Friend of the blog Matt sent in a great question this week:
Hi Jesse – do you have any recommendations when it comes to life insurance? I know Term is the way to go, but that’s about all I got…
I scanned your blog posts and didn’t see anything too specific with it but if you have any guidelines for pricing or coverage recommendations, please let me know!
Matt
Matt’s Right. We Want Term!
Matt’s right. Term life insurance is the best option in 99.99% of cases.
Other types of life insurance (Whole, Variable, Universal, etc.) are bloated products that are “pushed” and “sold” far more often than they’re genuinely sought after. These products try to combine investing with insurance and end up being overpriced versions of each.
The smarter option is to buy insurance that only acts as insurance and then use your remaining money to invest in pure investments. Term life insurance is just that life insurance product. All it does is provide money to your beneficiaries if you die. If you don’t die, it doesn’t pay. It’s simple.
But Do We Need Life Insurance?
How do we determine if someone needs life insurance?
I use the same framework I would use for anyinsurance question (home, boat, pet llama insurance, etc.).
Are you exposed to a financial risk that you could not comfortably recover from using your current asset base?
Let’s say your house burns down. Does that present a financial risk you could recover from using your current assets (cash, investments, etc)? If you answer no, then you need home insurance. (If you have a mortgage, your lender likely mandates you have insurance so they’recovered should the house burn down).
If your wedding ring got stolen, does it present a financial risk you could recover from? Personally, I wear a ~$200 tungsten carbide wedding ring. If my finger got stuck in a tragic 3-ring binder accident while compiling someone’s financial plan, I could replace that $200 ring without issue. I do not need ring insurance. Granted, the cosmetic costs of finger reconstruction might make me wish I had better health insurance…
Back to the point: that’s the framework to use! Does the downside risk present an insurmountable financial burden to you (or your beneficiaries?)
The answer for many younger readers with dependents (spouses, children) is a screaming YES. As in, “If I died and the family lost my income, it would be very financially uncomfortable for many years!”
But how much coverage do you need?
My Preferred Methods: Income Replacement and “DIME”
The two methods I prefer (and suggested to reader Matt) are the Income Replacement method and the DIME method.
Income replacement suggests you replace your income for a certain number of years, typically until your children reach a particular age or until your spouse reaches retirement age.
In my personal case, I wanted to replace my income until my youngest child (who is still technically hypothetical) is out of the house. I chose a 30-year term policy equivalent to ~20 years of my income (with a small discount rate for future years). No matter when I get hit by that proverbial bus, 20 years of income should cover my youngest child until they’re out of the house.
The DIME method adds up any outstanding debts, add in your income for a certain number of years, then adds your remaining mortgage, and finally adds on future expected education costs. Debts, income, mortgage, education.
The DIME method double-counts a few things. For example, I’m using my income to pay my debts and mortgage. I shouldn’t need to double-count them. Nevertheless, I like the idea of itemizing the biggest future expenses (college costs, mortgage payoff, etc.) and ensuring your life insurance policy can cover them.
The Best of the Rest
Other strategies I’ve seen for sizing life insurance policies include:
The Human Life Value (HLV) method. It asks an individual to consider their annual income for each year until their retirement, add in other benefits and bonuses, subtract the income used for their personal consumption, and then discount future income to today’s value.
Done correctly, this method should provide the beneficiaries with a lump sum of the resources you would have expected to provide to them over the remainder of your working life. It’s just a bit too complicated and mathematical for most people to get right.
The Budget-Based method simply multiplies your household’s monthly expenses by the number of months you expect those expenses to be maintained. It’s similar to Income Replacement, but looks at expenses rather than income.
Lastly, the “Rule of Thumb” (which I think is a poor name!) suggests you multiply your income by 10. Very much “one size fits all,” which is why I don’t like it.
Granted, one detail to note is that most life insurance sizing strategies are intentionally conservative, leading to policy sizes that are large enough during the highest-risk years but end up being too large as time goes on.
For example: a young family might need a $2M, 25-year policy on each parents. But by the time the kids are in college, that $4M of total coverage is surely too much.
Thanks for the question, Matt!
And to all of you: term life insurance is a smart financial planning move. But I hope none of you ever need to collect!
Thank you for reading! If you enjoyed this article, join 8500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters before signing up.
-Jesse
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Student loans are a type of financial aid option that lets you borrow a lump sum of money upfront that you’ll repay over time later, with interest. Some students are unclear whether a student loan is a secured or unsecured debt.
Both federal and private student loans are considered unsecured debt. Keep reading to learn more on secured loans versus unsecured loans, pros and cons of each, and why student loans are considered an unsecured form of debt.
What Are Secured Loans?
A secured loan is a type of debt that requires borrowers to provide the lender with an asset of value to back the loan. This asset is called collateral. Collateral could be your home, your car, other property that has monetary value, a savings account, jewelry, and more. The type of collateral you put up is stated in the loan agreement.
If a borrower defaults on their loan and doesn’t pay it back, the lender can take actions to seize possession of the collateral. It then uses the proceeds from the sale of the collateral to recover the unpaid debt.
Common types of secured loans include:
• Mortgage loans
• Home equity loans
• Auto loans
• Some personal loans
Lenders typically view secured loans as less risky to their bottom line since the promised collateral offers them at least some financial protection. In turn, secured loans might offer lower interest rates compared to unsecured loans.
Certain secured loans are also designed as accessible financing for individuals whose credit doesn’t qualify for an unsecured loan.
What Are Unsecured Loans?
An unsecured loan is an installment loan that doesn’t require an asset or collateral upfront to secure the debt. Since this type of loan doesn’t offer an asset-based guarantee to the lender, the borrower must demonstrate a strong likelihood that they’ll repay the debt.
A positive and extensive credit history, consistent and sufficient income, and low credit utilization are some markers that lenders use to determine how risky a borrower is for an unsecured loan. Additionally, since lenders don’t have access to collateral to fall back on in the event of default, unsecured loans generally have higher interest rates.
Credit cards, some personal loans, and private student loans are considered unsecured loans.
Pros and Cons of Secured vs Unsecured Loans
Secured and unsecured loans have their own advantages and downsides. Furthermore, some benefits are only for certain types of secured or unsecured loans. Before signing a loan agreement, it’s important to understand the pros and cons of each option.
Secured Loans
Unsecured Loans
Pros
• More accessible for certain borrowers
• May offer lower interest rates
• Might qualify for larger loan amount
• Certain loans might qualify for tax deductions
• No risk of lost collateral
• Application process might be more straightforward
• Might offer convenient features or perks
• Student loans might qualify for tax benefits
Cons
• Collateral required upfront
• Risk losing collateral if you default
• More stringent borrowing criteria
• Interest rates may be higher
How Federal Loans Differ From Typical Debt
Students often wonder whether federal student loans are secured or unsecured debt. Both federal loans and private education loans are unsecured debt. However, federal loans have significant perks and protections that private student loans don’t offer.
Unlike private student loans that require a minimum credit score or cosigner, most federal student loans don’t require a credit check or a cosigner to qualify for a loan. The Direct PLUS Loan is the only federal loan that requires a credit check, but borrowers with adverse credit can still access a Direct PLUS Loan by completing a few additional steps.
Federal loan rates are fixed, meaning your monthly payment won’t change throughout your repayment term. With federal subsidized Direct Loans, the Department of Education pays for interest that accrues while your loan is in deferment (e.g., while you’re in school). Conversely, other unsecured loans aren’t subsidized and might have variable interest rates that change throughout your repayment period, making it hard to anticipate your budget every month.
You’ll also have access to a range of repayment options, including income-driven repayment (IDR) plans, which are exclusive to federal student loans. Some borrowers qualify for a required payment of $0 per month while enrolled in an IDR plan. Finally, federal student loans are eligible for federal student loan forgiveness programs that cancel a portion of your student debt after meeting minimum program requirements.
