Sep
28
2023
woman working in cafe

Tips for Avoiding Minimum Balance Fees

By | Budgeting & Goals, Financial Independence | No Comments

When you work hard for your money, it’s not fun to see any of it slip away due to monthly bank fees. And, since information about bank fees is often tucked deep into the fine print of your account details, these debits to your account may come as an (unpleasant) surprise.

One of the most common recurring bank fees is the minimum balance fee, also known as the monthly account maintenance or service fee. This fee generally kicks in if your account balance drops below a certain amount at some point during the month.

Fortunately, monthly account fees aren’t just something you have to accept. Read on to learn more about minimum balance service fees, including how to know if your bank charges them and what you can do to avoid monthly maintenance fees entirely.

Minimum Balance Fee Definition

A minimum balance fee is a fee that many banks charge when your account balance dips below a certain dollar amount. For example, if the minimum balance required in your checking account is $500, but you only have $450, you would be charged a minimum balance fee.

These fees are often presented as account maintenance charges, with exceptions for account holders who maintain a monthly minimum balance in their account. Typically, the major national banks require you to maintain a minimum balance of around $300 to $500, although it can be more, to avoid monthly service fees.

There are different types of minimum balance requirements. A bank may define a minimum balance in one of these three ways:

•   Minimum balance This typically means your account balance cannot drop below the specified amount at any time during your statement cycle or you will be charged a fee.

•   Minimum daily balance Often used for checking accounts, this means your balance can drop below the required amount at any point during the day as long as you meet the balance requirement at the end of the business day.

•   Average minimum balance Here, the bank takes the amount of money in your account at the end of each day during a statement period and divides it by the number of days during the statement period. If your average balance was below the minimum, you would get hit with a maintenance fee.

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How Much Is a Typical Minimum Balance Fee?

A recent Bankrate study found that, on average, financial institutions are charging $5.31 per month in maintenance fees for non-interest-bearing checking accounts and $15.33 for interest checking accounts. That adds up to roughly $64 and $184, respectively, per year. Keep in mind, though, that this is just the average — minimum balance fees can be even higher at some banks.

Minimum balance fees are typically automatically deducted from your account.

Recommended: Guide to How Much ATMs Charge

6 Tips for How To Avoid Minimum Balance Fees

There are a number of ways to avoid getting hit with a minimum balance fee. Here are some to consider.

1. Keeping Your Account Above the Minimum Balance

Perhaps the most obvious way to avoid a minimum balance fee is to keep your account balance above the stated minimum amount. However, this might take some effort on your part.

First, you’ll need to read the fine print in your account information, or call your bank, to find out what the minimum balance is and — equally important — how it’s calculated. In some cases, you may be penalized for having your balance dip below the minimum at any point. In others, the bank will look at the balance at the end of each day or average your daily balances for the statement period.

If it’s an account you pull from frequently (like a checking account), you’ll need to pay close attention to your balance to avoid fees. You might want to set up an alert for any time you account dips below a certain amount.

2. Linking Your Accounts

Another possible strategy is to link multiple accounts you have at the same bank. In some cases, banks will look at your combined account balance (such as your checking and your savings account balance) to determine if you’ll owe a service or maintenance fee. This may or may not be an option where you bank, so again, you’ll want to look into the details of your account.

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3. Enrolling in Direct Deposit

You may be able to avoid minimum balance fees by signing up for direct deposit. This allows your employer to send your pay straight to your bank account, so you won’t need to deposit a paper check each payday. While the main benefit of direct deposit is the convenience, many banks provide added incentives to account holders who are paid this way, including monthly fee waivers.

Some banks will require you to receive a certain amount of money in direct deposits each month to dodge monthly fees. If so, you won’t want to distribute your income to more than one account. Rather than split your direct deposit between checking and savings, for example, you might have it all go to checking and then transfer some of that money into savings each month.

4. Using Your Debit Card More Often

Some banks will waive monthly maintenance fees for account holders who use a debit card linked to the account a certain number of times each month, often around 10 transactions. The reason is that whenever you swipe your debit card, the merchant pays your bank a transaction fee; these fees can make up for the loss of your monthly account fee.

5. Opting Into Paperless Statements

Some banks will waive monthly fees as long as you opt into e-statements. This means that instead of getting a paper statement in the mail every month, you’ll simply access it by logging into your account online (where you can view, download, or print your statements) or via your bank’s mobile app.

6. Hunting for a No-Fee Bank Account

One surefire way to get rid of minimum balance fees is to switch to a bank that doesn’t charge them. Online banks generally charge fewer fees because without brick-and-mortar branches to maintain, they have less overhead. In addition, they tend to offer higher annual percentage yields (APY), which makes it even easier to save each month.

If you’re in school, keep in mind that a number of banks offer no-fee checking accounts to college students. To open a student account, you typically need proof of student status (such as a college ID, an admittance letter, or a transcript).

💡 Quick Tip: The myth about online accounts is that it’s hard to access your cash. Not so! When you open the right online checking account, you’ll have ATM access at thousands of locations.

Opening a SoFi Checking or Savings Account

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


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

3 Great Benefits of Direct Deposit

  1. It’s Faster

    2. 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. It’s Like Clockwork

    3. Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

  3. It’s Secure

    4. While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.

FAQ

How do you avoid minimum balance fees?

Some banks, credit unions, and other financial institutions charge a monthly maintenance or service fee if your account balance dips below a certain amount. Some ways to avoid these fees include:

•   Keeping your balance above the minimum balance requirement

•   Opening up both a checking and savings account at the same institution

•   Making a certain number of debit card transactions each month

•   Setting up direct deposit

•   Finding a bank with no minimum balance requirements

Why do banks charge minimum balance fees?

