financial advisors can help you plan for investment accounts like a 401k for retirement or a 529 for college savings, Personal Capital doesn’t actually offer these accounts.
Private Client Plan
If you invest more than $1 million, you qualify for the Private Client Plan. Again, you receive all the perks of the previous two plans, in addition to several more.
To begin, you’ll get priority access to CFP, financial advisors, investment committee, and support, plus an investment portfolio mix of ETFs, individual stocks, and individual bonds (in certain situations).
You also receive family tiered billing; private banking services; estate, tax, and legacy portfolio construction; and donor-advised funds. Personal Capital also offers private clients a private equity and hedge fund review, deferred compensation strategy, as well as estate attorney and CPA collaboration.
Get started with Personal Capital
on Personal Capital’s secure website
Fee Structure and Accounts
The more money you invest through Personal Capital, the more money you’ll save in fees. If you invest up to $1 million, your fee comes to 0.89% of the assets being managed. If you invest more than $1 million, your first $3 million in assets are only charged a 0.79% fee. Then, your next $2 million is charged 0.69%.
The $5 million after that are charged 0.59% and the next $10 million are charged 0.49%. However, there aren’t any charged beyond the account management fees, so you don’t have to worry about annual, transfer, or closing fees.
So what types of investment accounts are supported through Personal Capital? There are many: both individual and joint non-retirement counts; Roth, traditional, SEP, and rollover IRAs; and trusts.
Through your Personal Capital investments, you can expect a healthy range in your portfolio. For example, when buying U.S. equities, they buy a diversified sample of at least 70 individual stocks that epitomize their tactical weighting approach and optimize your account for tax purposes.
Personal Capital also only purchases liquid securities, so that if you ever need to access cash quickly, you can receive funds within a settlement period of just one to three days.
Funds are held by Pershing Advisor Solutions, a Bank of New York Mellon Company. It is one of the largest U.S. custodians and currently holds more than a trillion dollars in global client assets.
Tax Optimization Strategies
Personal Capital uses several techniques and strategies to ensure clients are optimizing their taxes on investments. First, they entirely avoid mutual funds, which they regard as inefficient for tax purposes. Their asset location is personalized whether you have taxable accounts or retirement accounts.
For example, Personal Capital typically places high-yielding accounts and fixed income into a tax-deferred or exempt account. REITs are also generally placed in a retirement account because they pay nonqualified dividends.
Finally, Personal Capital utilizes tax-loss harvesting, meaning they use individual securities that realize losses and can, therefore, offset gains or provide a tax deduction.
Special Features
You can take advantage of some of Personal Capital’s online resources without even becoming a client. Just by creating a Personal Capital account, you can link all of your financial accounts for an investment checkup.
The program analyzes your bank accounts, credit cards, and investments to create recommendations on your asset allocations. You can then choose whether to make those adjustments to your investments.
Additionally, you can check holistically on how your investments are performing by considering how much you’re charged in fees. You can do this in one of two ways.
The first is through the Mutual Fund Analyzer, which you can compare performance (with fees) against the broader markets. Then you can use the general Fee Analyzer to see what you’re being charged on your non-taxable retirement accounts.
You can also use Personal Capital for a budget check-up that analyzes your saving and spending. You can even incorporate their Retirement Planner for long-term savings projections.
You’ll be provided with several scenarios, including best-case, worst-case, and most likely. It gives you a good idea of what you could potentially expect when you’re finally ready to retire.
All of these features run through the Personal Capital financial dashboard, so you can get a holistic view of your entire financial picture. You can use them on their mobile app or website.
Some of their investment management tools include a 401(k) Analyzer, Retirement Planner, Investment Checkup, Net Worth Calculator. Moreover, you still have the ability to contact a personal financial advisor.
As we mentioned earlier, Personal Capital implements five distinct strategies for investing. Learn a bit more about each one to get a better grasp of how your money would be managed by this advisor.