Managing Your Student Loan Debt
Getting a handle on your unsecured student loan debt can feel challenging as you balance other areas of your life. Below are a few strategies to help you manage your student loans:
• Make in-school interest-only payments. If you can afford to, consider paying off the monthly interest that accrues while your loan is on in-school deferment. This applies to both unsubsidized federal loans and private loans. Making these small but meaningful interest payments can help you avoid interest capitalization (i.e., paying interest on interest) later.
• Track when your loan payments are due. Be aware of your loan due dates and minimum payments each month. Late payments or missing a payment altogether can have a negative effect on your credit score, since loan repayment history is reported to the major credit bureaus.
• See if you qualify for loan forgiveness or loan repayment assistance. The Department of Education offers a few forgiveness and cancellation programs for eligible borrowers with qualifying loans, like the Public Service Loan Forgiveness program for government and nonprofit employees. Some states also offer loan repayment assistance programs to workers in certain professions, like health care, social work, and law.
• Reach out to your loan servicer or lender. If you’re struggling to make your student loan payment, your loan servicer or lender is your best resource. They can guide you through relief options that are accessible to you, whether that’s getting on a different repayment plan or temporary forbearance.
The Takeaway
A student loan is unsecured debt. Having to put forward collateral to get a student loan is a roadblock that you fortunately don’t have to worry about.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Are student loans considered secured or unsecured?
Student loans are considered unsecured debt, meaning they don’t require collateral from you as a condition of securing the loan. Since there’s no collateral tied to the loan, if you default on the debt, the lender might choose to take you to court in an attempt to collect some or all of the debt.
Is it possible to get a secured student loan?
No. Student loans are a form of unsecured debt. No collateral is required to get a student loan, whether you’re borrowing a federal or private student loan.
How are federal student loans different from private?
Federal student loans are guaranteed and funded by the U.S. Department of Education. They offer exclusive fixed rates, established annual and aggregate loan limits, non-credit-based eligibility criteria, and access to income-based repayment plans and loan forgiveness.
Private student loans are provided by private financial institutions, like banks, credit unions, online lenders, and schools. Private lenders offer fixed or variable loan rates, which differ between lenders. Your eligibility for a private loan involves various factors, like your income and credit history, and repayment terms and plan options vary.
Photo credit: iStock/DNY59
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Student loans are often the go-to choice for families who need help paying for a child’s college education. But as you put together your financing plan, you may find there are other options worth considering — including using a home equity line of credit, or HELOC, to cover some college costs.
Both types of borrowing have advantages and disadvantages that may influence your decision to use one or both to pay for school. Read on for a look at student loans vs. HELOCs, and how each can be used to help with your family’s educational and financial goals.
What Is a HELOC?
A home equity line of credit, or HELOC, is a revolving line of credit provided by a private lender and secured with the equity you have in your home.
HELOCs are sometimes confused with home equity loans, but they are not the same thing. Because a HELOC is a line of credit, you pay interest only on the amount of money you’ve actually borrowed. Payments can vary from month to month, and as you replenish the account by making payments, you can borrow from it again. With a lump-sum home equity loan, a borrower receives all the money upfront and pays interest on the entire loan amount from day one.
A HELOC can be used to pay for just about anything — including tuition, books and supplies, housing, transportation, and other college expenses. But because the line of credit is secured with your home, if you fall behind on your payments, you could risk foreclosure. And should you decide to sell your home, you may be required to repay what you currently owe.
Recommended: Different Types of Home Equity Loans
What Are Student Loans?
Student loans allow students and, in some cases, their parents, to borrow money to pay for a college education. Here’s how the two main types of student loans work:
Federal Student Loans
There are a few different types of federal student loans, and each has its own rules when it comes to how much you can borrow and how the money is repaid. But generally, they offer lower interest rates than many other types of loans and include more protections for borrowers, including temporary relief programs in case of financial hardship, and even the potential for loan forgiveness.
To apply for federal student aid, you must submit the Free Application for Federal Student Aid (FAFSA®) form. If you qualify for assistance and accept what’s offered, the school will apply your federal loan funds to your outstanding account charges (tuition, fees, etc.). Whatever is left after that will then be turned over to you to use for other educational costs.
Private Student Loans
Private student loans are issued by nongovernment lenders, such as banks, credit unions, and other financial service companies. Because they aren’t backed by the federal government, these loans do not offer the same repayment options or safety-net protections as federal loans. So, if your family (student and/or parents) qualifies for federal student loans, you’ll probably want to tap those first. However, if you’ve exhausted your federal financial aid and require additional funds, you may find you can get the help you need by borrowing through a private lender.
Key Differences Between a HELOC and Student Loans
While you may decide to use federal or private student loans, a HELOC, or all three types of financing to help pay for a college education, it’s important to be aware of some key differences in how they work.
Interest Rates
• Federal student loans are usually the way to go for borrowers who are looking for the lowest interest rates available. These loans come with a fixed interest rate that is set by the government, so once you sign on the dotted line, you can expect to pay the same rate for the life of the loan. But different types of federal student loans have different interest rates, and the way interest starts accruing on these loans also varies. If you have a subsidized loan, for example, you won’t accrue any interest while you’re in school, for six months after you leave school, or during any deferment. The U.S. Department of Education pays the interest during these periods. The interest on an unsubsidized loan starts accruing immediately, however, and it is the borrower’s responsibility.
• Private student loans are generally available with a choice of a fixed or variable interest rate, but these rates, which are set by the individual lenders, can vary quite a bit — so it can be a good idea to shop for the most competitive offer based on your creditworthiness and other qualifications.
• HELOCs have a variable interest rate, which means the rate can fluctuate over time. This could be good or bad, depending on which way interest rates are going. If rates drop, the borrower could benefit; but if they rise, it may make it harder to keep up with the payments. Still, because a HELOC is secured with your home, the interest rate may be lower than with other types of unsecured borrowing, such as personal loan or credit card. And because it’s a line of credit and not a lump-sum loan, you’ll only be charged interest on the amount you’ve actually borrowed.
Recommended: Student Loan Interest Rates Guide
Fees
• Federal student loan borrowers are often surprised to learn they’ll be expected to pay an origination fee on each loan they receive. Origination fees are currently 1.057% for federal subsidized and unsubsidized loans for undergraduate and graduate students, and 4.228% for federal PLUS loans for parents and graduate students. The lender who is servicing the loan also may charge a fee if a payment is more than 30 days late.
• Private student loan fees also can vary based on the lender you choose. Some may charge an origination fee or fees for late payments, while others, including SoFi, have zero fees on student loans.
• HELOC fees can vary depending on the lender, but they often include an application/origination fee, notary fee, title search, appraisal fee, credit report fee, document prep fee, and recording fee. There also may be an annual maintenance fee, and charges for early termination or account inactivity.
Repayment Terms
• Federal student loans offer the most repayment options for borrowers, including a fixed payment plan that ensures loans are paid off within 10 years and income-driven plans that base your monthly payment on your earnings and your family size. Some borrowers also may be able to have a portion of their loans forgiven. And those who have multiple federal student loans may choose to consolidate them into a single Direct Consolidation Loan. Another plus: Student and parent borrowers may be eligible for a deferment period if they become unemployed, experience an economic hardship, or serve in the military.
• Private student loans have different repayment terms depending on the lender, and can often be repaid over a period of 10 to 15 years or longer, usually starting six months after graduation. There is no loan forgiveness with a private student loan, but some lenders, including SoFi, may offer borrowers a student loan deferment period that’s similar to what some federal loans offer. However, you can expect your loan to continue accruing interest during this time.
• HELOC borrowers usually are required to make at least a minimum monthly payment during their account’s “draw” period. When the draw period ends — typically after 10 years — access to the line of credit ends and the lender sets up a repayment schedule based on the balance owed.
