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In a world where it can seem hard to make and stretch a dollar (hello, inflation!), isn’t it nice to know that there’s a way to earn money without any effort? That would be by collecting interest on a savings account. Your financial institution pays you for the privilege of using the cash you have on deposit, pumping up your wealth without the least bit of work on your part.

Knowing how to calculate interest can help you more effectively compare savings accounts. It also helps you understand exactly how much money you can earn on your money over time by keeping it in the account. What follows is a simple guide to how interest on savings accounts works.

What Is Interest?

Interest is the amount of money that a bank pays a depositor for storing money at their institution. While the money you have on deposit remains accessible to you, the bank uses that money for other purposes, such as lending it out for a mortgage loan. One way banks can make money is via the differential between the interest they pay for money on deposit (say, 3%) and the interest they charge when someone else borrows it (say, 6% on a home loan).

Simple Interest Formula

Calculating interest on a savings account involves some not-too-complex math; in fact, it’s primarily multiplication you need to use. The formula for simple interest looks like this:

Simple Interest = P x R x T

Where:

•   P stands for the principal, or the amount on deposit.

•   R stands for the interest rate, expressed as an annual rate usually, in decimal form.

•   T stands for time, or how long the money is held by the bank.

How Do You Calculate Interest in a Savings Account?

Now, consider how this formula could be used to calculate the interest earned on savings you deposit at a financial institution.

If you deposited $5,000 in a bank for one year at a 3.00% interest rate, the simple interest after one year would be, using the PxRxT formula:

5,000 x .03 x 1 = $150

So, by calculating savings interest, you see that you’ve earned $150. To put it another way, at the end of one year, your $5,000 would have grown to $5,150.

This, of course, represents simple interest. When putting your money in the bank today, you may well earn compound interest.

Simple vs Compound Interest

When you earn interest on the principal amount alone, such as in the example above, it’s called “simple interest.”

But the reason savings accounts can be such an effective tool for growing money is that not only is interest earned on the amount deposited, but the interest also earns interest. This is called compounding.

Depending on the account, interest may be calculated and added (or compounded) daily, monthly, or quarterly. Each time this happens, the interest earned to date becomes part of the principal, and the interest earned moving forward will be based on both the principal plus the interest earned to date. You might think of it as accelerating your money’s growth as time passes.

With simple interest, you would only earn 3.00% on the original amount ($5,000) each year, or $150. With compounding, you earn interest on your principal plus any interest you’ve already earned.

Here’s a chart showing the difference simple vs. compound interest can make at a rate of 3.00% on $5,000 deposit:

Time	Simple Interest	Interest Compounded Monthly
Account opened	$5,000	$5,000
1 year	$5,150	$5,152.08
5 years	$5,750	$5,808.08
10 years	$6,500	$6,746.77
20 years	$8,000	$9,103.77

It may not seem like compounding could make a huge difference, but adding to the principal regularly can grow your money faster. In addition, seeking out a higher interest rate can of course boost your cash faster as well.

APY vs Monthly Interest Rate

Calculating compound interest can get complex; the equation involves more complicated math. But some banks simplify an account holder’s potential earnings into a single rate called the annual percentage yield, or APY. The APY factors in both the interest rate and the effect of compounding into an actual rate of return over the course of one year. To calculate how much interest will be earned on a savings account using the APY, simply multiply the principal by the APY.

This simplicity makes APY a more helpful rate to use when comparing interest rates for different accounts or banks, because it includes the effect of compounding. Banks will usually post this information because the APY is higher than the stated interest rate. A savings account interest calculator can be helpful when calculating how much interest you’ll earn over multiple years. It also allows you to see how adding to your savings account each month can impact your earnings.

Understanding Interest Rates

In comparing savings accounts at different banks (or even within the same bank), consumers may notice that interest rates can vary with the type of account. What’s more, interest rates posted by the Federal Reserve (aka “the Fed”) may vary considerably from the interest rates banks offer their customers.

Tasked with maintaining economic stability, the Fed uses signals such as employment data and inflation to determine its rates. During economic slowdowns, the Fed typically lowers rates to reduce the cost of borrowing and incentivize individuals and businesses to spend more, stimulating the economy. Conversely, when the economy appears to be growing too quickly, the Fed may raise rates, increasing the cost of borrowing in order to slow spending.

How does this play into the interest rate consumers might earn on their own savings? There are a number of factors that determine the interest rate a bank posts:

•   The target federal funds rate, set by the Fed, is one such cue.

•   Banks, however, set their own interest rates and these may vary depending on factors such as promotions the bank may have in place to attract new customers or incentivize greater account balances, as well as how much work an account takes to administer.

This last factor is why checking accounts, which are often used for a higher volume of everyday transactions, often pay less interest than savings accounts, where customers are more likely to let their money sit and accrue.

•   Interest rates also change over time, so the posted rate when an account is opened may not remain the same.

•   Banks may also have tiered interest rates, where account holders earn different rates of interest depending how much they have in their account, or balance caps, in which an interest rate can only be earned up to a certain amount.

Recommended: Basics of a High-Yield Savings Account

What Is a Good Savings Account Interest Rate?

What is a good savings account interest rate will vary with the times. During the 1980s, the interest rates on savings accounts were around 8.00%, while from 2018 to 2021, the average was barely one-tenth of one percent, which could hardly keep pace with inflation.

As you shop around for the right account at the right rate, you may find that online banks offer some of the most competitive APYs. Since they don’t have brick-and-mortar locations, they can pass their savings on to their customers. Savings account rates are averaging 0.42% APY as of December 16, 2024, according to the FDIC. A high-yield account at an online bank, however, may pay 3.00% APY or higher.

Questions to Ask When Considering a Savings Account

It’s hard to dispute the appeal of earning money on savings. But in addition to knowing how to calculate interest on a savings account, there are other considerations that could affect the flexibility and ease with which that account will help you achieve your goals. Some account holders may find they need multiple bank accounts to meet both their everyday and long-term financial needs and goals.

Here are some things to consider.

Will You Be Penalized for Everyday Transactions?