Modern Portfolio Theory
The prime directive here is to create an efficient portfolio for clients while yielding the highest possible return for the lowest possible risk.
Personal Capital works with six asset classes to provide this equilibrium, which are all meant to be liquid and broadly investible. These asset classes are U.S. stocks and bonds, international stocks and bonds, alternatives (including ETFs and commodities), and cash for liquidity.
Personalized Asset Allocation
There’s a reason the company is called Personal Capital: they understand that no two investors are exactly alike. That’s why they look at your individual data and financial goals to balance your portfolio’s risk and growth.
They use a proprietary Retirement Planner software that analyzes your spending and savings habits in addition to your projected income. This helps you determine what your financial future looks like and what you may need to change to reach your future goals.
Tax Optimization
We mentioned earlier that Personal Capital optimizes your taxes by using tax-loss harvesting and asset location, as well as avoiding mutual funds.
In fact, these steps could boost your annual returns by as much as 1%. While many financial advisors use one or two of these tactics, Personal Capital offers a truly robust strategy to make your portfolio more tax efficient.
Equal Sector and Style Weighting
Personal Capital’s strategy for diversification involves equalizing the composition of your portfolio by sector, size, and style.
The goal is to prevent bubbles and other volatile conditions from adversely affecting your investments too much. Likewise, they don’t rely on a few large companies, but instead spread out U.S. stock investments between 70 and 100 different stocks.
Disciplined Rebalancing
Your portfolio receives a daily review for any potential rebalancing needs. For high-level assets, they’re typically rebalanced when they deviate more than a few percentage points from the target.
Specific securities receive a smaller margin and are reviewed after just a 0.5% move from the target. Having a systematic review allows you to maximize your ability to buy low and sell high.
Who is Personal Capital best for?
Personal Capital offers truly extensive services for high net worth investors, particularly considering the low percentage of fees charged. This is especially true if you’re an investor with several million dollars in assets and who likes to have easy access to a dedicated financial advisory.
After all, in the Private Client tier of $1 million+, you can get advice on just about anything related to your finances, whether it’s about retirement, real estate, or anything in between.
That’s on top of the personalized asset management, so you have a one-stop-shop of both automated algorithms and a human point of contact who understands the larger picture concerning your finances.
Personal Capital also makes it easy for this type of investor to remain passive. If you appreciate their investment management and like how the allocation and review processes, then you don’t have to do much on your own.
In some popular budgets, 30% of your take-home pay goes toward the wants in life. So if you are wondering how to enjoy life when you have student loans, some of those funds can go to dining out, travel, and more. While student loans can eat up a portion of your disposable income, with smart budgeting, you can have some fun money available as you make your payments.
Read on for advice on how much money to earmark for fun when you’re focused on paying off what you borrowed for your education. Student debt, after all, is a phase of your life that you are moving through, and you can indeed find ways to live life while paying off student loans..
The Impact of Student Loan Debt
Yes, student loans can require time and effort to pay off. Many Americans are working their way through their payments. In fact, in one recent survey, the College Board found that 54% of undergraduate students at four-year institutions graduated with student loan debt. In other words, you are not alone.
Having that debt hanging over you can have an emotional impact in addition to affecting your finances. Student loan debt can result in higher levels of mental health issues; it can possibly contribute to money stress or feelings of depression.
That in turn can put strain on other aspects of life. It might, for instance, lead a borrower to delay life decisions, such as getting married or starting a family.
But having student loans on your plate can have a silver lining. That debt can encourage you to build positive financial habits as you work through your payments. You can learn how to budget efficiently. You can learn resilience and how to work through paying off debt. Consider it good practice for when you might have a car loan or a mortgage in the future. 💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
How Much Money to Allocate for Fun
As you look at your budget when paying off student loans, you might wonder, “What’s the right amount of money to allocate for fun?”
