Budgeting & Goals Archives | Page 170 of 186

Mar

2023

Building a Line Item Budget

By Krystal Etienne | Budgeting & Goals, Financial Independence | No Comments

A budget can be a terrific tool to help you understand how much money you have flowing in and out every month. It provides the guidelines and guardrails you may need to avoid overspending and hit your savings goals.

No one likes to feel broke or in debt, and setting up a simple line item budget is a time-tested way to take control of your money. If you’re sick of running out of money before the end of the month or watching your credit card debt climb, this guide to line item budgeting can help.

Read on to learn:

• What is a line item budget?

• What are the pros and cons of a line item budget?

• What are examples of a line item budget?

• How do you set up a line item budget?

What Is a Line Item Budget?

Depending on where you look, you’ll find a variety of budgeting insight and advice. Some tout the benefits of the 50/30/20 rule and others swear by the envelope method. These different budgets can offer flexibility and provide a solid structure for your budget.

However, if you’re looking for specific insights, it could be worth starting with a different approach that offers more granular detail into your expenses and spending habits — a line item budget.

Essentially, line item budgets function by grouping related costs together and creating a clearly organized flow of funds. They also track both income and expenses, giving a more complete and accurate financial picture.

What Is Considered a Line Item?

A line item budget at its core is a list of expected income streams and pre-planned expenses expected over a specific period of time. A line item is simply one of the items on that list.

For example, a line item budget that calculates income from a salaried job and a rental property, plus expenses for a cell phone, car insurance, and a music subscription, would have a total of five line items. A line item budget can have as few or as many line items as needed, and they’re often categorized by type to help keep the budget organized.

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.

In this way, one can track expenses over time and see how spending is trending.

In personal line item budgeting, you will be able to use this technique in a similar way. In addition to focusing on day-to-day spending, saving, and keeping expenses in line, you can also use this sort of household budget to plan for the future and to save.

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.

What Are Some Downsides to Line Item Budgets?

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

Best for Steady Earners

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.

For instance, a business budget with a line item for income from a candle company may be accurate if the same number of candles is sold each month. However, if the candles are sold during the holiday at a discount, the income would not match the preset number on the line budget, and the final calculations would be incorrect.

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.

Now, in chart form, here are the pros and cons of line item budgets:

Pros of Line Item Budgets	Cons of Line Item Budgets
Simple to manage	Requires detailed record-keeping
Easy to create	Rigid
Good for future planning	Best for steady earners

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.

Recommended: The 10 Most Common Budgeting Mistakes

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. They lend well to financial analysis, allowing business owners to easily target areas of their business where they may potentially reduce costs — and where there might be room to grow the company.

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 manage your 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 a few high-level categories you may want to consider.

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.

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 co-pays 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.

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, be sure to note the taxes being taken out of your paycheck. 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 investments, and maybe half of your expenses.

• On day three you could finish adding data 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 a less expensive car insurance fee? 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 help improve your credit score in the long-term.

Recommended: 15 Causes of Overspending

Line Item Budget Example

A line item budget example can be as simple as using an Excel or Google Sheets spreadsheet. You could even make your own basic line item budget template, if you prefer.

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.

That will allow you to see your income and cash that is flowing out. To the right of that column of numbers, you can have last month’s expenses, if you like. Some people find it helpful to put their projected income and spending vs. actual income and spending in the other vertical columns. Then they can assess if they are in debt or have excess funds.

You can customize the organization to best suit your needs.

Alternatives to a Line Item Budget

Though simple and intuitive in nature, line item budgets aren’t a perfect fit for everyone. However, there are many different budgeting methods to choose from to fit unique lifestyle needs. A few popular methods are:

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 savings. 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.

Because spending isn’t tracked on a granular level, spend tracking apps and services can be used to help avoid overspending in any one category.

Recommended: Check out the 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, this approach 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 pre-scheduled bank transfers 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.

Enter SoFi’s Checking and Savings, an account that allows you to review your weekly spending in your dashboard within the SoFi app. With it, you can save, spend, and earn all in one convenient place, which can make staying on budget easier. What’s more, this online account pays a competitive annual percentage yield (APY) while charging no account fees, which can help your money grow faster.

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 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.