Savings accounts typically provide higher interest rates than checking accounts because they require less work for the bank to administer since they’re not meant to be used for everyday transactions.

But savings accounts may limit the number of transactions you can make in a month, and charge a fee if you exceed the limit. The Federal Reserve’s Regulation D, which imposed a six-transaction-per-month limit, was loosened during the COVID-19 pandemic. Even so, some banks have opted to continue to impose limits on savings account transactions to six or, sometimes, nine per month. Inquire at a potential new home for your funds before opening a savings account.

Is There a Minimum Balance?

Some banks incentivize or penalize customers to encourage them to keep more money in their accounts. For example, an account may be subject to fees unless the balance is maintained above a certain amount. Tiered savings accounts provide a higher rate of interest on bank balances above certain levels.

Can the Money Be Accessed Easily?

Some types of savings accounts provide higher interest rates but limit access to your money for a predetermined earnings period. For example, a certificate of deposit (CD) is a savings vehicle that holds an investor’s money for a certain period of time. At the end of that term, the account holder is paid the original principal plus the interest earned. There may be penalties imposed on early withdrawals from a CD.

Can the Account Help Achieve Money Goals?

Earning interest is a key way a savings account can help you achieve your financial goals. If you’re saving for multiple goals at the same time — say building your emergency fund and saving for an upcoming vacation — it can be helpful to be able to know at a glance how much progress you’re making towards each goal. At some banks, you might need to open separate accounts to track each savings goal, while others may provide tools to organize your savings goals within a single account.

The Takeaway

The easiest way to calculate how much interest you’ll earn on a savings account is to multiply the account’s APY by your balance. This tells you what you’ll earn on your money over one year if you don’t make any withdrawals or deposits during that time. An online APY calculator makes it easy to calculate how much interest you’ll earn in a savings account over multiple years, taking your bank’s compounding frequency into account.

When shopping for a savings account, it’s important to not only compare APYs but also read the find print to find out if there are any balance requirements to earn the advertised APY and/or any fees that could eat into your earnings.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.

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Budgets typically require you to categorize your expenses by “needs” versus “wants.” While that sounds straightforward enough, it’s not always easy to do. There may be times when you want something so badly (say, a leather jacket or trendy sneakers), it feels like a need. Or, you might dismiss a real need, like taking a week off work, as a want by not fully grasping its importance to your mental health.

Distinguishing between wants and needs, however, is key to your financial well-being — it provides the framework for a budget, allows you to make the most of the money you have, and can help you reach your future goals.

Read on to learn the real difference between needs versus wants, and how to fit both into your budget.

What Is a Need vs a Want?

Both wants and needs are factors that drive your spending behavior. Understanding the difference between wants and needs is key for setting up a budget that allows you to meet your basic needs, enjoy your life, and still work towards your future goals.

•   Needs are usually defined for budgeting purposes as your essential living expenses, things necessary for your health, and expenses that are required for you to do your job.

•   Wants, on the other hand, are generally defined as desires for things that go beyond the basic necessities. They can range from small indulgences like a fancy coffee or a new hardcover book to luxurious items like a premium car or designer clothes.

To stay on top of your budget and avoid overspending, it’s important to distinguish between needs and wants. However, you may find that these terms are more fluid than they appear at first. While working through your list of expenses, it may seem like items can fit into both categories, making the process somewhat confusing. It can help to dive deeper into what exactly constitutes a need versus a want.

Identifying Your Needs

Strictly defined, money management guides will tell you that a need is something that is necessary to live and function. By this definition, a need includes food, clothing, shelter, and medical care.

In budgeting, however, the category gets broader. There are things that you could technically survive without, but which you need in order to operate as a functional, productive member of society — and to keep that job that’s getting you the paycheck you need to buy food and keep a roof over your head.

For example, if you work in a position that requires you to show up at a specific time and place, transportation is going to be a need, not a want. Since insurance offers financial protection, and in some cases is legally required, you can count insurance as a need.

Needs tend to be recurring expenses that, generally, eat up a large chunk of your paycheck.

Examples of Needs

Here are some common budget items that typically count as needs:

•   Rent or mortgage payment

•   Utilities (e.g., gas, electricity, water, wifi connection)

•   Food

•   Transportation

•   Insurance

•   Necessary clothing

•   Health care

Recognizing Your Wants

Wants are basically everything that’s not a need. They are expenses that help you live more comfortably and enhance your quality of life.

Wants are the things you buy for fun or leisure. You could live without them, but you enjoy your life more when you have them. For instance, food is a need, but daily lunches out (vs. bringing a turkey on rye sandwich) are likely to be more of a want. Outerwear is definitely essential to protect you from the elements, but if you have two other coats in your closet, that jacket you’re eyeing is probably a want.

Wants are not inherently bad or a poor use of your money. Often, they can help you accomplish important goals like meeting people and socializing with friends, having fun, or staying healthy. Along with needs, they deserve an important place in your budget.

Examples of Wants

Here are some examples of expenses you might classify as wants in your budget:

•   Entertainment

•   Dining out

•   Travel

•   High-end clothing

•   Luxury cars

•   Fitness classes/gym memberships

•   Streaming accounts

•   The latest smartphone

•   Fancy coffees

•   Hobby-related expenses

Where the Line Between Needs vs Wants Gets Blurry

Sussing out your financial needs versus your wants might sound like a simple task. But this seemingly black-or-white issue can actually get surprisingly gray, depending on your situation.

One source of confusion is that wants and needs won’t be the same for everyone. For example, two people may both need a car for work. However, one might need a luxury car to drive around important clients, while the other just needs a car that will get them to and from work. In the second case, a basic car will suffice. Recognizing that you don’t need to go for the top-of-the-line car can help free up funds and give you automatic savings on your spending.

Another complicating factor is that some expenses contain both wants and needs. Your grocery bill, for example, is a need because you need to eat. However, some items on the list, like expensive cheeses, soda, and ice cream represent wants rather than needs. You could survive without them.

The Needs vs Wants Test

To determine if something you want to purchase is a want vs. a need, consider:

•   Does this fulfill a basic need? (Basic needs typically include shelter, food, water, security, health care, and necessary clothing.)