There’s no “right” or “correct” amount. Funds that you allocate toward fun (whether that means buying new clothes you don’t need, snapping up some concert tickets, or spending a long weekend at the beach) will need to work within your budget. Given that you are allocating a percentage of income toward student loans, here’s how to figure that out.
10% Rule
The 10% Rule refers to allocating 10% of your monthly income after taxes toward fun. For example, if you make $3,000 per month after taxes, you’d allocate $300 toward fun each month. You can use that amount guilt-free, whether you want to put it toward hobbies or dining out.
50/30/20 Rule
The 50/30/20 rule could also help you budget when you’re paying off student loans. Here’s how it works; you would allocate your take-home pay as follows:
• 50% essential expenses: Essential expenses refer to the cost of housing, food (groceries, not going out to brunch with friends), healthcare, and the like, as well as minimum debt payments, such as what you owe per month for your student loans, credit card, and car loan, if you have one.
• 30% discretionary expenses: Discretionary expenses include items that aren’t as essential, including dining out (like the above-mentioned brunch), personal care (spa days, training sessions), non-essential clothes, travel expenses, etc.
• 20% for savings and additional debt payments: You can think of these as putting money toward your short- and long-term goals. They can include savings, investments, or a child’s education. Or making additional payments toward you student debt to pay it off that much faster.
70/20/10 Rule
Another type of rule, the 70/20/10 rule, may seem just like the 50/30/20 rule, which it is — just with different allocation percentages. This rule means you divide your take-home pay as follows:
• 70% goes toward needs and wants.
• 20% goes toward debt repayment and short-term savings.
• 10% goes toward investing and donations.
You would figure out how much of that 70% you can allocate for fun to make this budget work for you.
Budgeting as a Couple
If you have a partner, you will have to decide how to budget your funds. Some couples keep their money separate, while others pool their resources. You may be in a situation where one person earns more than the other, or perhaps one is still in school. One or both of you may have student debt in a marriage. It can take some discussion and experimentation with different budget systems to decide how to divide your money up to cover:
• Essential expenses
• Discretionary expenses
• Goals
• Debt payoff
• Savings (whether for the down payment on a house, an emergency fund, or other goal).
💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to career services, financial advisors, networking events, and more — at no extra cost.
Choose Your Fun
Fun money should be intentional and focused. There’s no rule on how to live life while paying off student loans, so consider what would bring you joy. Would it be knowing you can go out to dinner once or twice a month? Being able to buy a new mountain bike? Becoming a member at your favorite local museum?
A quick reminder: Not that there’s anything wrong with saving for a crazy weekend in Vegas, but you don’t need to spend thousands to have fun. Don’t forget to also find low-cost fun with family and friends through free local concerts, movie nights at home, strolls through the local farmers’ market or sunset walks at a local park, potluck dinners, and similar activities. Making your own fun can be a free or cheap way to stretch your budget while paying off your student loans.
Monthly Budget Example
Here’s a quick example of a simple monthly budget. Say your take-home pay is $6,000 a month , and these are some basic expenses:
• Mortgage: $2,000
• Property taxes: $500
• Credit card debt: $500
• Food: $300
• Car loan: $300
• Student loans: $250
• Transportation (gas, etc.): $100
• Utilities: $260
• Healthcare: $300
• Retirement savings: $200
• Emergency fund savings: $200
• College savings for your child: $200
• After-school childcare: $500
Total expenses: $5,610
If you have allocated the amounts needed in the 50/30/20 budget rule, for example, then you would subtract $5,510 from $6,000, and you have $490 left. In that case, you may consider using the difference between your expenses and your income as your fun money, as long as you’ve covered all your bases with your expenses.
Set Goals for Life Beyond Debt
Imagine your future without student loans. Setting financial goals — such as paying off student loans or other debt or accruing enough cash for the down payment on a house — can help you build long-term financial stability and help you work toward financial freedom. The best way to do that is to plan to achieve these goals and stay committed to them.