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. As time passes, each vertical column can represent a month of the year. Some people like to enter and compare projected earning, spending, and saving vs. actual; it’s up to you if that suits your needs.

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Mar

2023

21 Facts About Debit Cards You May Not Know

By Jacqueline DeMarco | Budgeting & Goals, Family Finances, money | Comments Off

You may have a debit card in your wallet and even swipe it multiple times a day. But did you ever take a moment to think about what an impressive invention that little rectangle of plastic actually is?

Debit cards offer an extremely convenient payment method (you may not even need to swipe it in this tap-and-go era) and are a relatively recent addition to banking services.

To learn more about these handy payment cards, keep reading for 21 debit card facts.

21 Interesting Debit Card Facts

Want to learn some interesting facts about debit cards? These are debit card facts that may surprise you.

1. Over 80% of Americans Have a Debit Card

Recent surveys reveal that over 83% of Americans have a debit card. That’s a lot of plastic! Many people have multiple debit cards. One report noted that there were over 6 billion debit cards in the U.S.

2. Most Debit Cards Have a Familiar Logo

Many debit cards feature the Mastercard or Visa logo, even if your bank sends you the card. This means those two familiar card issuers’ networks can help support the transaction.

Over 73% of Americans have a debit card from Visa; almost 60% have one from Mastercard. (Yes, those numbers add up to more than 100%, indicating that many people have multiple cards.)

3. Debit Cards Followed Store Credit

Who came up with the ingenious idea for a debit card? Store cards likely sparked the idea. Before debit and credit cards launched, if someone didn’t want to make payments in cash (or couldn’t afford to), they often had the option to use store credit. U.S. banks actually got the idea for debit cards from the store credit system in the 1940s.

Quick Money 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.

4. Magnetic Stripes Debuted in 1967

Magnetic stripes quickly became the preferred method for making plastic cards machine-readable in 1967. In early 1971, the American Bankers Association (ABA) endorsed the magnetic stripe — also known as the magstripe — to make plastic debit cards readable on a machine. This helped usher in a new era of convenience, although debit cards were originally better suited for withdrawing cash from an ATM than shopping.

5. Magnetic Stripes Are on the Decline

Nowadays, magnetic stripes are becoming less popular as new technologies evolve. By 2033, Mastercard doesn’t plan to use magnetic stripes on their debit or credit cards at all anymore.

6. Kids Can Get Debit Cards

While 18 is usually the minimum age to open a bank account, some kids’ accounts come with debit cards. Chase offers a First Banking account with a debit card for those ages six to 17, and Greenlight and GoHenry also offer debit cards for young customers.

7. Metal Debit Cards Exist

While many of us are accustomed to plastic debit cards, some issuers make them out of metal. For instance, N26, an online bank overseas, offers premium banking clients a card made of 18 grams of stainless steel, in three different metallic shades.

8. Some Debit Cards Are Going Green

Starting in 2023, Bank of America is beginning to use recycled plastic for all of its debit and credit cards. This move is aimed to help reduce the amount of single-use plastics by 235 tons. It’s a good example of green banking at work.

9. Most People Have Daily Debit-Card Spending Limits

There may be exceptions to the rule, but most debit cards come with limits about how much you can swipe per day. These limits are typically between $400 and $25,000 per day. Check your agreement with your bank to find your financial ceiling.

10. The Public Resisted Debit Cards Initially

At first, people said a big “thanks, but no thanks” to debit cards. In 1972, a report commissioned by the Federal Reserve Bank in Atlanta found that the majority of the public didn’t support any kind of electronic payments system. Times have certainly changed.

11. You Can Customize the Photo on Your Debit Card

Do you like expressing yourself? Some financial institutions will let you put the photo of your choice on your debit card. For instance, Bank of America shows an example of putting an image of a furbaby on their debit card.

12. A West Coast Bank Released the First Debit Card

Debit cards made their debut in 1978, thanks to the First National Bank of Seattle. However, some say an early forerunner was introduced in the 1960s by the Bank of Delaware and should get credit as the true pioneer. Either way, it shows debit cards have been around for a while.

13. Debit Cards May Carry Fees

While you won’t rack up debt and charges the way you could with a credit card, not all debit card transactions are free. For instance, if you use your debit card to get cash at an out-of-network ATM, you might get hit with a charge. Or if you overdraw your account, you might get a fee similar to those incurred when you bounce a check. Check your account agreement or ask a bank rep for details.