Banks charge minimum balance fees for several reasons. One is that it allows the bank to have more deposits, which in turn allows them to lend more money and maintain certain regulatory reserve requirements. Minimum balance fees also help banks cover the cost of maintaining your bank account, plus earn a profit.

What is the penalty for being under the minimum account balance?

Possible penalties for having less than the required minimum in your bank account include getting hit with a fee, receiving less (or no) interest for that statement period, and having your account closed.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% 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. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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

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

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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep
27
2023

Guide to What Percentage of Income to Save

By | Budgeting & Goals, Growing Wealth, Life & Career | No Comments

If you want to build financial security and hit your long-term savings goals, it’s probably a wise move to put a portion of each paycheck into a savings account.

Week by week, month by month, and year by year, the money will grow and help you afford your dreams, whether that means buying a house, funding your kids’ education, or having enough cash to retire early. Or all of the above.

But it can be challenging to know how much to stash away. Some people save 10% of their take-home pay, others three or four times that. Still others deposit a round number (be it $50, $500, or $5,000), into their savings account on a regular basis.

So how much should you aim to save? That depends upon a variety of factors, including your personal style and financial aspirations. In this guide, you’ll learn how to use percentages to your advantage when it comes to saving, plus hear smart advice on how to prioritize and reach your goals.

What Percent of Your Income Should You Save?

There isn’t a set percentage of how much of your annual income you should save. Much will depend on your particular circumstances. For example, your income, your cost of living, your expenses, and your debt level will all matter. A person who earns $75K per year, lives in an expensive city, has student loans to pay off, and is supporting a family of four will likely find it more difficult to save money than someone who is earning $125K, lives in a less pricey location, has zero loans to pay down, and is single with no dependents.

That said, you are likely to hear that 20% is a good number to aim for in terms of the percentage of your income to be saved. If that proves too high, then 10% is a good figure to use as a goal.

Pros and Cons of Saving a Fixed Percentage of Your Income

Sure, saving money is important. But what about saving a percentage vs. a specific dollar amount?

There are pluses and minuses to saving a fixed percentage of your income. This approach may or may not work for everyone. Consider the upsides first:

•   It’s consistent. You know that every paycheck, the percentage you’ve indicated will be heading into savings, helping you reach your financial goals. Even if your earnings vary, your savings will be aligned.

•   It protects you against lifestyle creep. If, say, you are saving $500 per pay period and then get a raise, you might just spend all of that additional cash you are earning. Called lifestyle creep, that means your expenses rise, gobbling up your enhanced income.

When, however, you set a percentage to go into savings, you know that the amount will automatically adjust with any income fluctuations. For instance, if your pay varies depending on your hours or goals achieved, you will always be allocating the same ratio of your money to savings, whether you earn more or less.

But there are potential downsides to consider too.

•   When you determine a percentage of income to save, it may feel more challenging to know how much you’re socking away. Again, if you allocate $500 a month to savings rather than a percentage, it’s easy to calculate where you stand at any moment during the year.

•   The way a percentage automatically adjusts to income changes may not suit you. For example, if you are saving 20% of your salary and then get a $10K raise, the amount funneled into savings will rise correspondingly. But what if you wanted to earmark that money to pay down your credit card debt more quickly? You will have to take steps to adjust where your money goes.

The 50/30/20 Rule

If you’re wondering, “What percent of my income should I save?” the 20% figure is likely to crop up often. One reason: the 50/30/20 budgeting plan, which was made popular by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi, in a book they co-wrote. It suggests savers should allocate their money as follows:

•   50% of their after-tax paychecks toward essentials like housing, food, healthcare, and minimum debt payments.

•   30% toward discretionary spending

•   20% toward savings

So, someone who takes home $3,000 every two weeks (or $78k per year) might put $1,200 a month into savings. They would have $15,600 at the end of the year.

That’s just a guideline for getting started, though, so don’t panic if putting 20% into savings seems impossible right now. You can start at 10% or bump it up to 30% or more.

Recommended: See how your money is categorized using the 50/30/20 Calculator.

It All Starts With a Budget

Ack. The b-word: Budget. Making a budget may sound boring or even arduous, but it doesn’t have to be either. And sticking to a realistic spending plan can make or break a savings plan.

By prioritizing monthly expenses — from keeping a roof over your head to gassing up the car to indulging in a gelato or good sushi every Friday — you may be able to avoid impulse spending and hold on to more of your hard-earned dollars.

You can track your spending manually with a notebook or spreadsheets, or keep the data in the palm of your hand with a money-tracking app, where you can see your expenses, savings, and earnings all in one place whenever you want to take a peek.

4 Different Types of Savings

Once you determine what percentage you’ll be able to save from your salary, you may want to break down that amount even further, into separate designated “buckets” or sub-accounts for different goals, which could include things like:

1. Emergency Fund

An emergency fund has the potential to turn life’s potholes into speed bumps.

It’s money you can use to pay for unexpected expenses, such as medical bills, home repairs, and fender benders. And your emergency fund might serve as a lifeline if you lose your job and don’t have another source of income.

A good rule of thumb is to save at least three months’ salary, but you don’t have to come up with those dollars all at once.

You could start by saving a small amount each month — and you can always add to the fund when you get a raise, bonus, or tax refund. (You also should be prepared to replenish the fund if you have to use all or part of it at any point.)

The money in your emergency fund could go into a savings account at your local branch bank, or you might want to check out the benefits of an online bank account which might offer no account fees and a solid interest rate.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
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2. Short-Term Goals

Most of us have goals we hope to fund in the next few months or couple of years. This could be anything from throwing your significant other a memorable birthday party to booking that vacation to Positano to affording a new car. You can start your own short-term fund at your financial institution. You can label the account “holiday spending” or earmark it for any other short-term goal: “Fall Wardrobe,” “Beach Vacation,” or maybe a “New Laptop.”