Take a look at this example: Let’s say that instead of buying a new pair of shoes every month, you put $100 in an investment account every month. In five years, that amount could grow to $8,000, and over 30 years, it could grow to over $280,000.
Without dipping into a no-fun lifestyle or dealing with more money stress, consider finding a way to economize today to make tomorrow brighter. For example, maybe you could forgo or cut your fun money for a few months out of the year to build your savings. Or put the money saved toward crushing your student debt that much sooner.
Recommended: Ways to Stay Motivated When Paying Down Debt
How to Manage Student Loans
What’s the best way to manage student loans without forgetting to allocate money toward fun? Take a look at a few steps you can take.
Make It Automatic
First, consider setting up an automatic payment plan through your loan servicer. An automatic payment plan will automatically pull money from your account each month, ensuring you do not miss any payments.
Missing payments can result in a delinquent account, which happens the first day after you miss a student loan payment. If you remain delinquent on your student loan payments after 90 days, your loan servicer will report you to the three major national credit bureaus. This could lower your credit score, which might make it more difficult to obtain credit, get a job, or secure housing.
If that carries on, you could default on your student loan. Consequences could include the entire unpaid balance of your loan coming due, loss of eligibility for federal student aid, further damage to your credit score, wage garnishment, and possibly legal action against you.
This is an extreme situation, but making it automatic will prevent these issues from occurring.
Income-Driven Repayment
If you’re a federal student loan borrower, you may qualify for an income-driven repayment plan, which means monthly student loan payments get capped at a certain level of your income and family size.
Several types of income-driven repayment plans include the Saving on a Valuable Education (SAVE) Plan, Pay As You Earn (PAYE) Repayment plan, Income-Based Repayment (IBR) plan, and the Income-Contingent Repayment (ICR) plan:
• SAVE Plan: Caps your payments at 10% of your discretionary income and, as of summer 2024, possibly 5%.
• PAYE Plan: Caps your payments at 10% of your discretionary income, and you’ll never pay more than the 10-year Standard Repayment Plan amount.
• IBR plan: Caps your payment at 10% of your discretionary income if you’re a new borrower on or after July 1, 2024. If you’re not a new borrower on or after July 1, 2014, your payment generally caps at 15% of your discretionary income.
• ICR plan: Offers the lesser of 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years based on your income.
You must apply to qualify for one of these plans (contact your loan servicer) and update your income and qualifications every year to continue with one of these plans.
Prioritize an Emergency Fund and Retirement
Many graduates ask this question: Should I fund my retirement and emergency savings or pay off my student loans?
In most situations, there’s no reason why you can’t do both. Furthermore, it’s important to realize the importance of funding an emergency fund and retirement savings.
• Your emergency fund is a financial safety net that will allow you to pay for a critical home repair (think air conditioning in the summer!) or help cover the negative financial consequences of becoming unemployed. Ideally, you want to save three to six months’ worth of basic living expenses in an account where you can quickly get the money out if necessary.
• Saving for retirement when you have student loans can be an important step for your financial security as you reach older age. If you retire at 65 and live till 95, you must ensure you’ve saved enough to last those 30 years. Consider contributing at least enough to your retirement plan to get your employer match — many employers match between 3% and 5% of employee pay.
Putting money in all these “buckets” means prioritizing and organizing your debts, putting together a budget, tracking your spending, and setting savings goals.
Celebrate Your Progress
Don’t forget to take time to celebrate your progress! In addition to spending your “fun money,” you should also allocate time toward celebrating your student loan payoff goals.
For example, if you choose to pay off a high-interest rate loan and succeed in paying it off, consider rewarding yourself with a night out or another type of splurge — maybe a larger splurge than you would ordinarily allocate for fun money.
Recommended: How to Handle Student Loans During Job Loss
The Takeaway
While student loans and other debt types may make you feel burdened, remember that this is just a phase you are moving through. Building fun money into your budget can help bridge the gap between frustration and feeling like you have flexibility.