•   Is this essential to living a healthy life?

•   Will not having this in your life cause you any sort of harm?

•   Will this make you happier or healthier in the long term?

•   Is it necessary for you to do your job?

Another good way to differentiate wants vs. needs is to let some time pass before you make a decision about a purchase. Generally, the desire to purchase a need will grow stronger over time, while the desire for a want will wane with passing time.

Another distinguishing characteristic between needs and wants is that needs rarely change over time, whereas wants are often trends that will fade. If you’re trying to rein in unnecessary spending, it pays to consider whether a purchase will make you happy, healthy, or otherwise fulfilled for a long time or if it’s just something you want because it’s currently popular.

While there’s something to be said for retail therapy, you don’t want to fall into the trap of buying things because they make you feel better in the moment (especially if it means running up credit card debt). These purchases tend to get forgotten relatively quickly, sometimes in a just a few days or weeks. If on the other hand, a purchase will likely serve its purpose for at least two years, you can feel better about spending the money.

Practical Strategies for Budgeting

To account for both needs and wants in your budget, you might consider the 50/30/20 budget method.

This approach divides your net income (whether received via direct deposit, mobile deposit, or another way) into three basic categories, spending 50% on needs, 30% on wants, and 20% on savings and paying off debt (beyond the minimum payment). Just keep in mind that those percentages may not be realistic for everyone. If you live in an area with steep housing costs, for example, you may need to spend more than 50% on needs and take some away from the wants and/or savings categories.

•   To see how your spending currently measures up, go through your monthly expenses (including online bill pay), create a master list of things you spend your money on, and then create a list of needs and wants.

•   The next step is to tally up what you’re spending in each category and see how the totals compare to your monthly take-home income. If you find your current spending is out of line with your chosen breakdown (such as 50/30/20), you’ll want to make some adjustments.

•   Next, you’ll want to look for places to cut back. While you may think your needs’ costs are fixed, it may be possible to shop around for a better price on certain monthly essentials, like insurance or a phone plan. Or, maybe you don’t need to drive to work but could spend less by taking public transportation or carpooling with a coworker.

   Typically, however, it’s easiest to find places to cut back in the wants category. For example, you might decide to get take-out less often and cook more nights a week, brown bag your lunch, get rid of streaming services you rarely watch, and/or jog outside instead of going to a gym.

•   Any savings you uncover can then go towards your savings and debt repayment category. This can help you to get out from under high-interest debt faster (which will free up even more money for saving) and allow you to work towards goals like building an emergency fund, going on a vacation, buying a home, and funding your retirement.

You can use a 50/30/20 rule calculator to take a closer look at using this budgeting method.

Reviewing and Adjusting Your Budget

Once you’ve rejiggered your spending and created a basic 50/30/20 (or similar) budget, it’s important to track your spending to make sure you’re sticking to your budget and spending an appropriate amount on needs versus wants.

•   One easy way to do this is to put a budgeting app on your phone (many are free for the basic service). Budgeting apps typically connect with your financial accounts (including bank accounts and credit cards), track spending, and categorize expenses so you can see exactly where your money is going each month.

•   Once you start tracking your spending, you may find that your original budget breakdown isn’t realistic and you’ll need to make some adjustments to your budget. For example, maybe it isn’t feasible to save 20% of your take-home pay right now. You might start with 5% or 10% and increase the percentage as your income grows.

•   It’s also a good idea to check in on your budget every six to 12 months. Your needs, wants, and goals will change over time. The key to creating a sustainable budget is to treat it as a living document and periodically evaluate it and adjust it as necessary to ensure that it meets your current financial goals.

The Takeaway

Some things you need — a place to live, electricity in your home, gas in your car to get to work — and some things you just want, like tickets to a concert or a membership to a gym. The key to smart budgeting is making room for both needs and wants, as well as saving. There are several techniques, from budgeting apps to various popular methods, that can help provide guardrails for your spending. A balanced budget can help you live well right now while also getting you closer to your short- and long-term financial goals.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

How do I determine if something is a true need?

To determine if something is a true need, ask yourself if it is essential to your survival, your wellbeing, and doing your job. If the answer is yes, it’s a true need. Sometimes, however, the line is blurry. For instance, you may need a smartphone in order to do your job, but that doesn’t necessarily mean you need the latest pricey model.

What percentage of my budget should go to wants?

If you follow the popular 50/30/20 budget rule, 30% of your take-home pay can go toward wants, such as dining out, travel, and other non-essential spending. In some cases, that amount may vary. If you, say, live in an area with a very high cost of living or you have significant debt (mortgage, student loans, and a car loan), you may reduce that allocation to, say, 20% or less.

How can I reduce spending on wants without feeling deprived?

There are various ways to reduce spending on wants without feeling deprived. A couple of ideas: Instead of paying for a pricey gym membership, you might try different free workouts on YouTube. When you go out to eat with a friend, share a main course or a few appetizers. Or skip the expensive cocktails and after-dinner coffee. You also might create a small bucket in your budget for fun spending: If you know you have $20 a week, it can be a treat to decide whether to go out to lunch or, say, get a manicure with that money.

Is a smartphone a need or a want?

A smartphone is one of those “gray area” items. It’s probably vital for you to have a smartphone and stay connected for work and wellness purposes, meaning it’s a need. However, upgrading to the latest expensive model not because your current phone is broken but because the new version has cool features could be an expense that qualifies as a want.

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About the author

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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People shop for all kinds of reasons — to acquire the things they need or want, to browse stores for new and interesting finds, and (sometimes) for the little thrill that comes with snagging a great deal.

For some people, however, shopping crosses the line into unhealthy territory. If you tend to hit the stores every weekend, spend the majority of free time planning for and making purchases, and/or have have tallied up some major debt as a result of your frequent shopping, you may actually be addicted to shopping.

Read on to learn more about what it means to be a shopaholic, signs that you may be addicted to shopping, and ways to curb the habit.