You may want to automate your savings and have money whisked from your checking as soon as your paycheck hits.

3. Long-Term Goals

Setting aside money for a long-term goal — a down payment on a house, a honeymoon in Bali, a year in Paris with your bestie — can feel like a slow slog. But you may improve your chances for success if you set up an account for the money and designate a consistent amount to slip in there from every paycheck.

Depending on your timeline, you may want to check into a certificate of deposit (CD), or you could stick with that same high-interest savings account, which you can build with automatic deposits and link to other accounts with a tracking app. These are secure ways to save towards future goals.

4. Retirement Savings

Another aspect of how much of your annual income you should save involves preparing for retirement. If you have a 401(k) investment savings account available through your employer, you’re likely already building wealth for retirement with automatic contributions every payday. And if your employer offers any type of matching contribution, you have an opportunity to grow your money even faster.

Beyond that, it’s up to you how big of a slice of your savings pie you want to put toward retirement at any time.

If you’re just starting out, and especially if you have some debts to pay off, saving for retirement may seem like the least of your worries. But the earlier you start putting money away, the faster it can grow. Time is the investor’s true friend; it allows you to ride the ups and downs of the market without panicking as you work toward your goals. (Remember, investments aren’t insured, so you need to be aware of the risk involved.)

If you don’t have an employer-sponsored plan — or even if you do, but you want more investment options or maybe more help than you’ve been getting — you can open your own traditional or Roth IRA outside of work. When considering which type of retirement account to open, IRA or 401(k), you might want to keep an eye on what fees might be associated with each plan.

It’s important to note that employer-sponsored plans allow investors to contribute more annually than an IRA would (basic limit in 2023: $22,500 for a 401(k) for those under age 50 vs. $6,500 for an IRA). And if the employer offers a matching contribution, that’s essentially free money you wouldn’t get from an IRA.

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

Deciding on Your Goals

Goals are a good thing: They can provide motivation for saving. But they can’t just hang out there; they probably need some prioritizing. That doesn’t mean that you are picking just one to focus on. More likely, you are going to decide how to divvy up that percentage of your income that goes into savings.

Say you are committed to saving 20% of your income. You may want to determine percentages for:

•   Retirement

•   Your child’s college education

•   A down payment on a house

One person might split that as 10%, 5%, and 5%. Another might instead do 8%, 2% and 10%. It depends on your particular goals, how else you might finance them (perhaps you expect your child to take out student loans), and the urgency of each.

Setting a Timeline

Some goals will be easy to plot on a timeline. For example, if your wedding is in a year and you’re saving $6,000 for your honeymoon, you’ll need to save $500 a month.

Others goals will likely need more finessing. (The amount you might need for retirement, for example, can be tough to pin down.)

But you’ve got this. You’ve probably been editing your mental wish list since you were a kid saving for candy … no, a toy … no, a bike. And you’ll likely be doing that for the rest of your life. If there isn’t enough money, something has to go or at least wait.

Could you drive your old car for another year or two, thereby saving money daily, if it meant getting a house sooner? Should you work another year before taking time off to be a stay-at-home parent? Would a weekend in Vegas be just fine as this year’s vacation if it meant next year you could afford 10 days in Greece? Only you can make those choices.

Deciding how much money you’ll need when you’ll need it, and how long it will take to save it may seem daunting as you start toward each new goal.

But it also can help you stay motivated to note when you’re making headway. And you might even find new ways to cut expenses as you go — especially if you use an app to track your progress.

Pay Off Debt

The average American had almost $8,000 in high-interest credit card debt as of the end of 2022. In addition, many people are also shouldering other debts, such as car loans and student loans.

If you’re a part of those statistics, paying off those debts could be the most important part of your saving plan.

How’s that?

•   Any debt on which you’re paying interest can feel painful. But if you’ve missed some credit card payments and you’re paying the default rate, say 27%, you’re likely putting an awful lot of money toward your past instead of toward your future.

•   High-interest debt can drag you down, so it’s important to ditch it as quickly as possible. Once you know where you stand with your budget and your savings goals, you may want to start by building a sort of “starter” emergency fund and then move forward with a personal debt reduction plan, like the debt avalanche, debt snowball, or the hybrid debt fireball, which focuses on paying high-interest debt in a way that can build momentum and keep you motivated.

Here’s how the debt fireball method works:

1.    Categorize your debts as either “good” or “bad.” (“Good” debts are generally for things that have potential to increase your net worth, like student loans or a mortgage. “Bad” debt is usually considered to be debt incurred for a depreciating asset, like car loans and credit card debt.) As you develop the list, note all the debts with higher interest rates, above what student loans and mortgages charge (say, 8% or higher) This is likely the “bad” debt you’ll want to focus on first.

2.    List your “bad” debts from smallest to largest based on their outstanding balances.

3.    Make the minimum monthly payment on all outstanding debts, then funnel any excess funds to the smallest of your “bad” debts.

4.    When that balance is paid in full, go on to the next smallest on the bad-debt list. Blaze through those balances until all your “bad” debt is repaid.

5.    When that’s done, keep paying off your debt on the normal schedule while also putting more into various savings strategies that will help get you to your goals.

Remaining Flexible

Consistency can be a key to successful saving. Otherwise, it’s just too darn easy to let yourself off the hook from paycheck to paycheck, month to month, and year to year. But that doesn’t mean your savings plan has to feel like a forced march.

Flexibility is also important.

A savings plan that seems smart and doable today may feel like torture six months from now. Or you might get a raise and decide your plan is actually far too easy and you could be socking away much more.

You might need a major car repair (or a whole new car). Get married. Have a baby. Get sick. Get fired. Or get hired for your dream job and have to move to Dubai.