Credit Requirements
• Federal student loan borrowers who are undergraduates don’t have to worry about passing a credit check as part of their application process — and they don’t need a cosigner to get a loan. Though parents and graduate students do have to pass a credit check to get a federal loan, there’s no required minimum credit score.
• Private student loan lenders may have different credit requirements, but all borrowers (including undergraduates) should expect to go through a credit check. Lenders generally will be looking for a solid credit history, a good-to-excellent credit score, and other factors that show the borrower — alone or with the help of an eligible student loan cosigner — has the ability to repay the loan.
• HELOC credit requirements can vary, but typically lenders require that you have at least 15% to 20% equity in your home, a healthy debt-to-income ratio that shows you can afford to take on the added debt load, and a credit score that indicates you can reliably repay the money you owe.
Tax Deductibility
• Federal student loan interest payments can qualify for a tax deduction of up to $2,500, as long as you used the loan to pay eligible higher education expenses for yourself, your spouse, or a dependent. And you don’t have to itemize deductions on your return to get the tax break: The interest you pay is considered an income adjustment, so there’s no separate form to fill out.
• Private student loan interest payments qualify for the same tax deduction as federal student loans, with the same requirements.
• HELOC borrowers can only claim their interest payments as a deduction if they used the borrowed funds to “buy, build, or substantially improve your home.” Interest paid on money used for college doesn’t qualify for a tax break.
Borrowing Limits
• Federal student loans have different borrowing limits based on the loan type and your student status (undergraduate or graduate) or if you’re a parent.
• Private student loan limits can vary by lender; there is no set borrowing limit as with most federal loans. However, the maximum amount you can borrow may be based on your school’s estimated cost of attendance minus any other forms of financial aid you receive, your creditworthiness, and other factors.
• HELOC lenders typically will allow you to tap into your home equity for 85% or more of your home’s current appraised value minus the amount you currently owe, So, for example, if your home is valued at $350,000 and you owe $250,000, you might qualify for a HELOC that’s $47,500 ($350,000 x 85% = $297,500 – $250,000 = $47,500).
Alternative Options
Although a HELOC can be used to pay for college — especially if you find you need more money than you can get in student loans — there are other options that could help your family manage education costs.
Scholarships and Grants
A wide range of scholarships and grants are available to students who are willing to take the time to do some research and apply. And this type of financial aid, which can come from private organizations, colleges, and other sources, doesn’t have to be repaid.
Work Study or a Part-Time Job
A work-study program or part-time job can also help pay some college costs. A student can check with the financial aid office at his or her school to learn more about participating in federal or state work-study programs. And local businesses like coffee shops, restaurants, retail stores, and markets often hire college workers to help out at night and on the weekends.
529 Plans
If your student is still a few years away from attending college, you may want to look into a state-sponsored 529 college savings plan, also known as a qualified tuition program. These tax-advantaged plans offer parents and others an opportunity to save ahead for a family member’s college expenses.
The Takeaway
Using a HELOC vs. student loans to pay for college has advantages and disadvantages. Because you only have to pay interest on the amount you actually borrow, a HELOC can be an affordable alternative, or addition, to lump-sum student loans. And since your home is used as collateral with a HELOC, the interest rate may be lower than with some other borrowing options. Of course, this also means you could lose your home if you can’t make your HELOC payments.
You may want to exhaust any federal financial aid for which your family is eligible — and check out potential private student loan offers — before turning to a HELOC for help. Federal student loans offer borrower protections you can’t expect with a HELOC, and you won’t be putting your home at risk.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Can I use both a HELOC and student loans?
Yes, if the federal financial aid for which you are eligible doesn’t cover all your college costs, you may choose to combine a HELOC with both federal and private student loans. You may want to compare all your options before moving forward, however, and it may be helpful to make a plan for how you expect to use and repay the money you borrow.
Does the interest rate on a HELOC vary?
Yes, a HELOC comes with a variable interest rate, which means the interest rate you pay could fluctuate based on movements in the underlying benchmark interest rate or index.
Are student loan interest rates fixed?
Federal student loans have fixed interest rates, so you’ll pay the same rate for the life of the loan. Private student loans may be offered with a choice of a fixed or variable interest rate.
Can you use a HELOC to pay off student loans?
If you can qualify for a lower interest rate, you might consider using a HELOC to pay off your student loans. But it’s important to keep in mind the upfront and ongoing costs that come with a HELOC — and you’ll lose the tax deduction you receive for the interest paid on your student loans. You’ll also lose the protections that student loans offer borrowers, and you could put your home at risk if it turns out you can’t make your HELOC payments.
Photo credit: iStock/andresr
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
One of the most popular benefits the U.S. military offers is the GI Bill, which helps current and former service members pay for college or vocational school.
This federal benefit can help veterans transition to civilian life and achieve their educational and career goals. But because a veteran’s eligibility for education assistance can vary based on when and how long they served, their branch of service, and other factors, understanding and maximizing these generous benefits can be a challenge.
If you’ve been wondering how — and how much — the military pays for college, here’s a look at some GI Bill basics.
What Is the GI Bill?
The GI Bill, formally known as the Servicemen’s Readjustment Act of 1944, was signed into law by President Franklin D. Roosevelt at the end of World War II. The program was originally designed to offer various financial and social benefits to World War II veterans after they returned home. Those benefits included small business loans, mortgages, and education grants.
Today, the GI Bill specifically refers to any U.S. Department of Veterans Affairs (VA) education benefit offered to active-duty service members, veterans, and their families. The Post-9/11 GI Bill is the most frequently used VA education benefit program. Depending on how long you were in the military, it provides up to 100% of your tuition, money for housing, and a stipend for books and supplies.
Besides the GI Bill, serving in the military can give you access to other education-related benefits. As a service member on active duty, for example, you may qualify for certain perks or special repayment options for any federal or private student loans you’ve already taken out.
Types of GI Bills
Since it was enacted in 1944, the GI Bill has been extended — and expanded — several times. As a result, there are multiple parts and programs that can be used to pay for college. Here’s a closer look.
Post-9/11 GI Bill
This current version of the GI Bill is designed to support the latest generation of service members and veterans. If you have served on active duty for at least 90 days since Sept. 10, 2001, you are likely eligible for Post-9/11 GI Bill benefits. This is the case if you’re still in the military, or if you have already separated with an honorable discharge.
The Post-9/11 GI Bill can help cover the cost of college or an advanced degree, technical training, on-the-job training, or licensing/certification. Eligible service members can also transfer unused education benefits to their spouse and children.
Recommended: What Are Student Loans for Military Dependents?
Montgomery GI Bill
The Montgomery GI Bill (MGIB) is an older GI Bill program that provides up to 36 months of education benefits to those who have served on active duty and meet the requirements.
The Active Duty Montgomery GI Bill (MGIB-AD) is for veterans and current members of the military who have served at least two years on active duty. It provides a monthly benefit payment to use for education and training costs.
The Selected Reserve and Guard Montgomery GI Bill (MGIB-SR) provides educational assistance to eligible members of the Selected Reserve, including National Guard members. Similar to the MGIB-AD, the MGIB-SR provides a monthly payment based on the type of education or training a recipient is getting.
Recommended: What Is a Trade School and Is It Right for You?
Other GI Bill Programs
The GI Bill also includes other education programs available to service members both during and after service, as well as their families. These include:
Veterans Readiness and Employment (VR&E)
If you have a disability connected to your military service that limits your ability to work or prevents you from working, the VR&E program can help. This GI Bill program can help you explore employment options and get the education or job training you might need to work. In some cases, your family members may also qualify for certain benefits.
Survivors’ and Dependents’ Educational Assistance (DEA)
The DEA program is for eligible spouses and children of veterans who were disabled, died, went missing in action (MIA), or were held as a prisoner of war (POW) during their service. It provides monthly payment to help cover the cost of education or job training for these family members.