Definition of a Shopaholic

Known as oniomania or compulsive shopping, shopping addiction is a behavioral disorder that involves frequent, excessive buying as a way to feel good and temporarily relieve feelings of stress, anxiety, or boredom. Like other types of addictions, a shopping addiction can substantially harm a person’s life, including their relationships and financial well-being.

💡 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.

4 Shopaholic Symptoms

People who are addicted to shopping often get a sense of emotional relief right after buying something. Shopaholics also tend to spend more time and money on shopping than they can afford, and many get into financial problems — such as large amounts of credit card debt — as a result of their overspending.

Below are four signs that you may be addicted to shopping.

1. Experiencing a Rush of Excitement When You Buy

Shopaholics generally shop not because they really need something but rather for the sense of euphoria they experience when they’re shopping.

Similar to a drug addiction, compulsive shoppers will often experience a “high” or an adrenaline rush from the act of purchasing something. The brain then associates shopping with this pleasure and the person wants to try and recreate that feeling over and over again. This pattern can be used by a shopaholic to fill an emotional need or override a negative emotion.

2. Experiencing Post-Shopping Regret

Unfortunately, the high shopaholics experience is typically short-lived and later gets replaced by negative feelings, including shame, remorse, and guilt.

Shopaholics will often feel guilty after spending money, whether they splurged on something expensive or snagged something on clearance. Despite any remorse that follows, though, they tend to be good at rationalizing any purchase if they’re challenged.

Buyer’s remorse can force a shopaholic back into a negative cycle, since they know shopping is a surefire way to chase away negative feelings, at least temporarily.

3. Accumulating Unopened Goods

Though shopaholics enjoy shopping, they often don’t care all that much about their purchases when they get home or when their online orders arrive in the mail. In fact, the items they purchase often end up unopened and shoved in the closet or under the bed.

Those living with a shopping addiction can actually develop hoarding tendencies as they accumulate more goods than they need and yet continue buying.

Recommended: 9 Questions to Ask Before You Buy Something

4. Concealing Shopping Habits

Shopaholics will often try to conceal their shopping habits from their spouses, family members, coworkers, and friends. This is often due to feelings of shame and/or the fact that they are shopping and spending money at the expense of their job or loved ones.

Normal Shopping vs Compulsive Shopping

If you enjoy shopping and make the occasional splurge, does that mean you are a shopaholic? Not necessarily. There are several distinct differences between normal shopping and compulsive shopping. Here’s a side-by-side comparison of normal shopping versus compulsive shopping.

Normal Shopping	Compulsive Shopping
No addictive or compulsive component	Resembles addictive behavior
Purchases are generally needed and used	Purchases are often not needed and go unused
Isn’t followed by negative emotions	Often followed by guilt, remorse, and shame
Does not lead to financial problems	Continues despite negative financial consequences
No secrecy involved	Secrecy is often involved
Occasional shopping sprees	Frequent overbuying

Treating Compulsive Shopping

If you feel like shopping has become your main way of coping with stress, there’s a lot you can do to address the issue and regain control of your spending. Here are some strategies to try.

Understanding Your Triggers

Consider keeping a journal of how you feel when the shopping urge hits: Are you bored? Angry? Anxious? Do you feel the desire to buy new things after you hang out with a certain person, spend time on social media, scroll your email, or watch certain shows?

Tracking your triggers can provide insight into what drives you to want to shop and how you can better manage (or avoid) those triggers in the future. For example, you might seek out other friends, unsubscribe from marketing emails, and unfollow shopping-focused social media accounts.

Developing Other Coping Strategies

Overcoming any addiction typically requires learning alternative ways of handling the stress of everyday life. You might come up with a list of non-shopping activities you find relaxing and enjoyable, such as calling a friend, watching a movie, reading, going for a walk, listening to music, doing yoga, or engaging in a hobby. You can consult your list when you get the overwhelming urge to shop. This can help you break the cycle of using shopping as a way of trying to feel better about yourself.

Delaying Gratification

Another way to deal with impulsive or compulsive shopping is to establish a waiting time before you spend money on anything nonessential. “Combat the urge to impulse spend by instituting a holding period on all purchases,” suggests Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “Before hitting the buy button, wait 24 to 48 hours. After the holding period, come back to the shopping cart and reevaluate. In some cases, you might not even remember why you wanted it in the first place.”

Seeking Expert Help

If you think you may be addicted to shopping and can’t seem to get a handle on it on your own, it can be worth seeking professional help.
A mental health professional can help you understand the emotional roots and psychological factors contributing to your compulsive shopping. Addiction therapy, including cognitive behavioral therapy (CBT), can help you understand your triggers and come up with coping strategies that don’t involve shopping.

You might also benefit from financial counseling, particularly if your shopping behavior has left you in debt. A financial advisor can help you set up a spending budget that allows you to pay off expensive debt, while also building — or rebuilding — your savings.

💡 Quick Tip: Your money deserves a higher rate. You earned it! Consider opening a high-yield checking account online and earn 0.50% APY.

Financial Consequences of Compulsive Shopping

Many compulsive shoppers continue making purchases even when they struggle to pay bills, max out credit cards, or face financial hardship. This behavior can create a cycle of stress and anxiety, reinforcing their shopping addiction.

Key financial consequences of compulsive shopping include:

•   Excessive debt: Constant impulsive purchases can quickly accumulate, causing you to spend beyond what you can pay off at the end of the month and mounting overwhelming credit card debt.

•   Poor financial decisions: Compulsive shoppers may neglect essential financial planning, fall for scams, or buy unnecessary items instead of prioritizing needs.

•   Damaged credit score: High credit utilization and any missed payments can have a negative impact on your credit profile, making it difficult to secure loans, mortgages, or even rent an apartment.

•   Depleted savings: Continuous spending on nonessential items can drain your savings account, leaving little to no financial cushion for emergencies.

•   Bankruptcy risk: In extreme cases, uncontrolled debt from compulsive shopping may lead to bankruptcy, further complicating financial recovery.

How to Support a Loved One Struggling with Shopping Addiction

Supporting a loved one with a shopping addiction requires patience, empathy, and constructive action. You might start by having an open, non-judgmental conversation about their behavior, expressing concern without blame. You could also offer some helpful suggestions, such as tracking their spending habits, avoiding triggers, and (possibly) seeking professional help like therapy or support groups.