Write down a few things you enjoy doing, and budget for them. Also investigate other ways to free up funds to make paying off your student loans more manageable.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Photo credit: iStock/Dragon Claws
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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.
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.
Building a budget is a fundamental way to save smarter. But to do that, you need a basic understanding of fixed and variable expenses—and how they can impact your ability to stick to a budget.
What is a fixed expense?
Fixed expenses stay the same every month. They’re predictable and rarely change, making them easy to plan for.
Examples of a fixed expense include:
Rent or mortgage payment
Child care costs
Phone bill
Internet bill
Loan payments
Subscriptions
Insurance premiums
Tuition bill
You may have different fixed expenses than those listed. Go through your past year’s expenses to make sure you don’t skip anything when making up your budget.
How to budget for fixed expenses
With fixed expenses, you typically know what to include in your budget. These tips can help you create the most effective budget for your situation.
Prioritize essential expenses—the things you need to survive. Make sure your income covers essentials like housing and child-care over wants like gym memberships.
Convert nonmonthly costs into fixed monthly expenses. For example, if you pay $600 twice a year for car insurance, mark that down in your monthly budget as $100.
Add savings into your budget as a fixed expense. Whether you’re saving for unexpected expenses or financial goals like retirement, include it in your budget to ensure it happens.
Start saving with no minimum balance
Discover Bank, Member FDIC
Saving money on fixed expenses
Fixed expenses tend to be bigger and may take planning to reduce—like moving to reduce your monthly rent. Others are easier to cut or trim. To save money on fixed expenses:
Cancel unused subscriptions and memberships
Switch to a cheaper phone or internet plan
Shop around for lower rates on insurance
Avoid unnecessary expenses
What is a variable expense?
Variable expenses change, often monthly, making them less predictable and trickier to budget for. That makes it easier to overspend on them.
Variable expense examples include:
Groceries
Medical bills
Utility bills
Clothing costs
Gasoline prices
Car or home repairs
Some variable expenses are easier to manage than others. For example, you can control what you buy at the grocery store but not how much it costs to fill your gas tank.
How to budget for variable expenses
Like fixed expenses, it’s important to prioritize essential variable expenses like food and utilities. Here are two options to help determine realistic figures for your budget:
Calculate the average of three to six months’ spending in each category.
Determine the highest amount that you spend in a month in each category, and use that maximum number in your budget to provide a cushion.
Either of these methods can help you get a better handle on how much you’re spending on variable expenses. Another tip: Keep a budget buffer in a savings account to provide a safety net when variable expenses are higher than expected (or when unexpected expenses pop up).
Saving money on variable expenses
Reducing variable expenses can free up space in your budget, making it easier to handle your fixed expenses and funnel more into savings.
Here are five simple ways to reduce variable expenses:
Make grocery lists and stick to them.
Wait for sales whenever possible.
Reduce your dining out and takeout orders.
Seek free or low-cost entertainment like local museums that offer discount days and perks.
Invest in a programmable thermostat to save on utilities.
Now that you understand the differences between fixed and variable expenses, you can build a budget that helps you control your spending and meet your financial goals. When you know exactly where your money is going, you can take steps to shed unnecessary expenses, plan for the unexpected, and let your money work harder for you.
Take a proactive approach to planning for fixed and variable expenses with a Discover® Online Savings Account.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.
Average mortgage rates edged higher yesterday. Unfortunately, it was the sixth consecutive business day on which they’ve risen.
Earlier this morning, markets were signaling that mortgage rates today might barely move. However, these early mini-trends frequently alter speed or direction as the hours pass.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.15%
7.17%
Unchanged
Conventional 15-year fixed
6.57%
6.61%
-0.04
Conventional 20-year fixed
7.16%
7.19%
+0.02
Conventional 10-year fixed
6.63%
6.66%
-0.05
30-year fixed FHA
6.51%
7.19%
Unchanged
30-year fixed VA
6.61%
6.72%
-0.03
5/1 ARM Conventional
6.3%
7.39%
Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock your mortgage rate today?