Recommended: Guide to Military Student Loan Forgiveness
GI Bill Eligibility for Veterans
GI Bill veterans’ benefits are generally based on when you served, how long you served on active duty, and other factors. You also have to have been honorably discharged.
Though you may qualify for more than one type of GI Bill educational benefit, you can generally use only one benefit for a period of service; so you may have to decide which one is the best fit for your needs. (You can call the VA at 888-442-4551 if you need help making a choice.) Here are the eligibility requirements for different GI Bill programs.
Post-9/11 GI Bill Eligibility
If you served in the military after Sept. 10, 2001, you may be eligible for Post-9/11 GI Bill benefits. The amount you receive (which could range from 50% to 100% of the full benefit) will be based on how long you served on active duty and other criteria.
To be eligible for Post-9/11 GI Bill Benefits, you must meet one of these qualifications:
• You have served at least 30 days of continuous active-duty service after Sept. 10, 2001, and have been discharged due to a service-connected disability. Or:
• You have served an aggregate of 90 days of active-duty or federal service after Sept. 10, 2001, and received an honorable discharge.
Recommended: Finding Free Money for College
Montgomery GI Bill Eligibility
You may be eligible for the MGIB-AD if you:
• Served between two and four years after June 30, 1985.
• Have a high school diploma, GED, or 12 hours of college credit.
• Had your military pay reduced by $100 a month for the first 12 months of service.
You can find a full list of eligibility criteria here.
You may be eligible for MGIB-SR benefits if you:
• Agreed to serve for a period after June 30, 1985 (or for some types of training, after Sept. 30, 1990)
And either:
• Agreed to serve six years in the Selected Reserve, or:
• You’re an officer in the Selected Reserve and you agreed to serve six years in addition to your initial service obligation.
You can find a full list of eligibility requirements here.
Benefits Provided
Here’s a breakdown of the benefits offered by the Post-9/11 GI Bill.
Tuition/Fee Coverage
If you’re a veteran who qualifies for full benefits and you attend a public school as a state resident, the Post-9/11 GI Bill will pay all of your tuition and any mandatory fees directly to your school. You also may be eligible to receive the in-state tuition rate for an out-of-state school.
If you choose to attend a private or foreign institution of higher learning, or a qualifying non-college degree program, a predetermined maximum amount (currently up to $27,120.05) will be paid to your school annually. Benefits for flight training and virtual/online schools, which have their own maximums, also may be available.
Monthly Housing Allowance
The Post-9/11 GI Bill also pays a monthly college housing allowance. The program will pay you a percentage of the full monthly housing allowance based on the percentage of Post-9/11 GI Bill benefits you’re eligible for, as well as how many credits you’re taking.
If you are taking 100% of your classes online, you may be eligible for a monthly stipend equal to half of the national average stipend, which is currently $967.40.
Book and Supplies
Under the Post-9/11 GI Bill, you may be able to receive an annual stipend of up to $1,000 per year to pay for books and supplies. This stipend is paid out at the beginning of each term and is based on the percentage of benefits you’re eligible for and the number of courses you’re enrolled in for the year.
Recommended: How to Pay for College Textbooks
Applying for GI Bill Benefits
If you’re a veteran and interested in getting the military to pay for college, you’ll need to apply for GI Bill benefits. Here’s a look at what’s involved.
Required Documents
Some of the information you’ll be asked for when you apply may include:
• Your Social Security number
• Direct deposit bank account information
• Education history
• Military history
• Basic information about the educational institution or training facility you want to attend
Application Process
You can apply for benefits online at the VA’s website. Alternatively, you can apply by mail. Simply call 888-442-4551 to request an application. Once you receive the application and fill it out, you can send it to the VA regional processing office that’s right for you (you can use this online VA locator). You can also apply by visiting your nearest VA regional office.
It takes the VA an average of 30 days to process an application. If the VA determines you are eligible for educational benefits, you’ll receive a Certificate of Eligibility (COE) that you can provide to the school you’ve chosen.
Military Tuition Assistance
The U.S. Department of Defense (DOD) also offers education benefits to current active-duty, National Guard, and Reserve Component service members who wish to pursue post-secondary education in their off-duty time. This is one of the many ways you can save money while serving in the military.
Called the Military Tuition Assistance program, it will pay up to 100% of tuition and course-specific fees, with a limit of $250 per semester credit hour and an annual limit up to $4,500. Degrees and programs of study covered include undergraduate and graduate programs, vocational/technical, distance learning, and independent studies. (Housing, books, and other expenses aren’t covered.) Details are available through each service branch’s website.
State Benefits for Veterans
Many states offer education benefits that veterans can use along with, or as an alternative to, their federal GI Bill benefits. To find out about these benefits — which may include tuition waivers, scholarships, grants, and other programs — you can visit the Department of Veterans Affairs or Department of Education website for your state. Your military branch also may have information about the various benefits available in your state.
Local and regional veterans service organizations also offer scholarship opportunities to qualified candidates. And your employer may provide help with tuition or student loan repayment as part of their veteran financial well-being programs.
The Takeaway
If you’re hoping to further your education when your military service is complete, the GI Bill can help you pay for college, graduate school, and a variety of training and certification programs. Depending on when you served, how long you served, and some other factors, you may receive help paying for a large portion of your education expenses, including tuition and fees, education-related supplies, and housing costs.
Beyond the GI Bill, you also may qualify to receive assistance through state resources, local and regional organizations, your employer, and federal student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Can the GI Bill be transferred to dependents?
If you meet certain service requirements, you may be able to transfer your Post-9/11 GI Bill benefits to an eligible dependent. You can apply for a Transfer of Education Benefits (TEB) through the Department of Defense.
Do GI Bill education benefits expire for veterans?
It depends. If you were discharged from active duty on or after Jan. 1, 2013, your benefits won’t ever expire. But if you were discharged before Jan. 1, 2013, your Post-9/11 GI Bill benefits will expire 15 years after you separate from the military.
Montgomery GI Bill benefits must be used within 10 years after your separation date. After that, you could lose any benefits you haven’t used, although the Department of Veteran Affairs (VA) may grant an extension under certain circumstances.
What education benefits can I get if I’m still in the military?
If you’re still serving in the military, you may be eligible for education benefits through the GI Bill, the Department of Defense’s Military Tuition Assistance, and other programs. You can get information at the Department of Veteran Affairs (VA) website or through your military branch.
Photo credit: iStock/Drazen Zigic
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Americans with a financial advisor expect to retire two years earlier according to Northwestern Mutual’s Planning & Progress Study Ready to Retire: 75% of those who work with an advisor say they will be financially prepared for retirement versus 45% of people without an advisor Free from Anxiety: 64% of Americans with an advisor say … [Read more…]
Your 40s can be a pivotal decade in your life. It’s typically a time of peak earnings, growing family responsibilities, and an increased focus on long-term financial stability. You may have a house, kids, and a busy job. College expenses may be looming. Maybe you’re hatching a plan to start your own business or buy a beach house that’ll one day be your empty-nester home.
To navigate these years successfully, it’s essential to make strategic financial moves that can secure your future and make your plans and dreams a reality. Here are some critical financial planning tips to consider as you move through your 40s.
7 Financial Moves to Make During Your 40s
In your 40s, you’re old enough to know what you want and likely have enough earning years ahead to achieve your goals — if you manage your money right. The following strategies can help you build wealth in your 40s.
1. Maintain or Replenish Emergency Funds
Life is full of unexpected twists and turns. Not all of them are fun, such an expensive car or home repair, a medical emergency, or losing your job. An emergency fund offers financial stability during a stressful time. It also saves you from running up expensive debt that could derail your financial goals.
A general rule of thumb is to have six to 12 months’ worth of living expenses stashed away for the unexpected. If you already have an emergency fund but it has been partly or fully depleted, you’ll want to prioritize replenishing it to maintain financial security.