At the same time it’s important to set healthy boundaries and to avoid enabling their behavior by lending money or covering debts. Instead, you might offer alternatives like budgeting together or engaging in non-shopping-related activities. If they’re open to it, you could help them set financial goals and spending limits or offer to be their accountability partner.

Letting Your Savings Grow With SoFi

If your goal is to start saving more and spending less, you’ll want to choose a bank account that helps your money grow faster than it could in a traditional savings account and charges minimal or no fees.

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 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What are the signs of being a shopaholic?

Signs of a shopping addiction include frequent impulsive purchases, spending beyond one’s budget, hiding purchases from family or friends, feeling guilt or regret after shopping, and using shopping as a way to cope with stress or emotions. Shopaholics may also experience financial strain, accumulate debt, and have difficulty controlling their shopping urges.

What is the root cause of shopping addiction?

Negative feelings, such as stress, anxiety, and loneliness, are often the underlying causes of shopping addiction. Shopping can provide a distraction from these unpleasant emotions and help you feel more in control. It can also elicit a kind of psychological “high,” which is why compulsive shoppers often seek this behavior out again and again.

How do you cure a shopping addiction?

People who are addicted to shopping often respond well to various treatments, including antidepressant medications, talk therapy, cognitive-behavioral therapy (CBT), self-help books, support groups, and financial counseling.

Are there support groups for compulsive shoppers?

Yes, support groups like Shopaholics Anonymous and Debtors Anonymous provide help for compulsive shoppers. These groups are available in-person and online and offer a safe space to share experiences, gain support, and learn coping strategies from others facing similar challenges. These groups can also help you determine when you might need additional help from a mental health professional.

How can I prevent relapse after overcoming shopping addiction?

Preventing relapse involves maintaining strong financial habits, avoiding triggers, and developing alternative coping mechanisms for stress or emotions. Some strategies that can help you stay on track include regularly reviewing your budget, using shopping lists, implementing a waiting period before making purchases to help control impulses, and engaging in non-shopping activities (like hobbies or volunteering). You might also seek out ongoing support from therapy, accountability partners, or support groups.

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SOBNK-Q125-082

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For a growing number of Americans, turning 65 no longer automatically means retirement. Between 2015 and 2024, the number of Americans 65 and older who worked increased by more than 33%, according to a 2025 CNBC analysis of Bureau of Labor Statistics (BLS) data.

If you want to keep up the 9 to 5 into your golden years, there’s a wide range of options for you to explore. This is especially true if you’re a skilled senior interested in full-time employment.

Tips When Finding a Job as a Senior

There are pros and cons and working after retirement. If returning to the daily grind is right for you and your financial situation, then there are a few things you’ll want to keep top of mind:

•   Weigh the pros and cons of working for a company versus freelancing or consulting.

•   Think about whether you’d prefer to work from home or go into an office or to a job site.

•   Read the job listing carefully, paying close attention to the requirements listed.

•   Remove graduation dates from your resume unless they’re fairly recent.

•   Include a couple of your key accomplishments in a cover letter.

•   During an interview, be sure to strategically share key career highlights from the past 10 to 15 years, and spotlight the ways in which you’ve kept your skills up to date.

•   Move ahead with confidence!

12 Jobs for Skilled Seniors That Pay Well

Working can help provide seniors with extra income as well as other benefits, such as connecting with coworkers and creating a sense of purpose. Let’s take a closer look at jobs for skilled seniors that suit a variety of skills and interests.

#1: Teacher

If you have the appropriate credentials, teaching can be a rewarding job. Don’t fret if you don’t have the right credentials — you might still be able to land a position. Many high schools, career centers, and community colleges may be open to hiring experienced people to teach general interest or professional development courses. Educational organizations may also be seeking teaching assistants or tutors, both of which can be excellent jobs for skilled seniors.

#2: Pet Groomer

Have a way with four-legged friends? Consider a career as a pet groomer, where the average worker earns around $31,830 a year. You can find work in a number of settings, including grooming salons, veterinary clinics, pet stores, zoos, and animal shelters. Or, you may decide to strike out on your own. The field is experiencing a boom right now. There are more than 422,000 jobs today, according to the BLS, and the field is expected to grow by 15% between 2023 and 2023.

#3: Tax Preparer

Interested in becoming a tax preparer? If you have an accounting background, then this type of work may be a natural fit. That said, you don’t need to be a certified accountant — you just need to obtain a Preparer Tax Identification Number from the IRS and pass a competency exam.

#4: Real Estate Agent

You can earn a good income helping people buy and/or sell their home or property. But there’s another selling point to being a real estate agent: the ability to set your own schedule, as long as you can still satisfy your clients. In fact, this flexibility can be useful if you’re deciding whether you want to work part time or full time. Before you start working, you’ll need to get a license, and requirements vary by state.

#5: Bank Teller

You typically only need a high school diploma or the equivalent to qualify for a bank teller’s job, and you may be required to undergo a short period of on-the-job training. In this position, you’d handle the standard transactions at the financial institution. So if you’re comfortable handling a steady flow of cash and enjoy working with customers, this could be a job to consider.

Need help managing your own finances? A money tracker can help you keep tabs on where your money is going.

#6: Medical Biller

A medical biller works for a healthcare organization such as a hospital or doctor’s office and is responsible for appropriately billing insurance companies, managing the status of claims, and addressing problems that arise. This is one of those jobs for skilled seniors that require organization and the ability to follow through — in this case, with both patients and the insurance companies.

Recommended: How to Negotiate Medical Bills

#7: Virtual Assistant

Plenty of small businesses in the United States need help with daily administration tasks. Depending on your skills, virtual tasks could include making phone calls, managing emails, scheduling appointments, maintaining calendars, offering bookkeeping services, handling social media, and so forth. Although many virtual assistant jobs are part time, if you wanted more work, you could have multiple clients to whom you provide your services.