14. UK Banned All Debit Card Surcharges

Originally, debit cards in the UK came with fees, such as processing charges. However, in 2018, the UK government banned any surcharges on debit cards which makes it possible to use them for a transaction of any size, even super small ones, without fees being added.

15. Chip Technology Leads to Contactless Payments

During the pandemic, contactless payments surged in popularity. This was made possible by chip technology. With chip technology, consumers can simply hold their debit card over a payment terminal to make a payment. There’s less risk of passing germs around via touch.

16. Chip Technology Doesn’t Require a PIN

Not only does chip technology make it possible to skip entering a debit card physically into the payment terminal, the use of a PIN may not be required.

17. You Can Be Liable for Charges on a Lost Debit Card

There’s a downside to the convenience of debit cards. If yours is lost or stolen, you’ll be liable for:

• $0 if reported immediately and before any unauthorized charges are made

• Up to $50 if you notify the bank within two days

• Up to $500 if you notify the bank within 60 days after your statement was issued showing unauthorized usage

• Unlimited if you don’t notify the bank within 60 days of the statement showing unauthorized usage being issued.

18. Some Debit Cards Can Be Used Worldwide

Having a debit card from a well-known issuer like Mastercard or Visa has some benefits. For example, because these two card issuers are so popular, they are accepted as a form of payment in most countries. This can make payments much easier for global travelers. That said, be wary of possible international conversion fees (possibly 1% to 3% of the amount you swipe) plus foreign ATM usage charges.

19. There Were Three Major Players Until 2002

Until 2002, there were three main players in the debit card space. Alongside Mastercard and Visa, Europay was the other big player. In 2002, Europay merged with Mastercard.

20. Debit Cards Are More Popular than Credit Cards

Consumers have the option to use debit cards or credit cards if they don’t want to have cash on them when shopping or if they are shopping online. In one recent study, debit cards were found to be used almost twice as often as credit cards.

21. People Spend Less With Debit Than Credit Cards

While people may use debit cards more often than credit cards, they tend to spend more when using credit cards (almost 30% more), whether purchasing in person or shopping online.

The Takeaway

There’s a whole array of interesting facts about debit cards, from how they were developed to how they are made to how they can be used. What may stand out most among these 21 debit card facts is just how far payment technology has come in recent years and how much more convenient purchasing has become.

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

Are debit cards more popular than credit cards?

Debit cards tend to be more popular than credit cards. Recent research found that consumers use debit cards almost twice as much as credit cards. However, when they do use credit cards, consumers typically tend to spend almost 30% more than they do with a debit card.

What is the difference between debit and prepaid cards?

The main difference between debit and prepaid cards is where the funds for payment come from. A debit card is linked to a bank account, but a prepaid card is not. Consumers need to load money onto a prepaid card before they can use it. Once they do so, that amount acts as their spending limit.

What debit card is the most popular?

Most banks offer their own debit card, but the majority of these are backed by one of two issuers, Visa or Mastercard. Currently, Visa is the more popular issuer.

What debit card fact is the most useful?

The most useful debit card fact to know may be either that you have a daily spending limit or that you must report a lost or stolen debit card ASAP to avoid being liable for any unauthorized usage. The longer you wait, the more you might owe.

Photo credit: iStock/Daisy-Daisy

Mar

2023

23 Ways to Cut Back on Spending and Expenses

By Kelly Boyer Sagert | Budgeting & Goals | No Comments

If you’re like most people, you’ve probably wondered how you can cut back on spending. Maybe you tend to drop a lot of dollars on impulse purchases as you go through a typical week, or perhaps you are just feeling the pain of living during times of high inflation. Or maybe it’s a combination of both.

If you are looking for some relatively painless ways to spend less, read on. There are all kinds of ways to slash expenses that don’t require much, or any, sacrifice. These can include trimming back some of your recurring bills to tweaking your typical shopping habits. You’ll even learn smart ways to avoid the temptations that can lead to overspending.

Ready to improve your cash flow? Here are 23 simple ideas for how to cut back on spending.

23 Ways to Cut Down Your Spending

Ready to start saving money? Pick and choose among these ideas to find the tips that suit you best.