Consider setting up automatic transfers into savings to build your emergency fund consistently. Keep these funds in a liquid, easily accessible account, such as a high-yield savings account, to ensure you can access the money quickly when needed.
2. Manage Your Debt
Debt management is a crucial aspect of financial planning at any age, but it becomes even more critical in your 40s. Since high-interest debts, like credit card balances, can significantly hinder your ability to save and invest for the future, you’ll want to prioritize paying them off as quickly as possible.
One strategy that can help is the avalanche payoff method. Here, you list your debts in order of interest rate from highest to lowest, then put extra money toward the highest-interest debt, while continuing to pay the minimum on the others. Once that debt is paid off, you put your extra funds toward the debt with the next-highest rate, and so on.
Alternative approaches to paying down high-interest debt include getting a low- or no- interest balance transfer credit card or taking out a personal loan for debt consolidation with a lower rate than you are paying on your cards.
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3. Revisit Retirement Saving
In your 40s, you’re roughly at the midpoint between entering the workforce and traditional retirement age. How you invest and save for retirement at this point in your career can strongly impact your future assets and ability to one day retire comfortably.
If you’re not currently contributing to a retirement plan, such as a 401(k) or individual retirement account (IRA), now’s a good time to start. If you have been, it’s time to assess your progress. Consider how much of a nest egg you will need to retire and, using an online retirement calculator, whether your current plan will get you there.
If you’re behind on your savings, consider stepping up your contributions or, if you’re already contributing the max allowed, making “catch-up” contributions down the road. Starting at age 50, the IRS allows higher maximums designed to help people catch up on their retirement savings goals.
4. Plan for Childrens’ College Expenses
If you have kids, planning for their future education expenses may be top of mind. College costs continue to rise, and early planning can alleviate future financial stress. If you haven’t started saving for college expenses, you may want to explore opening a 529 college savings plan, which offers tax advantages and can be a flexible way to save for educational expenses.
An online college cost estimator can help you determine how much you need to stash away each month or year, based on the year your child will likely attend college and the type of school they might choose.
Just keep in mind that it’s important to balance college savings with other financial goals, like retirement. As kids get closer to leaving the nest, you may also want to encourage them to apply for scholarships and grants, and explore financial aid options.
5. Choose or Reevaluate Insurance Coverage
Insurance is an important component of financial planning in your 40s. You’ll want to evaluate your current insurance coverage and make sure it’s adequate to meet your family’s needs. This includes not only health and home insurance, but also life and disability insurance.
Life insurance provides financial security for your family should you die prematurely. If you don’t currently have a life insurance policy, consider purchasing one. If you do have one, you’ll want to make sure your policy’s coverage amount is sufficient to cover your family’s current living expenses, outstanding debts, and future financial needs, such as college tuition for your children.
It’s also a good idea to review your disability insurance, which protects your income if you’re unable to work due to illness or injury. Many companies provide a policy through work. However, you may want to consider supplementing employer-provided coverage or, if you’re self-employed, getting your own policy. This offers a different, but equally important, safety net for you and your family.
Recommended: Which Insurance Types Do You Really Need? Here Are 6 to Consider
6. Invest Outside of Retirement
While retirement accounts are crucial, investing outside of retirement can diversify your portfolio and help you achieve goals that may be five or 10 or more years away, such as a downpayment on a vacation home or a child’s wedding.
Though investing carries risk and can be volatile in the short term (which is why you generally don’t want to invest funds you’ll need in the next few years), an investment account has the potential to grow more than other types of accounts over the long term. Consider taxable investment accounts that align with your risk tolerance and financial objectives.
7. Meet with a Financial Professional
Getting expert advice on managing your finances can be invaluable at this stage of life. Whether you opt for regular meetings or simply go for a one-time consultation, a financial professional can provide valuable insights and help you navigate complex financial decisions.
An advisor will typically look at your whole financial picture and assist you with creating a comprehensive financial plan. This may include optimizing your investment strategy and ensuring you’re on track to meet your goals, including retirement, investments, and college savings.
The Takeaway
It’s never too late to take control of your finances. In your 40s, you are likely entering your prime earning years, so it’s a good time to focus on paying down debt, preparing for the next chapter of your children’s lives, and saving and investing for your future retirement. With some wise money moves, you’ll be set to make the most of this decade and beyond.
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FAQ
What financial goals should a 40-year-old have?
Ideally, a 40-year-old will want to focus on several financial goals. These include:
• Establish or maintain an emergency fund with three to six months’ worth of essential living expenses.
• Reduce financial burdens by paying off high-interest debt.
• Ensure you’re on track with retirement savings by maximizing contributions to retirement accounts.
• Start or continue saving for children’s college expenses through plans like 529s.
• Consider investing outside of retirement to diversify your portfolio and build wealth.
How much should a 40-year-old have saved?
By age 40, financial advisors often recommend having three times your annual salary saved for retirement. This benchmark ensures you’re on track to meet long-term financial goals and maintain your desired lifestyle in retirement.
In addition, you’ll want to maintain an emergency fund with three to six months’ worth of living expenses.
Savings outside of emergency and retirement, such as investments in taxable accounts, can further enhance financial security. The exact amount can vary based on individual circumstances, income, lifestyle, and future goals.
How can I build my wealth in my 40s?
To build wealth in your 40s, you’ll want to focus on several strategies:
• Maximize retirement account contributions, taking full advantage of employer matches.
• Pay off high-interest debts to free up resources for savings and investments.
• Establish or maintain an emergency fund to cover unexpected expenses without derailing financial goals.
• Consider additional income streams, such as side businesses or rental properties.
• Diversify investments across stocks, bonds, real estate, and other assets to balance risk and growth potential.
Photo credit: iStock/shapecharge
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Budgeting is such an adulting term.
Nothing can make you feel more like an adult when you need to learn how to budget your money, stop buying frivolous things, and save for retirement.
A budget just sounds like no fun.
Is it possible to learn how to budget money and still enjoy life?
However, the bright side to budgeting (and normally overlooked aspect) is by setting up a budget is you start to live within your means and start your path to financial freedom. Here are all the advantages of budgeting.
Personally, financial freedom is way more enticing!
So, that means a budget is necessary. A budget is key. A budget will change your life forever.
Just FYI…Here at Money Bliss, we like to call it a Cents Plan. Why? A budget sounds constricting. Take your money cents and put it with your head sense to make your Cents Plan.
We will detail what is the proper way to budget for money.
But the question remains how to budget money without pulling out your hair and still enjoy life. (It is easier than you think!)
Do you Need a Budget?
First, let’s answer this age-old debate. Do you really need a budget?
The simple answer is it depends on what you want out of life.
Do you want to live paycheck to paycheck, struggling with money, straddled with debt? Or with financial independence where you control your destiny?
Stress vs. joy. The choice is yours.
With human nature, our tendency is to spend money. While there are some savers in the room, it is typically a learned trait. Society wants quick results and with material items so cheap, it is easy to go overbudget.
Does extra income really solve someone’s money problems?
Last I checked, there are plenty of people who made millions are in bankruptcy because of overspending, not living within their means, and a budget wasn’t a term they used.
Here is a quick test…
If you have read this far into the post, then you need a budget. Keep reading. We have plenty of information to help you succeed. Also, you will learn various ways to budgeting that work for you.
Longer Answer & Must Read: Money Bliss Steps to Financial Freedom – this is the long term answer to “Do You Need a Budget?”
Purpose of a Budget
Okay, so we figured out that you need a budget. But, you aren’t truly convinced about why you need a budget.
What is the reason or main purpose of a budget?
The purpose of a budget is to first decide where you plan to spend/save money and then, see if you followed through on your plan.
Are you under budget? Are you over budget? Specifically, are you making progress to your life’s vision?
That is the role of a budget.
It is a guide for your money. Like we have said many times before you can manage your money or have your money manage you.