Tomorrow’s Federal Reserve events (see below) could make a big difference to mortgage rates in the near and medium terms. But, right now, I’m pessimistic about our seeing a sustained downward trend until the summer. And some wonder if the fall might be a more realistic timeframe.
So, for now, my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCKif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes held steady again at 4.32%. (Neutral for mortgage rates. However, yields were rising this morning.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mixed this morning. (Neutral for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices increased to $83.18 from $81.35 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices inched down to $2,156 from $2,159 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Because gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — dropped to 69 from 75 out of 100. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So, lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to hold close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
Tomorrow
I covered yesterday the three Federal Reserve events due early tomorrow afternoon:
2 p.m. Eastern — Rate announcement and report publications
2 p.m. Eastern — Summary of Economic Projects publication. This occurs only quarterly and includes a dot plot
I’ll brief you more fully on those tomorrow morning. That way you’ll know what to look out for before it’s too late to act.
Personally, I’m not very hopeful about the impact of the Fed’s events on mortgage rates. Of course, I can’t be sure what they’ll bring. But recent economic data has likely reinforced the central bank’s natural caution. And I suspect that it may signal later and fewer cuts in general interest rates this year than markets have been expecting.
If I’m right, that could be seriously bad for mortgage rates. So, let’s hope I’m wrong.
Today and later in the week
I’ll be surprised if today’s economic reports move mortgage rates much. They cover February’s housing starts and building permits. It’s not that those data are unimportant. However, they rarely attract the attention of the investors who largely determine mortgage rates.
We have to wait until Thursday for a couple of reports that sometimes affect mortgage rates. They’re two March purchasing managers’ indexes (PMIs) from S&P. One is for the services sector and the other covers manufacturing. I’ll brief you on those tomorrow morning.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Mar. 14 report put that same weekly average at 6.74% down from the previous week’s 6.88%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Feb. 12 and the MBA’s on Feb. 20.
Forecaster
Q1/24
Q2/24
Q3/24
Q4/24
Fannie Mae
6.5%
6.3%
6.1%
5.9%
MBA
6.9%
6.6%
6.3%
6.1%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
So, for the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
Indeed, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account as evidence of their financial circumstances. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. And this gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders. And it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Those mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
Inside: Discover the keys to successful budgeting with our guide on budget tools, adjusting strategies, and setting financial goals for transformative money management. Creating budgets with your expenses allows you freedom.
Budgeting is one of the parts of managing money that everyone dreads. However, a well-thought-out budget lays the groundwork for mindful spending that reflects your values and paves the way toward accumulating significant wealth.
So, you need to learn the key components of a successful budget.
Budgeting is the cornerstone of building a sustainable financial future where every dollar is assigned a purpose, ensuring that saving and investing become routine, not afterthoughts.
By committing to the principles of disciplined budget tracking and adjustment, you can craft a monetary trajectory that systematically demolishes debt and expands your assets.
Thus, inching you closer to the coveted millionaire status that started with no money with every financial decision you make.
Mastering the art of budgeting requires patience, insight, and the will to see your financial goals come to fruition.
What is the key to good budgeting?
The cornerstone of good budgeting lies in understanding your monetary landscape and wielding control over it.
This means not just noting down numbers, but analyzing your income, expenses, and financial objectives. It’s about crafting a financial map that leads you to your desired destination, be it debt freedom, investment, or saving for something grand.
Remember, a sturdy budget plan is your ally in the financial journey—it helps you stay disciplined, steer clear of fiscal pitfalls, and ensure that your hard-earned money is working for you.
How Mastering Your Finances Can Transform Your Life
First of all, I can attest to starting a budget, sticking to the process, and how my life is now much different than I started. It was hard work and always not fun. But, now, I can experience time freedom like never before.