1. Canceling Subscriptions

There’s a decent chance that you are leaking money on a subscription service that you are not getting much value from.

Scan your checking account and credit card statements for things you’re paying for on a recurring basis and consider canceling anything you don’t really need.

That might mean magazines or newspapers you rarely read, online software you aren’t using, and/or shopping services and other memberships that aren’t worth it anymore.

If you’re looking to save money faster, you might cut down on multiples. For instance, do you really need membership at two different yoga studios? Just one might be fine.

2. Cutting the Cord

If you’re paying a high price for cable each month, you may want to think about switching to a streaming TV service. This budget-cutting move could save $40 to nearly $100 per month.

Just don’t let that get out of hand. You likely won’t save on streaming services if you sign up for Netflix, HBOMax, Hulu, and a couple of others.

If you are not quite ready to cut the cord, you may still be able to shrink this monthly line item just by calling your cable service provider and asking for a better deal. Research better deals available elsewhere and cite those when talking to a customer service representative.

3. Revisiting Your Cell Phone Plan

Another way to significantly cut monthly spending is to take a closer look at what you’re paying for your cell phone service and exactly what you are getting.

You can then compare this with the competition and, if you see a better deal, call your provider and see if they will match it.

If you don’t see much wiggle room, you might consider going with one of the smaller MVNOs (mobile virtual network operators) that lease coverage from the major carriers, such as Cricket Wireless, Metro, and Visible.

Or, if you just need a basic plan, you can look into Consumer Cellular or H2O Wireless, which often offer affordable cell phone plans for individuals.

Before switching carriers, however, it’s a good idea to make sure that the carrier has strong coverage in your area. Saving money is great, but may not be worth it if you don’t get quality service.

4. Getting Into the Meal-Planning Habit

An easy way to cut back on food spending is to make a meal plan and a firm shopping list before you go to the grocery store. To cut spending even more, you can check your store’s weekly ads and plan meals around what’s on sale that week.

This can be as simple as picking a few basic recipes that you want to make throughout the week. You may want to try a meal planning app, such as Mealime and Yummly, among others.

Not only will this help you avoid impulse buys at the supermarket and ordering takeout, but you will likely be able to buy in bulk, cook once and enjoy the leftovers, and otherwise streamline your budget and your life.

5. Actively Paying Down Credit Cards

If you’re currently only paying the minimum on your credit cards, a big chunk of your payment is likely going toward interest and you may be doing little to chip away at the principal.

Doing this every month can increase the amount of time you’re in debt, and increase the total amount of interest you’ll end up paying.

If you can swing it, consider putting more than the minimum payment towards your bill each month. This can help you pay off credit cards faster, so you’re not spending so much money on interest.

6. Renewing Your Library Card

How else to cut back on spending? If you’re a reader and love books, a fun and easy way to cut your spending is to fish out that old library card, or if you don’t have one, stop into your local branch and apply for a card.

The library can be a great resource for more than books. For example, you can often access magazines, newspapers, DVDs, music, as well as free passes to local museums. There are also services on your computer and phone that let you stream digital media; check out Kanopy and Hoopla, for instance.

7. Carrying Cash

There’s something about using plastic that can make it feel like you are not really spending money.

That’s why an effective way to cut back on spending is to take out enough cash at the beginning of the week to cover your daily expenses for that week and then leaving your credit and debit cards at home.

Or, you might try the envelope system, where you designate an envelope for each expense category, then put enough cash inside to get you through the week. When you run out, you can’t spend anymore.

Using cash can also help you become more aware of and intentional with your purchases. You see exactly what you are spending as you go through your day.

8. Eliminating Bank Fees

How to cut back on expenses can involve taking a look at just what fees your bank may be charging for your checking and savings accounts.

They might include service fees, maintenance fees, ATM fees (if you don’t use their in-network machines), minimum balance fees, overdraft or insufficient funds fees, and/or transaction fees. And all those charges can eat away at your funds.

You may be able to cut your monthly spending by switching to a less expensive bank, or going with an online-only financial institution. When it comes to online vs. traditional banks, the former tend to offer low or no fees.

9. Clicking Unsubscribe

Do your favorite retailers fill your inbox with tempting sales alerts, whether that’s 75% off, buy-one-get-one offers, or free shipping? One effective way to cut back on spending is to get off their e-mailing lists.