Personally, we use a budget to reach financial freedom faster and to make sure we have money set aside to travel. We have chosen to live a little more frugal than our neighbors (some might say much more frugal). However, the trade off for us is to travel now. Not wait until “retirement.”
For us, the purpose of a budget helps us to travel each year plus work our way towards financial freedom.
For you, what is the purpose of a budget? What do you want out of life?
Use on of these methods of budgeting as a guide to develop your budget.
Importance of Budgeting
There are many benefits of budgeting. However, most people struggle with a budget because saying no to yourself can be hard.
Let’s look at the bigger picture.
Do you want to manage your money? Or have your money manage you?
The choice is yours.
A budget is just a spending plan written out in advance.
You manage money your way!
That is a huge importance of budgeting. Personally, I would much rather decide how I want to spend my money. That is one of the biggest reasons we decided to pay off our debt in one year.
The importance of budgeting is to make sure you are living within your means and have the ability to pay for your expenses.
A budget doesn’t have to be complicated. It helps you lower big ticket expenses like housing, food, and transportation and then make sure you have enough remaining for the rest of your expenses.
If debt is a part of your life, then you are able to pay off debt faster by knowing where you spend money (and specifically what is worth spending money on). If you are debt-free, then you can continue paying in cash rather than racking up debt.
By moving towards a budget, then the foundation is laid to build a solid money journey.
You know where and how your money is spent. Then, you’re not left at the end of the month wondering if and when you will run out of money.
Another key importance of budgeting is it forces you to be organized with your finances. Then, you know where your money is going.
Creating a budget shouldn’t be overcomplicated or hard. That is something we will teach you how to do.
Benefits of Budgeting
Too many times people have good intentions of creating a budget and give up too quickly, then they never finally understand the benefits of budgeting.
It will take a few months or paycheck cycles to truly notice the benefits of budgeting (AKA spending less than you make).
You need to learn how to budget money and get into the groove of it.
No matter what we do…we can’t change how fast the days move. This is hard when you are working hard on your budget for the first time and want to see progress faster.
Consistency makes budgeting actually work.
A few of the benefits of budgeting include:
Stop fighting about money
Ability to reach your goals faster
Prioritize spending
Did you realize we only listed a few of the benefits of budgeting? Learn all nine Surprising Advantages of Budgeting your Money. (#7 may save your marriage)
As paychecks roll in and the months go by, you start seeing the bigger and bigger picture on the benefits of budgeting.
How to Manage Money
Now, that you read you need a budget, the purpose of a budget, the importance of budgeting plus the true benefits of budgeting, let’s learn how to manage money.
Specifically, how to manage your money.
Remember you have the choice to manage your money or have your money manage you. The choice is yours.
So, how can you manage your money?
One place to start is look at what others are doing. What makes them successful or not successful.
You can manage your money based off percentages like the Cents Plan Formula.
You can look at the household budget percentages to see how people spend money according to the statistics.
Ask a friend or family member how they manage money. (Some may tell you others won’t say a word.)
You can also go in depth with My Ultimate Money Blueprint.
Just remember, in the end, you want to manage money your way.
Steps on How to Budget Money
Managing money is more than just a budget.
It is about giving you choices in life.
These steps on learning how to budget money are very global. They aren’t specific tactics for budgeting. You can learn that in the 7 steps to making a budget.
These is the overarching themes that guide you on how to budget your money. Let’s budget your life and change your finances.
1. Life’s Vision
Before we starting truly budgeting, we just tracked our spending. Without fail each and every month, there wasn’t money leftover to do what we wanted in life. Things just didn’t seem fair.
Then, I got this hair-brained idea to pay off all of our debt in 1 year.
Let me tell you…it was the best decision we ever made. You can read about our journey to be debt free.
By paying off our debt, we decided to put us first and what we wanted in life.
Extra money was going towards all of debt each month. So, that meant everything else was hacked to make paying off debt possible.
During that time, we truly understood what we wanted in life, what was important to us, and how we would get there. I guess you could say we began to budget our life.
Do you know what your life vision is? Your why? Your next money goal?
If not, then start here on making money goals.
2. Live Within Your Means
While this seems blatantly obvious, it is one of the hardest things for people to do.
Simply put…
Income > Spending
Your income is greater than your spending (and hopefully savings is included in that number too).
One of the fastest ways to start living within your means is with a no spend challenge.
Plus it will help you uncover your life’s visions and what truly matters to you.
If you have been spending more than you make, then you are letting money manage you.
By living within your means, then you are managing your money your way.
Learn Exactly… How to Live Below Your Means and Love Life
3. Be Okay Being Different
The comparison trap is real.
With social media, it is hard to escape any type of comparison game. It used to be “Keep up with the Joneses’” and that just meant the neighbors and friends around you. Now, it is comparing yourself to influencers and people you will never meet in your lifetime.
The key to long term success on how to manage money is doing it your way, which means that your priorities will be different than everyone around you. And you have to be okay with being different.
Need ideas to stay on budget? Find 101 Fun Things To Do With No Money.
Need the motivation to live in a minimalist home? Could You Live In a Minimalist Home? (Real Life Minimalists) Hint: We were featured because while less is more.
4. Find a System to Work for You
The recommendation I always make when starting out with a budget is to use paper and pencil. Something tangible that you can touch and feel. Then, it becomes a constant reminder of your new ways of managing money.
Over the long-term with budgeting, you must find a system to work for you. Maybe an app? Maybe a spreadsheet? Possibly a software?
The key is finding a system that will work for you. And if you combine finances, it has to work for both of you.
This is where most people fail.
There are so many options for free and paid budgeting apps today. It may seem overwhelming. But, you can’t go back to other habits.
Today, we use Quicken and a personalized spreadsheet. Thankfully, Quicken does all of the hard work of downloading transactions, categorizing them, and creating reports.
5. Celebrate Successes
This is something that doesn’t happen as much as it should with money goals. Too many times, we are so focused on saving money and living frugally, we forget to live and enjoy life.
You need to stop and smell the roses.
In this case, you need to celebrate your wins along your journey.
Here at Money Bliss, we like to focus on…
Life. Money. Enjoy.
Life is first. You need to enjoy your life and figure out how money relates to your life. You need to budget your life.
Don’t be afraid to celebrate your success. And if you don’t believe us…One of the steps in the Money Bliss Steps to Financial Freedom is about celebrating success and doing something for you.
How to Set up a Budget
Setting up a budget shouldn’t be hard or complicated.
Don’t overanalyze. Don’t give up.
Most people have to work on setting a budget that works for them over a couple of months. Each month making small refinements.
The end goal is to set a budget that works for you.
A High-Level View of Budgeting:
Determine what your money goals are
Figure out your income
Track how much you are spending
Set up a Budget or Spending Plan
Track your progress
Yes, this is a very high-level view of setting up a budget. At this point, you don’t have to divide up into budgeting categories if you don’t want to.
There are plenty of resources on our site to help you finalize a budget that works for you.
Find detailed resources on how to make a budget.
The key to setting up a budget is be realistic.
You want to set yourself up for success – not instant failure.
One of the key ingredients to make you a success is pocket money. Personally, I believe this one category can make or break your budget. Understand how pocket money (AKA slush money) works.
When setting up a budget for the first time, set aside time to work through the budgeting process. A solid budget that will work (remember that is a key ingredient for success) needs to be based on your life’s visions. Not just slapped together in 5 minutes.
Learn How to Budget Money
Learning how to budget money is completely doable.
Budgeting shouldn’t be cumbersome or overwhelming. In the long run, the benefits of budgeting outweigh living paycheck to paycheck or stressed about money.
A budget makes sure your expenses (and savings) are below your income. From there you can decide how detailed you want to get with your budget.
The purpose of a budget is to help you successfully reach your life’s visions. The point where you start managing your money and not being managed by your money.