Life changes. So it makes sense to tighten and lighten your budget — and the savings aspect you build into that budget — as necessary. If you’re tracking your expenses regularly, you may be better able to gauge how you’re doing and make any course corrections that much more quickly.

Anything Saved Is Better Than Nothing

It can feel discouraging when you get started on a long-term savings plan. Say you want to accumulate $60,000 for a down payment on a house. Perhaps saving 20% of your paycheck is impossible right now. And putting a couple of hundred dollars as a start can feel as if you will never reach your goal.

But over time, that little bit of money regularly contributed will indeed grow and propel you ever closer to your goal. Getting in the habit of contributing frequently can be a goal in and of itself, even if the amount is not as high as you’d like.

You may have also had this experience with shorter-term goals, such as building an emergency fund. Even if you only start by contributing $20, you will eventually reach your aim with steady saving.

Start Saving With SoFi

If you’re ready to start on the path to achieving a savings goal, look for a financial partner that minimizes fees and maximizes interest, to help your money work harder.

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


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

FAQ

Is it good to save 50% of your income?

It’s a wise move to save a portion of your paycheck, and 20% is an often-quoted figure to aim for. Fifty percent may be too high for many people, but if you can afford to save half of your take-home pay, you may get to your savings goals that much more quickly.

Is 20% of your income enough to save?

Many financial experts recommend saving 20% of your income or more if you can. The 20% figure is part of the popular 50/30/20 budget rule. However, some people may want to save more if possible, especially if they have a couple of major long-term goals they are saving for, such as buying a home, saving for their children’s education, and affording an early retirement.

What is the 60/20/20 rule?

The 60/20/20 rule is similar to the 50/30/20 budget guideline. In this case, it means that a person allocates 60% of their take-home pay to necessities, 20% to discretionary spending, and 20% to savings.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% 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. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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

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

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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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2023
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Guide To Static vs Flexible Budgets

By | Budgeting & Goals, Financial Independence | No Comments

A budget is a great way to take control of your money: It gives you vital intel about your earnings, spending, and saving while providing guidance so you can hit your financial goals.

That said, a key step in the budgeting process is finding the right technique for you. Which is why it can be helpful to learn about two different budget types that are often used in business accounting. The two varieties, a static budget and a flexible budget, can apply them to your personal finances.

A static budget presets your spending limits per category, but doesn’t vary with real-time events, like an unexpected car repair bill or low-earning quarter. When you use a flexible budget, however, you can adjust amounts month by month or even week after week.

Depending on your personal and financial style, one type of budget may work better than another for you. This guide will explain each approach and spell out their pros and cons so you can pick what will work best for you.

What Is Flexible Budgeting?

What is a flexible budget? It’s a way of tracking and managing your money that relies on current information. It does not stay fixed. Rather, you can review the data — what’s coming in and what’s going out — and adjust accordingly. So if a client doesn’t pay his bill one month as you expected or an unexpected expense pops up, you can juggle things around a bit.

You might temporarily cut some discretionary expenses, such as entertainment or clothing, for example.

💡 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.

What Is Static Budgeting?

A static budget vs. a flexible budget is more rigid. Sometimes referred to as a master budget, a static budget can be a good way to establish financial guardrails. You always know how much you have allotted to pay for certain expenses.

Say you typically spend $500 a month on groceries. In a static budget, that is the amount that will be earmarked, regardless of whether, say, you are throwing a 30th birthday party for a pal and need to load up on supplies for charcuterie boards.

The budget won’t vary, and you may perhaps have to figure out how to make it work.

Comparing Static vs Flexible Budgeting

Here, you’ll learn about the differences between static vs. flexible budgets by exploring the pros and cons of each.

Pros and Cons of Flexible Budgeting

Here’s a closer look at flexible budgeting, starting with the upsides.

Pros of Flexible Budgeting

If you review the different budgeting methods and choose a flexible one, you will likely enjoy these positives:

•   Reflects income fluctuations. If you work as a freelancer, a seasonal employee, or on commission, you are used to the ups and downs of your earning. With a flexible budget, this variation is acknowledged and addressed.

•   Adjusts for changing expenses. A flexible budget can help you account for shifts in spending, such as needing to shell out for a new phone or getting a month of free rent when you move to a new apartment.

•   Allows for spontaneity. It can let you jump on an opportunity, like a chance to go to London for half-price when you find a killer deal online.

Cons of Flexible Budgeting

Next, consider the downsides of flexible budgeting.

•   Requires time and energy. Because it isn’t a “set it and forget it” method of budgeting, it means you need to check in regularly on your income, spending, and saving to stay on track.

•   Limits your ability to plan. Since you are adjusting and recalibrating, that may detract from how well you can map out and achieve your financial goals.

•   May minimize accountability. If you know your budget is flexible, you may feel as if you have license to deviate from your money management habits. You may give yourself permission to overspend (like that half-price trip to London mentioned above.)

Pros and Cons of Static Budgeting

Here’s the lowdown on static budgets so you can decide if they suit your personal and financial style.

Pros of Static Budgeting

First, the positives about these budgets:

•   Provides structure. A static budget is a rigorous way of tracking and managing your money. You determine how much cash goes where and then follow those guidelines. It tells you what you can and can’t do month to month.

•   Needs little maintenance. As mentioned before, this is a “set it and forget it” type of plan, not one that needs constant adjustment.

•   Can enhance goal-setting. This kind of plan helps you prioritize and follow through. If you are trying to sock away money for the future (whether that means a vacation next year or the down payment on a house several years down the road), a static budget can help you hit your marks without fail.

Cons of Static Budgeting

That said, there are downsides to static budgets:

•   Can be too rigid. Life happens: You try the new Brazilian steakhouse in your neighborhood and blow your dining out budget. You get hit with an unexpected car repair bill. A static budget doesn’t give you wiggle room.