#8: Telework Nurse or Doctor

Telehealth services have greatly expanded since 2020, and demand for remote healthcare providers remains high. If you’re a recently retired nurse or doctor, and are still licensed, you may want to explore a telehealth position. It could allow you to continue providing care but from the comfort of home (or a home office).

#9: Counselor

More than half of all Americans live in an area with a shortage of mental health care professionals, according to data from the U.S. Department of Health and Human Resources. If you’re a retired counselor or therapist and are interested in working again, re-entering the field could allow you to provide much-needed services.

#10: HVAC Technicians

From installation to maintenance to repairs, HVAC pros can find themselves in great demand all year long. If you have this kind of experience, or are handy and able to incorporate HVAC into your skill sets, then this type of work can be a steady source of income.

Recommended: 25 High-Paying Trade Jobs in Demand

#11: Paralegal

Busy attorneys need plenty of help researching information, creating documentation, and contacting clients. If you have the education and experience — and you’re highly organized and able to multitask — then a paralegal job may be right for you.

#12: Grant Writer

Grant writing is a specialized type of writing where you’d write proposals to help nonprofits and other agencies to obtain funding for their programs. To succeed at grant writing, it’s important to research the requirements and deadlines of the funding, write compelling proposals to receive the grant dollars, follow up with the proposals, and write reports about them.

The Takeaway

Your golden years are what you make of them — and for some, that can mean re-entering the workforce or pursuing a new, rewarding career path. Fortunately, there are plenty of jobs for skilled seniors that suit different skills and interests and provide a source of extra income.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Can seniors still work full time and receive Social Security benefits?

According to the Social Security Administration, the answer is “yes.” If you’ve already reached your full retirement age, then you can work and earn as much as possible without a reduction in benefits. If you aren’t yet at full retirement age, then you can earn up to $23,400 in 2025 without a reduction. For income earned beyond that annual limit, your benefits would be lowered by $1 for each $2 earned.

What types of job skills are in high demand?

Management and leadership skills are appreciated by many employees, and these are skills seniors may well have developed over the years. It’s important to be able to effectively communicate, both verbally and in writing, and to work well with others. For many jobs, sales and marketing abilities are key, while in others the ability to research and analyze are crucial. Note that these are general categories. Specific skills will depend upon the job you’re applying for.

What type of work-life balance should working seniors expect?

Maintaining a work-life balance is especially important for working seniors. As you consider re-entering the workforce, you’ll want to consider your physical and mental health as well as your finances, and ensure that whatever job you take on will fit in your lifestyle. As an older adult, you may discover that you don’t have quite as much stamina as you once did. On the other hand, having children out of the home and on their own may open up more time than you expected.

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Photo credit: iStock/Vesnaandjic

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

SORL-Q125-068

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A line item budget is a detailed look at your income and your expenses, and it can help you manage your money more effectively.

Like any type of budget, the purpose of a line item budget is to help you understand how much money you have flowing in and out every month. It also provides the guidelines and guardrails you may need to avoid overspending and hit your savings goals.

If you’re interested in taking a closer look at your money or are sick of running out of cash before the end of the month, this guide to line item budgeting can help.

What Is a Line Item Budget?

A line item budget is a detailed financial plan that lists your income and then breaks down expenses into categories, or “line items.” It allows you to organize your expenses by grouping related costs together on separate lines to create a comprehensive financial picture

A line item budget also enables you to anticipate costs within each expense category, then closely monitor your spending to ensure you stick to your budget and don’t overspend in any specific area.

What Is Considered a Line Item?

A line item is an income or expense category that is part of your budget. For example, if you’re setting up a personal line item budget, your income line items might include salary and a rental property, while your expense line items might include rent, car insurance, and a music subscription.

If you want to make sure you’re putting some money into your savings account each month, you can even include a savings transfer as a line item in your budget.

It may be helpful to know a bit about how these budgets can work in business, as background for creating your own line item budget. Say a business is creating a new advertising campaign. They might consider:

•   Projected expenses: How much they think the cost of creating and executing their advertising materials will cost in the future.

•   Previous actual expenses: This will show how much in the past their costs actually were for such endeavors.

•   Present-year expenses: This would track the actual expenses being incurred as they create their ads. This could be done week by week or month by month.

Why Line Item Budgets Are Commonly Used

Line item budgets are commonly used because they allow you to account for everything that is flowing in and flowing out of your checking account. This makes it easy to monitor spending and compare actual costs with projected amounts and stay on top of your money.

Businesses, nonprofits, and governments tend to favor line item budgets because they allow an organization to easily identify areas where costs are exceeding expectations, track spending across different departments, and make informed decisions about where to allocate funds most effectively.

What Are the Advantages of Using a Line Item Budget?

If you are considering implementing a line item budget, consider these upsides.

Allocating Expenses Is Simple

One of the biggest pros of using this kind of budget is the ease with which they can be created. With just a few clicks on a spreadsheet, you can establish a basic structure and begin to fill in the data that needs to be recorded. And as priorities change, the budget can be changed just as easily to meet those new needs.

Interpreting the Budget Is Easy

Another major advantage of the line item approach: Making a budget this way isn’t only easy to do, it’s also easy to understand. Creating a basic list of categorized income and expenses doesn’t require any specialized accounting degree to decipher. With your phone’s calculator function, you’re good to go.

Planning Your Future Finances

It provides an easy-to-read, at-a-glance view of what to expect from your expenses in a week’s, month’s, or year’s time. And specific amounts are clearly displayed on each individual line. Those looking for budgeting for beginners tips may want to consider a line item budget for these two benefits. This kind of budget can help you avoid those surprise moments of not understanding why your checking account balance got so low.

Providing Clarity for Financial Decisions

Once a line item budget is in place, it can significantly simplify financial decision-making. Rather than wonder how much you can afford to spend on clothing or take-out, you’ll have a pre-decided spending limit. As long as you don’t exceed your targets, you can enjoy your expenditures without guilt — or running up debt.

What Are Some Downsides to Line Item Budgets?

Next, it’s worthwhile to recognize the possible drawbacks of line item budgets.