Further resources on budgeting:
Make sure to download our free budget printables!
From all of the free and paid budgeting apps, here are our top budgeting apps to check out!
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Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
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Ready to achieve millionaire status without a cent to your name? Let’s kickstart your journey with these 15 genius strategies. Each step brings you closer to your goal, building wealth through dedication and strategic moves. It’s not just about money, but the lessons learned and connections made along the way that pave the path to financial success.
Create a Financial Plan
Craft a financial plan that charts your path to millionaire status. It’s not just a dream but a calculated strategy based on your goals and timeframe. Establish clear objectives and a roadmap to reach financial independence.
Positive Mindset for Success
Cultivate a positive mindset to unlock financial success. By fostering optimism and clarity, you empower yourself to manifest your aspirations with confidence. Maintain a can-do attitude to navigate challenges on the road to wealth.
To learn more: 125+ Money Affirmations to Attract More Money into Your Life
Start Saving – Even Small Amounts
Kickstart your savings journey with small but consistent contributions. Embrace mini-saving challenges that gradually accumulate wealth without disrupting your daily life. These incremental savings lay the foundation for financial independence.
To learn more: 15 Mini Savings Challenge Printables To Save More Money
Pay Off Debts ASAP
Prioritize debt repayment to accelerate your journey to financial freedom. Eliminating debt releases resources for wealth-building endeavors and boosts your net worth. Experience the transformative power of debt freedom on your path to millionaire status.
To learn more: How to Get Out of Debt in 5 Easy Steps
Find High Income Skills
Discover lucrative skills to boost your earning potential. In today’s dynamic economy, capitalizing on your abilities can open doors to additional income streams. Invest in developing valuable skills that align with market demands for long-term financial success.
To learn more: Top High Income Skills Without a Degree to Learn
Grow Your Income with Side Hustles and Entrepreneurship
Expand your earning capacity through diverse income streams. Side hustles and entrepreneurship offer flexible opportunities to leverage your talents and time, paving the way for financial abundance. Explore avenues to grow your income outside traditional employment.
To learn more: Find The Perfect Side Hustle for You
Learn Investing 101
Master the fundamentals of investing to build wealth over time. Unlock the power of compound interest and passive income by venturing into the world of stocks and investments. Equip yourself with the knowledge and skills to navigate the financial markets effectively. Don’t delay!
To learn more: How To Invest In Stocks For Beginners: Investing Made Easy
Adopt a Growth Mindset
Foster a growth mindset and learn from successful individuals. Embrace opportunities for personal and professional development to accelerate your wealth-building journey. Surround yourself with mentors and peers who inspire and challenge you to reach new heights.
Pick Your Community
Surround yourself with like-minded individuals committed to financial success. Build a supportive community that encourages wealth accumulation and mutual growth. Engage with peers who share your aspirations and values to stay motivated on your path to millionaire status.
Stay Debt Free
Maintain financial stability by avoiding debt traps. Free yourself from debt burdens to enhance your ability to save, invest, and accumulate wealth. Embrace a debt-free lifestyle that propels you toward financial independence and long-term prosperity.
To learn more: 7 Simplistic Habits Needed for Debt Free Living
Avoid Lifestyle Inflation
Resist the temptation of lifestyle inflation to safeguard your financial future. Balance increasing income with disciplined spending habits to maximize savings and investments. By curbing lifestyle inflation, you preserve resources for wealth-building endeavors.
To learn more: Avoid the Trap of Lifestyle Creep and Reach Financial Freedom
Take Advantage of Compounding Interest
Harness the power of compounding interest to grow your wealth exponentially. Let your investments generate returns that fuel further growth, accelerating your journey to millionaire status. Start early and leverage the magic of compounding for long-term financial success.
Focus on Your Long Term Vision
Cultivating a long-term vision is important to know what you are striving towards. Develop a comprehensive financial plan that encompasses savings, investments, retirement, and estate planning. Stay committed to your vision and adapt your strategy as you progress towards millionaire status.
To learn more: Host a Vision Board Party: Plenty of Ideas for Success
Take Immediate Action
Seize the moment and take proactive steps towards financial success. Avoid the pitfalls of procrastination by prioritizing saving, investing, and debt repayment. Embrace immediate action to overcome inertia and propel yourself towards your financial goals. Then, you will become a millionaire.
To learn more: How to Become a Millionaire with No Money
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In the pursuit of financial stability and prosperity, setting clear goals is paramount. In this guide, we’ll explore ten essential financial objectives that can pave the way to a secure and fulfilling future. Whether you’re aiming to build wealth, eliminate debt, or achieve financial independence, these goals will serve as your roadmap to success. Let’s embark on this journey towards financial empowerment together.
Be A Constant Learner
Make continuous learning a priority in your financial journey. With so much to discover about money management and personal finance, adopting a mindset of constant learning equips you with essential knowledge for making informed financial decisions.
Pay Yourself First
Prioritize your financial well-being by committing to paying yourself first. By saving a portion of your income before anything else, you safeguard your financial future and ensure you have resources available for future needs and opportunities. Start small and keep saving more.
Multiple streams of income
Diversify your income sources to safeguard your financial stability. Whether through side hustles, investments, or additional employment, creating multiple streams of income provides financial resilience and opens up avenues for wealth accumulation beyond traditional income streams.
To Learn More: Explore the Many Ways to Make Money
Get Out of Debt
Break free from the shackles of debt to regain control of your financial future. Eliminating debt not only relieves financial stress but also paves the way for future financial growth and stability. By prioritizing debt repayment, you clear the path for building wealth and achieving your financial goals.
To learn more: How to Get Out of Debt in 5 Easy Steps
Spend less Than You Earn
Achieve financial stability by ensuring your expenses remain below your income. Embrace the practice of spending less than you earn to avoid debt accumulation and cultivate healthy financial habits. Consider participating in a no-spend challenge to reinforce mindful spending and bolster your savings.
To learn more: No Spend Challenge: The #1 Fastest Way To Save Money
Increase your Saving Percentage
Boost your financial well-being by incrementally increasing your savings rate. Saving a significant portion of your income, ideally 20% or more, contributes to long-term wealth accumulation and financial security. Adopting this habit allows you to gradually grow your net worth while maintaining financial flexibility and resilience.
To learn more: How Much to Save Monthly – Your Savings Percentage
Give Money Away
Cultivate generosity by incorporating charitable giving into your financial plan. Whether through donations to worthy causes or acts of kindness, sharing your resources with others not only benefits those in need but also fosters a sense of fulfillment and abundance in your own life. Prioritize giving as a cornerstone of your financial journey.
Keep a Financial Journal
Track your financial progress and milestones by maintaining a financial journal. Recording your financial goals, achievements, and challenges provides valuable insights into your financial journey and serves as a source of motivation to stay focused on your objectives. Regularly reviewing your journal empowers you to make informed decisions and stay on track toward financial success.
Teach others About Money
Share your financial knowledge and empower others to achieve financial success. By imparting solid money management skills to those around you, you not only contribute to their financial well-being but also reinforce your own understanding and commitment to sound financial principles. Serve as a mentor and advocate for financial literacy within your community.
Retire on Your Terms
Take control of your retirement planning to ensure you retire on your own terms. By diligently saving and investing for retirement, you create the financial foundation necessary to maintain your desired lifestyle without relying on earned income. Start planning and saving early to secure a comfortable retirement that aligns with your goals and aspirations.
To learn more: What Happens If you Don’t Save for Retirement
Smart Financial Goals that You Need
Discover the importance of setting smart financial goals to transform your financial future. Utilize our setting financial goals worksheet to define clear objectives and develop a roadmap for achieving them. Setting smart financial goals empowers you to take control of your finances and pursue a path towards long-term financial success.