•   Can be discouraging. A corollary to the above point: Some people feel less motivated to follow a budget when they feel it doesn’t “get” what’s going on in their life. It may lead them to be less diligent about tracking their expenses and money in general.

If you aren’t sure which budgeting method is best for you between static budgets and flexible budgets, a hybrid approach might be appropriate. That could include:

•   Setting up a master budget at the beginning of the year based on projections and using it as a guide.

•   Tracking costs as the year progresses and making adjustments when necessary.

•   Using that information and learning to better inform next year’s plan.

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7 Steps to Start Budgeting

The point of a budget — whether you’re a freelancer or a full-time employee — is to spend less than you earn so you can save and reach future financial goals. Here are a few steps for budgeting for beginners; they could help you get started.

💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

1. Figuring out What You Spend

If you aren’t already tracking your spending, that may be a good place to begin. There are several ways to do this, from carrying around a small notebook and writing down every expense to using a spreadsheet to downloading an app on your phone (your financial institution may offer a good option).

•   Understand your fixed expenses. Once you’ve tracked your spending for a few months, you can determine your average spending in various recurring categories. Some of this will be fairly easy, because the costs are often the same (housing, car payment, student loans, etc.).

•   Get a handle on variable expenses. Your discretionary expenses will likely vary from month to month or at different times of year. Utility costs may go up or down, for instance, depending on the season. Or your travel costs may go up if you take a summer vacation. And some costs, such as clothing, entertainment, and household goods, will be more discretionary than others.

•   Don’t skip important items. Be sure to include commonly forgotten expenses, such as pet-care costs and charitable donations. If you’re self-employed, you may want to consider taxes, retirement savings, insurance, and other expenses that others might have automatically withdrawn from their paychecks every month.

2. Determining What You’ll Earn

Pinning down how much you can expect to earn is often much easier for those with regular paychecks. If you’re self-employed but have steady clients who pay on time, or your job is a mix of paychecks and tips or commissions, you may be able to come up with a fairly accurate estimate.

But if you’re a freelancer or contractor whose work and pay varies widely from month to month, it can be a challenge to set this amount.

•   Example: You can use your spreadsheet or tracking app to determine an average amount earned ($4,000 in July + $5,000 in August + $3,000 in September would be $4,000 a month, for example). This may give you a more realistic number on which to base your budget calculations than guessing (or hoping) that you’ll make a certain amount.

3. Creating a Budget Using What You’ve Found

Here’s where you can make a budget that you want to use.

•   With a static budget, you would set spending limits and stick with them throughout the year.

•   With a flexible budget formula, you would set spending limits, but adjust when necessary: If you make less than expected, you spend less than you planned.

•   If you see that you’re spending more in one category than expected, you can shift allocations or find ways to cut recurring costs like your cable bill, haircuts or pedicures, or gym membership.

•   If it looks as if you’re headed for a long-term shortfall, and you just can’t cut it any tighter, you may have to find a way to earn extra money by taking on a side gig or perhaps raising your freelance rates. What’s important is setting a realistic budget, so you can stick with it.

4. Considering the 50/30/20 Plan

Looking for flexibility, but don’t want a budget you have to rework every month? You may be a candidate for the 50/30/20 budgeting method, which was made popular by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi.

The plan suggests the following:

•   Putting 50% of after-tax income toward essentials like rent and food, as well as minimum debt payments.

•   Allocating 30% toward discretionary spending, or the fun stuff in life.

•   Committing 20% toward savings.

This method also makes sense for people who are on a steady salary as well as those who don’t have a steady income, because it’s based on percentages. And those percentages are just a guideline for getting started, so you can shift the amounts to make it work for your finances.

You can save more or less, depending on what you’re earning or what long-term debts you have. Or you might move a few percentage points from discretionary spending to cover essentials if you live in a city with higher housing or transportation costs.

5. Building a Backup Fund

If possible, consider making an emergency savings account a priority. Life has unexpected ups and downs for everyone, and financial experts’ recommend that you build up to three to six months’ worth of living expenses in the bank.

This can help protect you if, say, you were to lose your job or face a large, unexpected expense. It can help you stay afloat and avoid racking up high-interest credit card debt.

An emergency fund can be especially important for freelancers and other self-employed workers. If you have a slow month or quarter (or get injured or sick), that money can tide you over.

Even if saving anything at all seems daunting, don’t worry or give up. Starting small, with a $100 or $200 deposit or the addition of $20 at a time can be better than never starting at all.

6. Splurging Responsibly

With a personal budget, cost-cutting measures can be a sign of fiscal responsibility, but if you can’t splurge every once in a while, it may make it harder to stick to your overall plan.

So how can you splurge responsibly? Living on a budget doesn’t mean you don’t get to have fun! Maybe you earmark $25 a week for fun little purchases if you’re the kind who loves getting a gelato or buying a book from time to time. Or you might choose to put any bonuses, unexpected earnings, and tax refunds straight into the bank with a trip or some other big spend in mind.

Or you could build the extravagance into your budget, with a category specifically for vacations or travel, or one for home renovations, and deposit that amount into a separate account just for that purpose.

7. Thinking About Tomorrow

A smart personal finance budget involves saving for retirement. Many experts recommend signing up ASAP if your employer offers a 401(k) or some other retirement plan — especially if there’s a matching contribution involved. If an employer plan isn’t available to you, you may still want to make it a goal to invest something each month in a traditional IRA, Roth IRA, or Simplified Employee Pension (SEP) IRA.

With a traditional IRA or SEP, you can defer paying taxes on the money you invest until you take withdrawals in retirement, which can keep you in a lower-tax bracket.