Sales and great deals are happening all the time, but generally the best time to purchase something is when you really need it.

If the enticement to spend doesn’t constantly land in your inbox, you’ll be less likely to click through and buy.

10. Consider a 30-Day Spending Freeze

One quick way to change your spending habits is to put yourself on a 30-day nonessential spending freeze.

Or, if that seems too tall an order, you might pick a category (such as clothing or wine) to stop spending on for a month.

A spending freeze can immediately pay off, by leaving more money in the bank (or fewer bills) at the end of the month. And, once you start seeing the payoff of not giving in to impulse buying, you may find yourself spending less even after the freeze is over.

11. Keeping Your Tires Properly Inflated

A simple way to cut weekly spending on gas is to stop into a local station that offers free air once a month, and do a quick air pressure check on your car tires. If they aren’t inflated to the optimal PSI, you’ll want to fill each one to the maximum recommended amount (as stated on the tire or in your manual).

Here’s why: You can improve your vehicle’s gas mileage by an average of 0.6% and up to 3% with proper tire pressure.

Recommended: How to Save Money on Gas

12. Working Out at Home

Instead of paying for a monthly gym membership, consider free exercise options, such as going for a walk, run, or bike ride around your neighborhood.

You can also find at-home cardio routines, resistance workouts, yoga classes and more for free online (YouTube is a great source). If you’re missing the social aspect of the gym, you always invite friends or neighbors over to work out with you.

There are also a number of free workout apps that can help keep you motivated, such as 7 Minute Workout, Freeletics, and Nike Training Club, among others.

13. Saving Before You Spend

One of the best ways to cut monthly spending is to siphon off some savings before you even have a chance to spend it. Many experts suggest 20% of your take-home pay, as is outlined in the 50/30/20 budget rule.

You can do this by automating your savings. This can mean you set up an automatic transfer from checking to put money in a high-yield savings account on the same day each month, possibly right after your paycheck gets deposited.

And it’s fine to start small. Whatever the amount, since it’s happening every month, it will build up before you know it.

14. Turning Clutter Into Cash

If you’re thinking of hiring a company to haul away stuff you no longer want or need, think twice. It can be easy to sell your unwanted items. There are dozens of places to sell your stuff, thanks to sites such as ThredUp, Poshmark, eBay, and Facebook Marketplace. Or you could host a yard or stoop sale (just make sure to check if you need a permit).

15. Reviewing Home and Auto Insurance

Here’s another way to cut back on spending: Review your insurance payments. You may be able to considerably cut your costs by taking some time to shop around and compare prices.

Many insurance companies also offer a discount if you bundle your homeowners and auto policies together. If you currently use two separate insurers, it can be worth asking what kind of discount each would offer if you bundled the policies together.

And you don’t have to wait until your current policy is up for renewal to change insurance providers. With most companies, you can leave at any time without having to pay for the remainder of the policy. If you find a better deal, you can also give your current insurer a chance to match their quote.

16. Drinking More Water

Getting plenty of water can not only help you stay healthy, but it can also help you cut back on spending.

When you’re food shopping, for instance, you can skip over sodas and even bottled water in exchange for free tap water at home. (If you don’t like the taste of your tap water, consider getting a pitcher with a water filter.) Dining out? You can save by ordering water instead of pricey beverages.

17. Using Apps to Earn Cash Back

You can cut your spending even after you’ve made your purchases by keeping track of your receipts and using a cash back app, such as Ibotta, Fetch Rewards, or Shopkick.

While each app works a little differently, you can generally use cash back apps to download digital coupons, purchase specific items, and then scan receipts to claim your cash back.

You may also be able to add your store loyalty card number and avoid the need to submit a receipt.

18. Shutting off the Lights

A super easy way to cut monthly spending is to simply turn off the lights whenever you leave a room or leave your home. You may not notice the impact immediately, but the savings on energy costs can add up over time.

It can also be helpful to unplug any unused electronics and chargers that aren’t in use.

19. Cutting Back on Bigger Expenses

If you’re looking to have more money after paying bills, you may want to address the biggest expenses in your overall budget. For instance, in terms of housing, you might consider downsizing, moving to a more affordable area, or getting a roommate. This could significantly reduce your monthly expenses.