The magic of mastering your finances is that it does more than just balance your books; it has the potential to utterly transform your life.
Empowered by financial knowledge and a well-executed budget, you can pave the path to your dreams, whether that’s retiring early, traveling the world, or providing a stable future for your loved ones. It instills a sense of financial confidence and peace of mind, knowing that you are in control of your financial destiny.
Element 1: Set Clear Financial Objectives
Setting clear financial goals is like having a compass that guides you through your journey. It involves delineating what you aspire to achieve with your money both in the short term and long term.
You need to plan for and consider variables like inflation and economic shifts.
Identifying Short-Term and Long-Term Financial Goals
To cover your bases, you need to address both immediate and future needs:
Identifying short-term financial goals, typically achievable within one to three years like saving for a vacation or paying off credit card debt.
Long-term financial goals, are usually set for five years or more, such as saving for retirement or a child’s education.
The Role of Specific Goals in Successful Budgeting
Having specific financial goals ensures that each dollar in your budget is assigned a clear purpose, enhancing the likelihood of sticking to your budgeting plan and achieving financial stability.
You can set precise targets such as saving a particular amount for a home down payment and measure your progress and adjust your spending habits accordingly. Thus, making the budgeting process more effective and goal-oriented.
Element 2: Track Your Income and Expenses Religiously
Tracking my income and expenses allows me to identify patterns in my financial behavior. Thus, I can make informed decisions to ensure I adhere to my budget and achieve my monetary goals.
This forms a clear roadmap for financial growth and stability.
Tools and Strategies for Keeping Tabs on Financial Flow
You need to find a way to track your money.
Whether it is utilizing financial software/budgeting apps or paper and pencils. Either allows for efficient tracking of expenses and income, ensuring that you maintain a clear view of your cash flow.
Start with how to budget with a low income.
Differentiating Between Essential and Non-Essential Spending
When creating a budget, it’s vital to differentiate between fixed spending on necessities like housing, utilities, groceries, and transportation, and non-essential spending on items such as dining out, entertainment, and other luxury items.
Essential expenses are critical for maintaining your basic living standards and meeting financial obligations.
Whereas non-essential expenses are discretionary and can often be adjusted or eliminated to achieve financial goals.
By tracking actual expenditure and distinguishing between these two categories, you can prioritize funding towards essentials and savings, ensuring financial stability and progress towards long-term objectives. Just like I have.
Element 3: Prioritize Saving and Prepare for Emergencies
By prioritizing savings, I am investing in my future, taking advantage of compound interest, and building a foundation that helps secure my long-term financial goals. Unfortunately, this took me a while to learn, and the most important financial advice for young adults.
Putting a portion of my income into savings consistently is like paying a bill that benefits my future self, which in turn provides peace of mind and financial independence.
Deciding How Much to Save and Where to Allocate Funds
Apply the 50/30/20 budgeting rule to allocate funds wisely, directing at least 20% of your income towards savings.
The goal is to increase your savings percentage each year. To maximize your savings, analyze your expenses frequently, dividing them by necessity and frequency, to ensure that your saving goals are met without compromising your essential needs.
The Significance of an Emergency Fund in Financial Planning
An emergency fund is a financial lifeline, offering stability in the face of unforeseen circumstances such as job loss or medical emergencies, ensuring that such events don’t derail your financial plans.
Additionally, an emergency fund contributes to peace of mind, knowing they have a monetary cushion to fall back on.
A rainy day fund, or holding three to six months’ worth of living expenses, this fund acts as a buffer against debt, reducing the need to rely on credit cards or loans during crises.
Element 4: Regularly Monitor and Adjust Your Budget
I regularly monitor and adjust my budget to maintain a clear understanding of my financial health and to catch any discrepancies between my planned and actual expenditures. This consistent review allows me to quickly identify areas where I can optimize spending or need to reallocate funds.