Or, if you’re nervous about tying up the money that long, you could go with an after-tax Roth account, which allows you to withdraw contributions (but not earnings) at any time. You can open an IRA at a brokerage, bank, or other financial services provider.

Savings With SoFi

If you’re convinced you should use a budget — static or flexible — or are already doing so, it’s wise to keep your money with a financial institution that helps you track your spending and make the most of your cash. Like SoFi.
​​

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


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

FAQ

What is the difference between a fixed and flexible budget?

Here’s the difference between a fixed vs. flexible budget: With a fixed budget, it’s expected that your income, spending categories, and savings will remain constant. With a flexible budget, there is wiggle room for adjusting and updating these numbers.

What is an example of a fixed budget?

With a fixed budget, the numbers for earnings, spending, and saving would be set and then stay constant. It would be assumed, say, that your housing expenses, your dining out and clothing spending, and your retirement savings will be steady, month after month.

What is an example of a flexible budget?

An example of a flexible budget is one that varies and takes into account the ups and downs of income, spending, and saving. For instance, it might add a category for gift-buying in December as the holidays approach, or drop in a sum of vacation spending in July.

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The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% 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. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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

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

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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOBK0923004

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23
2023
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What Percentage of Your Income Should Go to Student Loans?

By | Budgeting & Goals, Fresh Out of School, Student Loans, student_loan | No Comments

After four (or more) years of classes, college students graduate into a new reality: employment and student loan payments. Navigating repayment may require planning and diligent budgeting, but with the right foundation, you can find a repayment plan that works for your personal needs.

As a general rule of thumb, the Consumer Financial Protection Bureau (CFPB) recommends limiting the total borrowed to no more than your expected starting annual salary when you leave school. But, when young students are selecting colleges and evaluating costs, it can be tough to understand or predict how much they’ll earn after graduating.

Here are some potential strategies for student loan repayment so you can determine what percentage of your income should go to paying student loans.

Key Points

•   College graduates should aim to limit their total student loan debt to no more than their expected starting annual salary to manage repayment effectively.

•   Calculating monthly loan payments as a percentage of income can help borrowers assess their financial situation and adjust budgets accordingly.

•   The 50/30/20 budgeting rule can be adapted to prioritize debt repayment by reallocating funds from discretionary spending to loan payments.

•   Income-driven repayment plans offer flexible payment options linked to income, making them a viable choice for borrowers struggling with standard repayment plans.

•   Exploring additional income sources or refinancing options can provide borrowers with strategies to accelerate student loan repayment and reduce overall interest costs.

Calculate How Much Your Loan Costs Each Month

You’ll want to understand how much your loan costs each month. If you only have one student loan, this may be easy — the total would be your monthly loan payment.

If you have multiple loans with different lenders, you may have to do a bit more math to sum up the total amount you are spending on your loan payments monthly.

If, after calculating your monthly loan payments, you find you are spending a much higher percentage of your income on debt payments than you have outlined, you may want to adjust your budget, or see if you can adjust how much you are paying each month to your student loans.

Keep in mind that lengthening the loan term on your student loans may result in lower monthly payments, but may cost more in interest over the life of the loan.



💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Determining Your Student Loan Payment as a Percentage of Income

When it comes to repaying your student loans, your first goal might be to make, at the very least, the minimum monthly payment on each of your student loans. Failing to do so means your loan could become delinquent, and after 90 days of delinquency, your loan servicer can report the late or missed payments to the credit bureaus and your credit score may be affected.

If you don’t know what your monthly payments are, you can use our student loan calculator to get an estimate. It can give you a good idea of what you’ll pay each month.

To calculate the percentage of your income, divide your total monthly loan payment by your income. For example, if your monthly loan payment was $400 and your monthly income was $5,000, your loan payment would be 8% of your monthly income.

Consider the 50/30/20 Rule and Tweak it for Debt

The 50/30/20 budgeting rule outlines spending in the following categories:

•   50% of your income is budgeted toward needs

•   30% of your income is budgeted toward wants and discretionary expenses

•   20% of your income is allocated for savings and paying off debt

Using the general framework can help borrowers create a budget that makes sense for their lifestyle and needs, without being overly prescriptive. If you have a lot of student loan debt that you are focusing on repaying, you can adjust the percentage allocation so that you are funneling more money toward your debt.

Because on-time payments account for 35% of your FICO® score, setting up a budget that helps you make on-time payments each month is one of the best tips for building credit.

Income-Driven Repayment

If you have federal student loans and are struggling to make payments on the standard 10-year repayment plan, one alternative you could consider is income-driven repayment (IDR). On an income-driven repayment plan, your monthly payments are determined as a percentage of your income.

There are four options for income-driven repayment. Depending on the plan you enroll in, the repayment term is extended to 20-25 years and payments are capped at 10% to 20% of your income. More precisely, the payment amount is calculated as a percentage of your discretionary income — the income that is left after subtracting taxes and other mandatory living expenses.

The most recent addition to IDR options is the Saving on a Valuable Education (SAVE) program, which replaces the Revised Pay As You Earn (REPAYE) program. SAVE caps payments to 10% of discretionary income (that threshold will drop to 5% for undergraduates starting in July 2024) and shields more income from the payment calculation. Additionally, if your payments are too low to cover accrued interest charges, the government subsidizes the difference so that your balance doesn’t balloon over time.

While income-driven repayment plans might help make monthly payments more manageable, extending the length of the loan means you could end up paying more interest than you would on the standard repayment plan. The good news is that if you still have a balance at the end of the repayment term, your remaining debt is discharged (although it may be taxed).

Making Extra Payments Based on Your Monthly Income

If you want to accelerate your student loan repayment, consider paying an additional percentage of your income toward student loans. If you are using a 50/30/20 budget, but want to make monthly overpayments, you may instead choose to do a 50/25/25 budget, where you reduce your discretionary spending by 5% each month and apply those funds as an additional student loan payment instead.

