By Ashley Kilroy ·February 27, 2024 · 10 minute read
We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey.We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide.We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right.
Table of Contents
- Learn How to Budget
- Get Out of Debt
- Open a High-Yield Savings Account
- Consider Passive Income Streams
- Consider Investing as a Part of Your Financial Plan
- Automating Bill-Pay or Automatic Savings
- Ditch the Fees
- Get Rewarded for Spending
If you want your money to grow more quickly and to feel confident that you’ll reach your financial goals, you’re in the right place. This guide will show you how to make your money work harder for you. There are smart ways to maximize every single dollar you earn. Yes, it will take some planning and focus, but it can have very real rewards.
A few tactics to make the most of your money involve leaning into your personal finances and recognizing the importance of financial literacy. Once you’re committed to doing that, you can take such steps and budgeting well, maximizing interest and rewards on your cash, spending smarter, and automating your savings.
Key Points
• Effective budgeting is crucial for understanding your spending habits and making the most of your money.
• Paying off debt should be a priority to free up funds and make your money work for you.
• Opening a high-yield savings account can help you save money for short-term goals and earn more through higher interest rates.
• Considering passive income streams, such as rental properties or investments, can provide additional income and financial stability.
• Investing as part of your financial plan can help grow your wealth over the long term, but it comes with risks and requires careful consideration.
Making Your Money Work For you
These tips and ideas can help you put your money to work.
1. Learning How to Budget
An effective budget can help you make the most of your money, allowing you to understand where you are spending, so that you can feel empowered to save, and spend, on things that are most important to you. With the right tools on your side, you can learn how to make your money work for you.
These budgeting tips can help you get started:
Layout Your Finances
An effective budget is an accurate budget. If you are starting your budget from scratch, some recommendations suggest reviewing three months’ worth of receipts, bills, etc., before moving forward. This will give you insight into your current spending habits. Then, split those expenditures into needs and wants.
A budgeting tip: The information for making your budget should be accessible. Depending on your preferences that may be a physical copy, a spreadsheet, or using an app that can help you stay on top of your budget and expenses. SoFi, a money-tracking app, lets you see all of your accounts in one central location so that you can easily see where the money is coming, where it’s going, and where you can shift things around.
Figure Out Your Net Income
After you know how much you’ve been spending, you want to compare it to how much you earn. When making a budget, it can help to work with your take-home pay. This is the total income you earn from your job, after taking out all the required taxes, savings, and insurance payments from it. Those who are self-employed may work with different deductions than those who work a regular 9-to-5. In that case, subtract your self-employment tax (the sum of Social Security and Medicare taxes).
Using your after-tax pay can help you determine an accurate total for how much money you actually have available to spend. If you have any other income earners in your household, do factor in their income as well. Also include any investments or additional sources of income.
Plan Your Budget
Now comes the moment of truth. You have to create a step-by-step plan and put it into action. One method you may want to think about is the 50/20/30 budget. This budgeting method breaks your spending and savings into the following amounts: 50% for your needs, 30% for wants, and 20% for savings. If they need adjusting, shift the numbers to suit your plan.
Tracking multiple categories may not work for you, though. If you have trouble logging expenses in hyper-specific categories, simplify them. Overwhelming yourself will only make it harder for you to stay on target.
Review and Adjust
No matter how perfect the plan, things change. You might switch jobs, have a child, move somewhere else, or gain new needs. That’s why your budget can be flexible. When things change, change your budget to reflect those new priorities. If you have trouble fixing the plan, you may need to revisit some of the previous planning stages. Your budget and money should work for you, after all.
💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.50% APY, with no minimum balance required.
2. Getting Out of Debt
More than anything, getting out of debt means finding ways to make your money work for you. Whether it’s more robust savings tactics or new repayments strategies, there are options. So if you want to take the burden of debt off of your shoulders, here are some methods to try out.
It’s easy to say you need to pay off a debt. But it’s another thing actually to have the money for it. So before you cut down your expenses, you may need to save up first. A high-yield savings account is an available option that can help you build wealth to meet your financial goals.
Selecting a Debt Repayment Strategy
What do you think of when you hear the words “snowflake,” “snowball,” and “avalanche”? Perhaps you picture snow-capped mountains or blustery winter sports. But they’re the names for some of the most popular debt repayment strategies. While these strategies encourage individuals to make additional payments on some of their debts, making the minimum payments on all debt is important.
•The snowflake method encourages individuals to put any extra cash earned toward debt repayment. Any time there’s excess to play with, you put it towards your debt. Since that helps you pay over your monthly minimum, you’ll eventually finish off the debt. You can earn additional money in any way that works for you. For example, some people start low-cost side hustles in their free time, or you can try selling items you don’t want anymore.
•With the snowball strategy, you pay off your debts from smallest to largest, when evaluating the total amount owed. During this, you still make minimum payments on all your other debts. While it’s motivating to see some of your financial troubles disappear, this may not work for you. The snowball method ignores interest rates, which gives a chance for other debts to grow.