Also take a look at car payments, if you have them. If they account for more than 10% of your take-home pay, consider trading in your car for one with a lower monthly payment. Or, you might want to think about buying a less expensive vehicle with cash.

20. Unfollowing Social Media Influencers Pushing Products

If you, like many people, shop from social media because you see new products being promoted, you may want to unfollow those accounts. That FOMO (fear of missing out) feeling can be powerful when you see an influencer pushing new kitchen gadgets, comfy socks, or other products. By eliminating that temptation, you can cut back on spending.

21. Uninstalling Shopping Apps on Your Phone

Shopping apps can be hugely convenient; maybe too convenient. If you find that apps encourage you to one-click your way to too many products and credit card charges, delete them. You can always reinstall them later if you have more wiggle room in your budget.

22. Buying Used and Second-Hand

A fun and frugal way to shop can be buying used and second-hand. You might hit a local thrift store for clothes, cookware, and other items. Check out a local library’s book sale for new reading material, and if you need a new kitchen appliance, see what major retailers have in their “open box” section (items that were returned with minimal or no use or perhaps floor models).

23. Do Some Bulk Buying

Check out the deals to be had by buying in bulk. That can mean joining a wholesale club, like Costco, or shopping at a local grocery store that has grains, nuts, and pasta sold from large containers to help you save at the cash register.

If you don’t have room to store, say, a pack of 12 cereal boxes or 24 rolls of paper towel, split purchases with a friend or two. You can all cut back on expenses that way.

The Takeaway

Cutting back on spending doesn’t have to involve a complete overhaul of your lifestyle. You can focus on lowering your recurring expenses (housing, insurance, utilities) and also cut back on unnecessary spending, especially impulse buys. If you pay with cash, delete shopping apps, and unsubscribe to marketing emails, you may find there’s a lot more breathing room in your budget.

To make it easier to stay on top of your spending, consider opening an online bank account with SoFi. With SoFi Checking and Savings, you can easily see your weekly spending in our app, plus you’ll earn a competitive annual percentage yield (APY) and pay no account fees, both of which can help your money grow faster!

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 do I cut back on unnecessary spending?

Often, a mix of two tactics can help you cut back on unnecessary spending. First, look at how to reduce recurring basic bills, such as dropping a streaming channel or two, lowering your car insurance, and avoiding excessive banking fees. Next, tackle daily spending. You might reduce your daily latte habit, and look for free concerts and museum nights in your area vs. pricey entertainment. Also: Don’t let yourself give in to marketing ploys, like “buy one, get one” and free shipping, which can encourage you to overspend.

How can I drastically cut my spending?

To drastically cut your spending, try creating and sticking to a budget and using cash instead of credit so you are less likely to ring up debt. Also consider deleting shopping apps, emails, and influencer accounts that encourage you to shop, and putting yourself on a one-month shopping freeze, meaning no purchases except true necessities.

How do I mentally stop spending money?

If you are overspending, think about your triggers. Do you shop when bored or as a weekend activity? Find other ways to fill your time, whether that means reading or taking up a sport. You might also try the 30-day rule, which means that if there’s something you feel you must have, you might make a note of it in your calendar for 30 days in the future. Don’t buy it unless 30 days later you still feel it’s vital. Such feelings often dissipate over time.

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® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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.

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SOBK0223039

Mar

2023

7 Different Types of Budgeting Methods

By Janet Siroto | Budgeting & Goals, money | No Comments

Budgets come in all shapes and sizes, from the old-fashioned, “write everything you spend down” kind to ones that use streamlined apps. Somewhere out there, there is likely at least one that can help you gain insight into your finances and take control of your money. Once a budget is up and running smoothly, it can help you manage your spending and reach your savings goals, too.

You can start finding the right one for you by researching different types of budgeting. It’s even possible to pair multiple strategies together or to “mix and match” ideas to find the method that matches your needs and budgetary style.

Everyone’s financial situation is different, and this list is in no way exhaustive. That said, however, here is a deeper look at seven popular budgeting methods that you may want to check out.

1. Line-Item Budget

A line-item budget is what you may first imagine when you think of a “typical” type of budgeting. You know the kind: a spreadsheet that lists out each expense by category. The goal with a line-item budget is to keep track of monthly expenditures so they don’t exceed spending targets.