Best for Those With Predictable Income and Expenses

Line item budgeting usually relies on fixed and steady income and expenses for accuracy. It can work well for managing predictable finances, but if a budget contains line items that fluctuate significantly, it may not balance properly. This can lead to inaccurate calculations.

Typically Rigid

Another disadvantage of line item budgets is that they are rigid. It’s not uncommon to change spending habits throughout the year to fit changing needs, but those changes aren’t automatically reflected in a line item budget.

Spending adjustments may require extensive budget rewrites in order to accurately capture a new spending plan. With a line budget, any time financial goals change, it requires reviewing and adjusting everything line-by-line in order to stay current.

Requiring Detail

Unlike a budget such as the 50/30/20 rule, in which a person wrangles three big financial buckets (or spending categories), a line item budget does require rigorous accounting of specific expenses. This can be challenging for some people.

Budgeting: Is It Worth It?

Budgeting can seem tedious. After a long day (or week) at work, the last thing you may want to do is spend time in front of a screen, plugging in data and recording how much you’ve spent.

But tracking your money can be a powerful exercise. Here are some reasons why budgeting can be worthwhile:

•   Tracking your spending can give you direct visibility into your habits and when you understand where your money is going, you can feel empowered to make adjustments.

•   Budgeting can be part of a good money mindset. Instead of thinking of budgeting as a series of spending restrictions, you could think of it as a tool you can use. It’s a technique that can give you the freedom to spend money on what is most important to you.

•   Setting money goals can provide a structure to help you build out your budget and plan for the future. So, whether you’re saving for retirement, planning a wedding, or jetting off on a trip overseas, having and sticking to a well-crafted budget can help you get there.

•   It’s also worth noting that your budget is a living document. It’s okay to make changes. As you adjust your goals or experience or experience changes in your income or lifestyle, you can (and should) make adjustments and changes to fit your new needs. Your life isn’t stagnant, and your budget shouldn’t be either.

Using a Line Item Budget for Personal Finance

Typically, line item budgets are used by small businesses to track their earnings and expenses and compare them from year to year. While businesses typically have different needs than households, creating a line item budget can be helpful in personal finances, too.

Just as they give small businesses insight into opportunities to grow the business or reduce expenses, line item budgets can help individuals manage personal expenses. Outlining each source of income and expense can reveal personal spending habits and opportunities to reduce one’s cash outflow.

The specific insights you gather from a line item budget, as well as the changes you make, will ultimately depend on your personal goals and overall financial situation.

Deciding What to Include in a Line Item Budget

Deciding to create a line item budget is just the first step. Next, consider which categories are most important for you to include. A personal budget is just that — personal.

Everyone’s financial situation is different, so this list is not the end-all-be-all solution, but here are some high-level categories you may want to consider (each will likely include several sub-categories).

Bills and Utilities

This category is fairly self explanatory — after all, everyone’s got bills to pay, right? Things worth listing in this category might include water and electricity bills; cable, internet, or phone bills; or any other monthly bill you have on your expense list.

Debt

If you have student loan payments, credit card bills, or other recurring debt payments, include them in your budget. That’s an important area to track.

Education

If you are currently attending school or have kids, you’ll likely want to consider including things like tuition and fees, the cost of books and other supplies, and any other expenses directly related to education costs.

Entertainment

This one is a little broader and can be highly customized depending on personal spending habits. Do you have subscriptions to streaming services? Do you buy lots of books?

Tickets to the movies, museums, or a concert could also be included in this category. Depending on your hobbies and interests, you may find you can expand this with additional detail.

Fees

Think of all the fees charged to your accounts. Late fee on a delayed credit card payment? ATM fees? Add ՚em here. You could add HOA fees and others to this category as well. If you pay an annual fee to your credit card issuer, that goes here as well. (Seeing how fees add up can be a useful exercise. For instance, if you are paying several fees at a traditional bank, you might opt to switch to an online bank, which typically will charge lower or no fees.)

Food

Depending on your eating habits, you could split this up even further in a line item budget into categories like groceries, snacks, and dining out.

Home

Think of things like your rent or mortgage as well as expenses for maintenance and upkeep of your home.

Income

You’ll probably want to include all sources of income, not just your regular 9-to-5. If you’re budgeting as a couple, you can include income for both partners.

Add income earned from having a side hustle or from passive income opportunities, too.

Investments

Add your contributions to all investment accounts including a 401(k), IRA, 529 accounts, or other brokerage accounts.

Medical

Expenses for medications, health, dental, or vision insurance, and copays can all be included under this category.

Personal Care

Things like toiletries, vitamins, and beauty supplies would fit into this category. Hair cuts, trips to the nail salon, and massages could be included as well. If desired, you could also include the cost of other self-care practices, like a subscription to a meditation app, gym membership, or exercise classes.

Savings

Money that you put into an emergency fund, vacation fund, or other form of savings should be accounted for in your line item budget, too.

Recommended: Emergency Fund Calculator

Services

Do you pay for any regular services? You could include things like dry cleaning services, the cost of having a housekeeper, or the fee you pay your babysitter for a night out.

Shopping

Heading to the mall? Shopping expenses like clothing, toys, and even gifts for others, could be added here.

Taxes

If you’re a full-time employee, taxes are automatically being taken out of your paycheck. But if you are a freelancer or independent contractor, note quarterly taxes in your line item budget.

Transportation and Auto

This is a catch-all category for things like your monthly metro pass, gas, car insurance, auto loan payment, and general maintenance of your vehicle (if you own one).

Travel

Add all costs associated with trips you take here. Things like hotels or lodging, air travel, taxis, travel insurance, and tickets and admission for excursions and seeing the sights.

If you’re road-tripping, you could include the cost of gas, tolls, and other car-related expenses for the trip here too. Also worth including is the cost of food while on the road.

Putting Your Line-Item Budget Together

A list this long can seem overwhelming. Take it one step at a time, and, if needed, break the work up over a few days. For instance:

•   On day one, gather all of the relevant documents (tax returns, paychecks, credit card statements, etc.), and create the skeleton of your line item budget.

•   On day two, you could aim to make it through recording your income and maybe half of your expenses.