Only you can determine where you want to focus your financial energy. An online student loan payoff calculator could help determine how much your overpayment could accelerate your loan payoff and save you in interest.

Recommended: 7 Tips to Lower Your Student Loan Payments

Additional Options for Accelerating Your Student Loan Repayment

If your budget is already lean and you don’t have the room to contribute extra income toward student loans every month, there are alternatives that could help you speed up your repayment plan.

Part-Time Job or Side Hustle

One idea is to pick up a part-time job or find a side hustle that allows you to bring in a little bit of extra cash. Then you could focus all of your side hustle income toward student loan repayment. It’s money you didn’t have before, so your budget won’t have to make any sacrifices.

Another option is to focus any unexpected or windfall money toward student loan repayment. When you receive a bonus at work or a birthday check from Aunt Edna, you could contribute that money to your student loans instead of spending it on a splurge expense for yourself.

Student Loan Refinancing

Finally, you can also improve your existing federal or private student loan situation. Student loan refinancing could help you secure a lower interest rate, which could mean spending less money over the life of the loan.

Recommended: Should You Refinance Your Student Loans?

As part of the refinancing process, you’ll be able to select a new repayment term. Shortening the repayment term could also mean you pay less in interest over the life of the loan. You also have the option to lengthen the loan term. If you do, you’ll spend more money in interest over that longer term, but it could mean a lower monthly payment if you need to free up some cash.

When you apply to refinance a student loan, lenders will review your credit history and employment history, among other factors. Refinancing student loans with bad credit, while possible, may be more challenging. Those with a low credit score or limited credit history may want to consider establishing credit before they apply for refinancing.

Another option for borrowers with a less-than-stellar credit score may be adding a cosigner to strengthen the application. A cosigner agrees to repay the loan if the primary borrower fails to do so. Refinancing without a cosigner may make sense for borrowers who have had time to establish credit. For more detailed information, visit SoFi’s student loan refinancing guide.

It is important to note that if you refinance your federal loans with a private lender, you will lose access to federal benefits such as loan forgiveness or income-driven repayment plans.

To find out how student loan refinancing could help improve your student loan repayment prospects, use SoFi’s student loan refinance calculator.

The Takeaway

There is no single answer for what percentage of your income should be allocated to paying off student loan debt. It’s important to make your monthly minimum payments to avoid delinquency or default. Beyond that, you may consider making overpayments to accelerate your student loan payoff.

When you refinance with SoFi, there are no origination fees or prepayment penalties and you’ll gain access community events. You can start the application online and find out what interest rate you pre-qualify for in just minutes.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

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.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


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

Third-Party 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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep
21
2023
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10 Ways To Save Money Fast

By | Budgeting & Goals, money | No Comments

You may hit one of those life moments where you need a bundle of cash and fast. Maybe you have been hit with a major car repair bill, you want to attend a destination wedding, or you’re motivated to pay off your student loans ASAP.

Whatever the situation, there are smart strategies that will help you accrue that money as quickly as possible. Tactics like trimming your expenses, selling your unwanted stuff, and bundling your insurance can help you meet a savings goal at top speed.

In this guide, you’ll learn those techniques and more to help you finance whatever is most urgent on your financial to-do list.

How to Save Money Fast 10 Ways

One person’s goal for saving money quickly might be, “I need $500 by the end of the week.” For another, it could be, “I’m going to stash away $10,000 within the next year.” Wherever you may fall in terms of your short-term financial goals, these 10 tactics will help you save money daily and achieve your aspiration.

💡 Quick Tip: Make money easy. Open a bank account online so you can manage bills, deposits, transfers — all from one convenient app.

1. Getting Rid of Unnecessary Expenses

In an age of automated billings and subscriptions, it is easy to lose track of what exactly you’re paying for each month. It is entirely possible that you’re paying for something you’re not even using.

In order to pinpoint any potentially unwanted expenses, review a month’s worth of auto debits from your bank account. You may find that you’re paying $5 a month for a digital magazine you no longer read or that you could save on streaming services by dropping one or two you don’t watch but are paying $15 a month for.

Once you’ve canceled, you could reroute the money you would have spent directly into your savings account. While $20 or $30 a month saved on subscriptions might not seem like much, even small amounts can quickly add up over time. In combination with other savings techniques, this might help you build your savings fast.

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2. Negotiating and Automating Your Bill Payments

Did you know that some companies offer discounts when you set up automatic bill payments, or autopay? This means connecting a bill directly to your bank account and allowing the company to automatically withdraw the amount of the bill on the due date.

Some companies offer a discount in these situations because automatically debiting your account gives the company assurance that the bill will be paid on time. The bonus for you is double: You might get a little discount on your bills, and you won’t have to remember to manually pay the bill each month.

Autopay might also help you avoid unexpected late fees, which in turn could help you build up savings faster. There might be some downsides to autopay, however. If you set up an autopay agreement but then don’t have enough money in your account to cover the charge, you might end up with a canceled subscription or overdraft or NSF fees from your bank.

3. Carefully Considering Big Decisions

Yes, it’s hard to save money, but learning to be mindful about your purchases can help. Instead of buying something as soon as you want it, you might want to sleep on it overnight and see if you still want it the next morning. Giving yourself more time before pulling out your credit card could help you determine if you really need the item or if you were just caught up in the excitement of shopping.

This can be especially useful when making big purchases because they might require more research anyway. For example, if you’re buying a couch and you fall in love with a sectional sofa, waiting overnight might give you a chance to read reviews, double-check the measurements of your space, and look to see if there are similar styles available online that might cost less.