Then, I ensure my financial goals remain within reach and adaptable to life’s changing circumstances.
Techniques for Reviewing Budget Performance Over Time
Implement a system for tracking financial transactions that aligns with your budget categories, which provides clear data to analyze spending habits and make informed adjustments as needed.
To effectively review budget performance over time, I recommend scheduling routine assessments, such as monthly or quarterly reviews.
Compare actual expenses with your budgeted figures to pinpoint variances and trends.
Dealing with Financial Changes and Maintaining Budget Discipline
Life’s unpredictable nature means financial conditions can fluctuate, demanding swift adjustments to your budget for events such as a new addition to the family or changes in employment.
These changes could be an increase in income or an unplanned decrease in annual net income.
You must embrace flexibility while holding onto your long-term objectives allowing you to navigate unexpected financial changes without deviating from the path of fiscal responsibility and discipline.
Element 5: Embrace Technology and Automation in Budgeting
I use Quicken to manage my budgeting because it provides an all-encompassing financial picture by integrating income, expenses, investments, and retirement accounts in one place.
The software automates expense tracking and categorization, making it easier for me to monitor my financial health and adjust my spending habits accordingly.
Budgeting Apps and Digital Tools That Simplify Managing Finances
Budgeting apps like YNAB leverage technology to automatically track user expenses by linking to bank accounts, simplifying the process of managing personal finances with features such as expense categorization and financial planning tools.
With features such as bill reminders, debt payoff calculators, and investment trackers, these budgeting apps not only streamline financial oversight but also assist users in setting and achieving their financial goals.
The Advantages of Automating Savings and Bill Payments
This is something I do all the time! Automate your bills and contribute to your savings.
As such, this is a highly efficient method to streamline your finances and ensure that you consistently put your money to work like you planned.
This approach not only helps in avoiding late fees by timely paying bills but also reduces the risk of human error or forgetfulness.
FAQ: Unwrapping the Mysteries of Budgeting
The first method is to start a no spend challenge. This will help you cut back on non-essential spending, such as dining out or premium entertainment subscriptions.
Next, start to live on a shoestring budget. This will help you to compare and negotiate rates for recurring bills like utilities, insurance, and phone plans to secure lower payments.
Additionally, employing cost-saving methods such as utilizing coupons, buying in bulk, and opting for generic brands can significantly decrease monthly grocery expenses.
It’s wise to review and adjust your budget at least once a year or with any major changes. This helps ensure your budget stays aligned with any shifts in income, unexpected expenses, or alterations to your financial goals.
If your lifestyle or income varies significantly, more frequent adjustments might be necessary.
Just remember, it will take a few months for your budget to work.
If you find sticking to your budget is a constant struggle, it might be time to reach out for help. Consider partnering with a budgeting buddy or joining an online community for accountability.
Aim to understand what triggers your spending and devise strategies to avoid these pitfalls. Adjust your budget where needed and prioritize building a buffer for unforeseen expenses.
Creating a budget helps manage finances with a clear view of income and expenses, reduces unnecessary spending, and facilitates goal setting.
It acts as a roadmap for managing monthly financial flows, encourages disciplined spending, and aids in achieving long-term financial aspirations with less stress.
Elements of Budgeting You Will Embrace?
You might wonder, is always keeping a close eye on your finances truly worth it? The answer is a resounding yes.
Gaining mastery over your personal finances is like being the captain of your destiny in the vast sea of economic uncertainty. It’s not just about surviving; it’s about thriving. The result is often an enriched life, free from the shackles of financial stress.
Financial literacy allows you to make smarter choices and enables you to capitalize on opportunities that come your way.
Imagine breaking free from living paycheck to paycheck or being able to take that dream vacation without plunging into debt. These are not just dreams. They can become your reality with financial mastery. It’s about creating a life where you call the shots, secure from the economic twists and turns life may throw at you.
Find success with the zero based budgeting method.
I have done it. And you can too.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.