•   On day three, you could finish adding data about your expenses and add any finishing touches or edits.

After creating this line item budget, you should have a bird’s-eye view of your spending habits. Take a close look at the information, and decide if you are happy with what you see. Now is the time to be honest with yourself and make the changes you feel are necessary. Do you want more money to put towards savings or paying down debt? See how you might alter the numbers as they currently exist for the months ahead.

Want to make cuts to your monthly expenses? Now you know exactly how much money is being spent in each category and where you could stand to hold back. Some ideas to mull over:

•  Can you negotiate less expensive car insurance? Experiment with meal planning to see if you can be intentional about your food spending and potentially cut your grocery bill.

•  Try adjusting the thermostat setting while you’re asleep or away from your home to cut your energy bill.

•  Getting hit with fees on late payments? You might want to add an alert to your calendar or a monthly notification to your phone to remind you when payments are due. Another possible option is to enroll in autopay so you never miss a payment.

Payment history accounts for 35% of your credit score. So making payments on-time consistently could not only eliminate those pesky late fees from your budget but it could also potentially have a positive impact on your credit profile over time.

Recommended: How to Stop Overspending

Tips for Staying Consistent With Your Budget

To make sure you stay consistent with your line item budget, it’s helpful to choose a specific day each month (ideally at the end) to review your expenses. This is when you gather your statements and receipts and log in actual spending and income numbers for each line item.

You can then compare your actual spending to your planned spending, identify areas of overspending, and make any needed adjustments to your budget for the following month to ensure you’re on track with your financial goals.

It’s also helpful to automate your finances wherever possible. Consider setting up auto pay for regular expenses, as well as a monthly transfer from your checking account to a high-yield savings account for emergencies and other short-term savings goals.

Line Item Budget Example

A line item budget example can be as simple as using an Excel or Google Sheets spreadsheet to make your own basic line item budget template.

At the top rows, income can be added, say, for a given month. Then, moving down the page, you can list out the various expenses you have. To the right of that, you might include “projected” and “actual.” If certain line items tend to always come in over budget, you may need to adjust your budget — or your spending habits.

You can customize the organization to best suit your needs.

Line Item Budget Templates

There are many free resources online that can help you set up your budget. For example, Google Sheets offers free pre-made budget templates, such as an annual budget and a monthly budget, that you can customize to your needs.

Excel also offers free pre-made templates for budgeting that includes line items for different income streams and household expenses, with the ability to add or subtract categories to make it fit your financial situation.

Alternatives to a Line Item Budget

Though simple and intuitive in nature, line item budgets aren’t a perfect fit for everyone. Here’s a look at some other budgeting options you might consider.

50/30/20 Budget

Also known as a proportional budget, the 50/30/20 budget rule focuses on splitting income into three buckets — “needs,” “wants,” and “goals” (savings and debt repayment). Instead of creating lists of expenditures, you instead commit to spending 50% of your income on things you need to spend on (housing, food, debt, and similar “musts”), 30% on things you want (dining out, travel, and so forth), and the remaining 20% is set aside for savings and debt payments beyond the minimum.

Because spending isn’t tracked on a granular level, you might use a budgeting or expense-tracking app to help avoid overspending in any one category. You can use an online 50/30/20 budget calculator to see the breakdown of your money.

Envelope Budgeting Method

The envelope method focuses on using physical envelopes and labeling each with a spending category, such as food, bills, or entertainment. The envelopes are then filled with the maximum amount of money desired to be spent in each category, and spending throughout the month happens directly from those envelopes.

Once an envelope is empty, no more spending can be done in that category, unless taken from another. This method can be adapted to use a debit card vs. cash.

Zero-Based Budget

Similar to the line item budget, the zero-based budget takes account of all income and expenses. The difference is that with this budget, the goal is to make sure that every incoming dollar is allocated to either a saving or a spending purpose, and to leave nothing left over. Automating finances with services like automatic bill-pay and prescheduled bank transfers (say, into a high-yield savings account) can help with managing this style of budgeting.

The Takeaway

Creating a line item budget can be useful when determining your spending habits. It’s a fairly simple, detailed, and well-organized way to track your earnings and spending, but it’s not always flexible. Also, if you don’t have your budget spreadsheet on hand, it could be more difficult to make changes or check in while you’re busy living.

There are many different types of budgets and as well as apps and expense trackers that can simplify money management. A good place to start your journey is seeing what tools your bank offers.

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FAQ

What is an example of a line item budget?

A line item budget is a simple, organized way of listing income and spending in detail so you can keep things in balance and see how you are tracking over time. It can be easily made with a basic spreadsheet template, listing your income, your spending, and your savings in a given time frame, such as one month.

What is the difference between a line item budget and a program budget?

Line item budgets and program budgets are frequently used in business. Typically, a line item budget will list out individual budget expenses, item by item. In a program budget, however, the spending tends to be grouped into smaller budgets for specific activities or programs. For instance, in a program budget, all the costs related to advertising a new service could be kept together, to show the expenses required to meet that goal.

How do I create a line item budget in Excel?

One simple way to make a line item budget in Excel is to create vertical columns for each month. Starting at the top of each month, you could list various sources of income. Then below that, you could break out, line by line, all of your expenses, such as food, housing, utilities, entertainment, clothing, dining out, travel, transportation, and so on, going down the page. This can allow you to tally your earning, spending, and saving.

What tools can help manage a line item budget?

There are a number of online tools and apps that can help you set up and stick with a line item budget. For example, you might start by using spreadsheet software like Microsoft Excel or Google Sheets to set up your budget, either from scratch or using one of their free line item budget templates. To help stay on track, consider downloading a budgeting app to your phone (your bank may offer a free one) that can link to your outside accounts and help you monitor and categorize your spending.

What are the most common mistakes when using a line item budget?

One of the most common mistakes when using a line item budget is failing to update it regularly. Once you set up your expense categories and spending targets, it’s important to enter your actual expenses to see if you’re staying on track with your budget.
Other common errors with line item budgeting include: underestimating expenses, setting unrealistic spending limits, and ignoring small but recurring expenses.

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