Some people wait longer still. They use the 30-day rule, which involves writing a note in your calendar for 30 days after you see the item you want. If you still are determined to buy it when the calendar alert pops up, then you can probably feel confident that it isn’t an impulse buy and go for it.

By delaying purchases this way, you may be able to avoid compulsive shopping and save funds, which can go towards your savings goal.

4. Considering a Spending “Fast”

Ready to learn another way to save money quickly? Some savers find that they can save money fast with a challenge: They plan a day or two every week where they eliminate all unnecessary spending. That’s what’s called a “fast”: You avoid spending money, similar to the way a dietary fast means you eat nothing.

For example, if you decide to do a two-day spending fast, you might decide that on Tuesdays and Wednesdays you don’t spend any money other than what it costs to commute to work. That means that on those days, you might choose to forgo your daily pitstop at the coffee shop, a lunch from the salad place (you’d bring food from home), or ordering the brand new book you’ve been waiting to read.

Planning to not spend could help you reign in unintentional spending. Chances are that you barely think about that $4 you spend at the coffee shop, but if you give it up twice a week, that’s $8 that could be going into your savings.

If you save an average of $40 a week with a two-day fast, that could add more than $2,000 to your savings in a year.

5. Putting Your Accounts to Work

Choosing the right account for your money can be a great way to save funds fast. Some checking accounts charge monthly or annual account maintenance fees, with little to no interest.

Savings accounts might offer higher interest rates than a checking account, but the reality is that the average interest rates on a standard savings account can still be very low. Instead, you might shop around for a no-fee, high-interest account to make your money work harder for you. These kinds of accounts are often found at online vs. traditional banks.

If you currently have, say, $5,000 sitting in a checking account, earning no interest, if you were to put it in a savings account at 4.50% interest compounded daily, you’d have an extra $230.12 a year later, with no effort on your part.

💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!

6. Bundling Your Insurance

Insurance can be one of those “set it and forget it” expenses. You might buy a policy and then never really focus on the cost of the premium again.

Many insurers, however, will reduce your rate if you give them more of your business. Typically, this means having your auto and home insurance with the same company. You might be able to save a chunk of change and put it towards your savings goal.

It can also be wise to review your insurance annually. You might be paying for coverage you don’t really need.

7. Starting a Side Hustle

Sure, cutting back on your spending is one way to save money fast. But so is bringing in more cash. Many people find starting a side hustle is a good way to bring in more income. This could mean anything from selling your nature photography on Etsy or providing social media services to a local business or two.

While one of the key benefits of a side hustle is the money it can bring in, you also might find it personally rewarding and even an entry to a new full-time career.

8. Saving on Essentials

Looking for another idea for how to save money fast? There’s no doubt that many things you spend money on are necessities. Food, personal-care items, and gas for your car. But there are plenty of ways you can trim those costs.

•   To save on food, you could do some meal-planning so you can more efficiently manage your grocery budget. Using up what you buy vs. wasting food can help you save a bundle towards your goals.

•   You could get a gas card to save at the pump. There are also plenty of apps that point you towards the cheapest gas stations in your area.

•   Joining a warehouse or wholesale club can help you save on your typical purchases. If you find the quantities too large (say, a 12-pack of shampoo), partner up with a friend of two to share the wealth.

9. Selling Your Stuff

If you’re trying to save money fast, you might be able to “find” a pile of cash by selling your used items that you no longer need. This could mean anything from selling gently worn clothes online (say, on Poshmark or thredUP) or IRL (at Buffalo Exchange perhaps); putting functional electronics up for sale on eBay; or offering items on places like Nextdoor or Facebook Marketplace.

Just be cautious as there are scammers who try to prey on direct sellers.

10. Checking Your Tax Withholding

Here’s another idea for accumulating money quickly: Double-check your tax withholding. If you get a sizable tax refund every year, you may feel as if you are getting “free money.” Not at all! That’s actually your hard-earned money that you overpaid to the government and are now getting back. It could have been earning interest in the bank rather than being whisked out of your paycheck.

If you typically receive a refund, tweak your withholding, and then put the additional money that stays in your paycheck into your savings.

Is Saving Money Fast Realistic?

Saving money fast can be realistic, as long as you keep in mind your income and the fact that most financial experts say to save 20% of that figure. That’s one of the principals of the popular 50/30/20 budget rule. Fifty percent of your money goes towards essential spending, 30% goes to discretionary expenses, and 20% gets socked away as savings.

So, if you earn $100,000 a year and have an important goal in mind, such as the down payment for a house, you might be able to stash $20K in a single year. That might involve pausing your retirement savings for a year as you go all-in on accumulating as much cash as possible for a home purchase.

Also, if you are able to bring in more income (whether by selling your stuff, starting a side hustle, or via passive income ideas), that can accelerate your savings as well.

Keeping Your Savings Safe With SoFi

Whichever strategies (or combination of tactics) you try, it’s important to find the right banking partner where your money can grow. You’ll likely want a financial institution with Federal Deposit Insurance Corporation coverage, low or no fees, and a healthy interest rate.

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


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

FAQ

How can I save $1,000 fast?

To save $1,000 fast, you can try a combination of such techniques as trimming subscriptions, essential, and discretionary spending; bundling insurance to cut costs; selling your unwanted items; and/or using the 30-day rule.

How to save up $10,000 in 3 months?

To save $10,000 in three months, you need to save $3,333 after-tax dollars per month. Your income and expenses will influence how doable this is. Some ways to save this amount include going on a spending fast (meaning you eliminate all possible discretionary spending) and starting a side hustle to bring in more money.

How to save $5,000 ASAP?

To save $5,000 ASAP, you can try cutting your expenses, avoiding big purchases, making sure your money is earning a good interest rate, and bringing in more cash via a side hustle.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% 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. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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

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

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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

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