To learn more: 10 Smart Financial Goals That You Need
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If you received a raise at work, first things first: Congratulations! Your first impulse may be to celebrate with a big purchase or party. But rather than blowing your salary bump right away, it’s wise to be strategic. Take a little time and consider how you might use that extra cash. It could help you reach some short- and long-term financial goals.
There can be a lot to consider, but keeping a few things in mind may help you figure out the best course of action.
How to Financially Handle a Pay Raise
To help you decide what to do with a pay raise, you’ll want to think broadly, and about the future. Here are a dozen tips that may help you be better informed as you make your decision about what to do when you get a raise.
1. Using It to Get Rid of Debt
Having extra cash is a perfect opportunity to build an emergency fund if you don’t have one or if yours could use a boost. Financial experts advise having at least three to six months’ worth of basic living expenses in the bank. This can tide you over if, say, a big medical bill or car repair hits or if your family were to endure a job loss.
A raise can allow you to set a lump sum of money aside or motivate you to regularly allocate toward your emergency fund so you are financially secure in times of need. 💡 Quick Tip: As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.
2. Using It to Build Your Emergency Fund
Having extra cash is a perfect opportunity to build an emergency fund if you don’t have one or if yours could use a boost. Financial experts advise having at least three to six months’ worth of basic living expenses in the bank. This can tide you over if, say, a big medical bill or car repair hits or if your family were to endure a job loss. A raise can allow you to set a lump sum of money aside or motivate you to regularly allocate toward your emergency fund so you are financially secure in times of need.
3. Re-Evaluating and Updating Your Budgeting
When you get a raise, you may be wondering how to manage this extra cash. There are probably a lot of wish-list items tempting you to increase your spending. Instead of shopping, it may be a good time to reevaluate your budget to see how you can best put your money to work.
Typically, budgets recommend that you first allocate funds toward your mandatory monthly expenses like mortgage, rent and other bills. Next, don’t forget to pay down debt, followed by adding some money to your emergency stash if needed. Have you also thought about retirement funds?
Make sure to figure out how much to save every month and put some of your money to work in a 401(k) or another retirement fund. With the money that’s left, you can spend as you see fit, invest it in the stock market, make charitable donations, or decide other ways to use it.
If you need more guidance on budgeting, look online at different techniques, such as the 50/30/20 budgeting rule, or test-drive some apps that help you see where your money is going and determine how to best manage it.
4. Avoiding Lifestyle Creep
If you are contemplating what to do with a raise, one thing to sidestep is lifestyle creep. That happens when a person makes more money but also spends more of it, typically on luxuries. So if you get a raise and then rent a more expensive apartment or sign up for a luxury-car lease, that’s lifestyle creep. You have bought into some of life’s finer things, but you may wind up just breaking even. In fact, even with more money, you may feel as if you are living beyond your means.
It can be smart to try and avoid this behavior because you don’t want to spend every penny you make. That’s not a healthy financial habit; it doesn’t help you build wealth over time. Yes, you can allow yourself to enjoy some discretionary spending (more on that in a minute). But if you let lifestyle creep happen, it may be hard to make ends meet and find opportunities to save for longer-term goals.
5. Re-Evaluating Your Retirement
When you get a raise, you have a prime opportunity to increase your retirement savings. It may not sound like fun compared to taking a vacation, but allocating money this way can be a good financial strategy to reach your goals.
If you have, say, a 401(k) plan with your employer, you can increase your monthly contribution and possibly snag the employer match, too, which is akin to free money. While it may not feel like a fun use of your raise now, your future self will thank you when you see how well your retirement savings are growing.
6. Invest in Yourself
Consider how your raise might help your long-term wellbeing, your mood, and your quality of life. Would it be wise for you to get in better shape? Have you been having trouble sleeping for a while? Do you feel hungry to learn a new skill? A bit of extra money might help you resolve those situations. Sometimes, not having enough money is a common and valid reason for not doing more of this kind of self-care.
Maybe, with your raise, you can now afford to take a few fitness classes and learn some moves you can do on your own. Perhaps you can work with a therapist on what’s keeping you up at night. Or maybe it would bring you joy to take some guitar lessons or pursue a continuing-ed class in a topic that has always fascinated you. Putting a portion of your raise to work this way can be rewarding on so many levels. 💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.
7. Considering Inflation
Inflation has been very much in the spotlight lately. In recent years, inflation has reached highs not seen in decades. When inflation is high, your purchasing power declines. Simply put, your dollar doesn’t go as far.
If you get a raise during a period of high inflation, do the math. If you receive a 5% raise and inflation is 3.6%, then you are staying (just barely) ahead in terms of your finances. That raise is helping to protect your money against inflation but unfortunately it won’t stretch much further. This perspective is good to keep in mind so you don’t overspend and wind up with debt.
8. Preparing for Taxes
Getting a bump in your salary may impact your tax liabilities; it may nudge you into a higher tax bracket. If this is the case, your tax rate will rise, and you may need to pay out a higher percentage in taxes. Typically, this will only take your effective tax rate up a couple of percentage points, but it can make a difference to your bottom line.
To offset that, you may want to adjust your withholdings with your employer. If more money is withheld during the year, you could owe less or get a refund at tax time. This could help you avoid an unpleasant surprise (namely, a tax bill) come April.
9. Saving up More for a Large Expense
Are you saving for a vacation, a wedding, a home renovation, or a new car? If you have a big-ticket item on the horizon, you may want to put part of your raise towards that goal. It can be a good move for your finances in the long-run. The extra money can help you afford what you are saving toward. You can sidestep debt as you make your dream a reality. By doing so, you’re likely improving your credit and building wealth — it’s a win-win situation.
10. Investing Your Money
Investing your hard-earned money is historically one of the best ways to build wealth. For some, that can be a good reason to allocate some of your raise to increasing their investments.
A good place to start is by creating an investment portfolio with stocks, bonds, exchange-traded funds (ETFs) and other assets. This can be a vital part of making your financial plan.
11. Funding and Starting a Side Hustle
If you dream of building your own business from a hobby someday, you could use money from your raise to start a side hustle. If, say, you love making pastry, you might invest in cookware that will take your game up a notch. Or if creating apps is your passion, perhaps there’s a weekend class that could boost your skills. Keep tabs on how much money you allocate toward this side hustle and make sure these funds put you on a path to building a business.
12. Enjoying Your Financial and Career Successes
Many of these tips for using your raise wisely revolve around paying down debt, achieving long-term financial goals, and building wealth. But of course, do use a portion of your raise to reward yourself. You’ve received a financial award because of your hard work and dedication. You deserve to treat yourself! Whether that means having a fantastic dinner out with a couple of close friends or buying a coat you’ve been eyeing for a while now, you should find a way to mark this happy moment.
Managing Your Finances with SoFi
Getting a raise is an exciting life event. It shows that your hard work has paid off and your career is making progress. But it also means that you need to make some decisions about what to do with your money – it can be both exciting, and nerve-wracking.
Making some smart decisions about saving, investing, or even investing in yourself may be a good path. But again, it’ll come down to you, your goals, and your preferences. It may be helpful to speak with a financial professional, too.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
How do I avoid spending too much after I get a raise?
Create and stick to a budget. Even though you are making more money, you still have to be conscious over where your cash goes and avoid lifestyle creep, which involves spending more as you earn more. This can make it harder to achieve your financial goals.
Is it okay to treat myself when I get a raise?
It’s definitely reasonable to treat yourself when you get a raise; you earned it! But it’s not a habit that you want to get out of hand. You want to make sure you’re spending within your means and not accumulating debt.
Can a pay raise be a negative?
A raise can potentially be a negative if you spiral into unreasonable spending. You could wind up with debt to deal with. Also, take note if your raise pushes you into a higher tax bracket, which still means you’re making more money, but you’d be paying a higher tax rate on a portion of your earnings.
Photo credit: iStock/fizkes
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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
As an alternative to direct deposit, 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.
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.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.