•The avalanche method works on the debts with the highest interest rates first.
Unsecured debts, like credit card balances and personal loans, often come with unfavorable interest terms. Leaving them alone allows your debt to grow exponentially when you’re not looking. Focusing on debts with the highest interest rate first could help you escape debt quickly and potentially spend less in interest overall.
3. Opening a High-Yield Savings Account
A high-yield savings account is an available option that can help you build wealth to meet your financial goals. High-yield savings accounts work similarly to traditional savings accounts. However, they have a greater annual percentage yield (APY), which indicates how much money you can earn in interest. While you still have to pay income taxes on that interest, these accounts are a great way to save money for significant, short-term expenses.
Another critical feature high-yield savings accounts have is their limited accessibility. You can’t make withdrawals as frequently as you do with a checking account. In addition, they come with monthly limits on deposits and withdrawals. So, you won’t be as tempted to touch the funds.
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4. Considering Passive Income Streams
America’s workforce is changing with the times. As the cost of living rises, many people want to find ways to increase their income. Many are turning to passive income to combat these financial hurdles, which may be the solution to your debt.
Essentially, passive income is money that you earn without active involvement, outside of what you earn as a regular wage and salary. Instead, you put something you own to work, such as a rental property. Other examples of passive income include dividends from stock investments, royalties, and product sales.
So, you still might put in some effort getting started, but not as much as your full-time job. Side hustles are one of the best ways to pad that income. You can put the extra cash flow directly towards your debt and interest, weekly necessities, or your savings.
5. Considering Investing as a Part of Your Financial Plan
Analyzing your situation and finding an acceptable amount of money to invest can help long-term. Investing can be an important part of a well-rounded financial portfolio for long-term goals such as retirement.
Investing has the potential for a higher return on investment vs. a savings account, but the reward isn’t guaranteed. Unlike cash-based interest accounts, your portfolio balance will fluctuate with the market and isn’t covered by, say, Federal Deposit Insurance Corporation (FDIC) insurance.
Because of the risk associated with putting money into the market, some people may be hesitant to jump in, especially if they don’t fully understand how investing works. Getting a headstart on saving and investing can help you get prepared for retirement.
6. Automating Bill Pay or Automatic Savings
To avoid missing bill payments, consider an automatic payment system. Alternatively known as “autopay,” this technology automatically withdraws funds from your bank account or credit card. Then it transfers to the necessary vendor. Once you set it up, you don’t have to deal with the pressure of juggling repayments. Instead, you just have to make sure there are enough funds in your account for the withdrawal.
Paying bills on time history makes up about 35% of your overall FICO® score, so enrolling in autopay could potentially have the added benefit of building your credit score.
It’s also possible to automate contributions to retirement accounts or savings accounts. This could help keep you on track for your savings goals. It allows you to pay yourself first, and getting money siphoned out of your checking account right around payday can help you steer clear of spending it.
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7. Ditching the Fees
Fees charged by financial institutions can add up. Here are a few to consider avoiding:
Bank Fees
The list can include account maintenance fees, returned deposits, foreign transactions, account minimum fees, replacing a lost or stolen card, ATM fees, making too many savings withdrawals, writing too many checks, closing an account, not using an account enough, speaking with a human, paying late, or even paying off a loan too early.
In fact, American households spent $133 billion in credit card interest and fees in the most recent year studied. That’s your money flying away…Ouch.
ATM Fees
At an average of $4.73 a pop, out–of-network ATM fees can add up quickly. One way to avoid paying ATM fees is to always make sure that you’re using one of your bank’s designated ATMs. However, if you’re on the road or your bank only has a few networked ATMs, that can be a challenge.
Just like bank fees, however, more and more financial institutions are offering fee-free ATM usage as part of their perks. Especially if you use an online checking account, this can add up to hundreds of dollars in savings.
Investment Fees
Paying a traditional financial advisor a percentage of your account balance to manage, monitor, and optimize your portfolio could be worth the expense, but it might not be an option that is available to everyone.
Financial advising is still a confidence-booster for the majority of investors who use it. But when advisors charge a typical fee of 1% a year based on your portfolio balance, your total return can be significantly impacted.
Fortunately, a growing number of competitors are offering the same types of advising service with little or no fees — and no humans. Robo-advisors are becoming more popular because they use algorithms to optimize portfolios, thus eliminating the overhead of live employees.
Still other products offer the best of both worlds, with human advisors willing to help at the cost of an automated system.
8. Getting Rewarded for Spending
You also can find several ways to get rewarded for spending, such as retailer loyalty programs, coupons, or rebate apps. Cashback or reward credit cards can also be an effective way to save at your favorite store, provided you pay your statement balance in full every time it comes due.
The Takeaway
Things like effective budgeting, opening a high-yield bank account, paying off debt, establishing a passive income stream, and investing can help you make the most of your money.
Everyone’s financial situation is different, and what works for one person may not work for another. A bit of experimenting can be helpful, as can finding the right banking partner.
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.
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