Often, you’ll hear the term “line-item budgeting” in terms of business accounting. Businesses use this technique to track cash inflows and outflows. In your own personal budget, it might help you to do the same.

You can set up a line-item budget using a spreadsheet, whether you like to use pencil and paper or any of the online programs available, like doing a budget in Excel. You list each expense, or category of expenses, over a given time period such as a month or a year. As you progress throughout the year, you can compare current expenses to past expenses to make sure you’re on track.

Because a line-item budget is mostly used to track spending and not to prioritize saving, don’t forget to build a savings line-item into your list of expenditures.

Pros:

• For new budgeters, this method is relatively easy to create and intuitive.

• Because a line-item budget is detailed, it can be a good starting place for tracking expenses and can be helpful for those who require more control over their spending.

Cons:

• Line-item budgets can be a bit rigid. They may not allow the flexibility to track irregular expenses. It will be up to the budgeter to make adjustments.

• Because line-item budgets are simply a tracking methodology, they do not necessarily help the budgeter to reach savings and other financial goals.

• Because a line-item budget is relatively detailed, it will be more time-intensive (and potentially frustrating) than some of the other methods.

2. Proportional Budgets

Proportional budgeting is a system where you divide up your monthly income into three categories, based on percentage. One pool of money is allocated towards “needs,” another towards “wants,” and lastly, and perhaps most importantly, towards savings and other money goals.

• “Needs” are classified as spending that is required to stay alive and employed, such as housing, food, transportation to work, and insurance.

• “Wants” are anything that you buy for personal enjoyment, such as eating out, traveling, and shopping for clothes (beyond basic needs).

• The “savings” category encompasses financial goals like building an emergency fund, retirement, or paying down debt.

It is generally easiest to do this calculation with after-tax figures — also known as your take-home pay. There’s an example of one popular proportional budget below, the 50/30/20 budget, but you can set the amounts per category as you see fit.

Pros:

• Proportional budgets can help the saver think about the big picture.

• This is a simple type of budgeting that doesn’t get bogged down with minutiae. Thanks to its simplicity, it may help some budgeters stick with it.

• Because proportional budgets focus on making room for saving, this budgeting method may work well for those who want to save money but don’t want to count every penny of spending.

Cons:

• Proportional budgeting provides an end goal, but not necessarily a path to arrive there.

• It might not work for someone who needs more help setting targets and identifying problem areas in their spending and/or saving.

3. Paying Yourself First

This no-nonsense budget revolves around one premise: Pay yourself first, and whatever happens with the rest isn’t as important. “Paying yourself first” simply means allocating money towards savings or other financial goals.

Say that you’ve decided that you want to save 25% of your take-home income. You set up an automatic contribution of 15% of your income to go towards retirement, 5% to a down payment fund, and 5% to a travel fund. For the remaining 75%, you’d spend as you wish.

Pros:

• This budgeting method prioritizes saving, which is the desired end-goal for many people. It can help ensure that you stay on track, and there’s money you have after paying bills that can go toward future goals.

• There’s no need to track all expenses, which can make this budget appealingly fast and easy for some people.

Cons:

• This strategy probably won’t work for folks who are not yet ready to prioritize saving (such as those with too much debt to stash cash away for the future).

• Some people may need a tracking technique with more insight into spending in order to save, such as a budgeting app.

• There is a risk of overdrafting if too much is allocated towards saving and not enough towards spending. This budgeting strategy should only be used by those who are not at risk of having a negative bank balance.

4. Envelope Budget

Here’s a different type of budgeting to consider: The envelope budget, a hands-on way to divvy up money and control spending. With the envelope budget, you have a set amount of cash to spend in each budget category per month. The pools of money are kept separate in different envelopes — hence the name.

The goal is to make the cash last all month. Once the envelope is empty, you’ll either be done for the month or will need to take cash out of a different envelope to pay for an expense.

How it works:

• The first step to building an envelope budget is to determine the amount of after-tax income you have each month.

• Next, you’d determine how much you’d like to allocate to each category of spending, such as “entertainment” and “groceries.”

• After that’s done, you’d take cash out from the bank to keep in each envelope. No need to take all your envelopes full of cash with you every day — you can just take what you need or adapt the system to use your debit card, keeping careful track of your spending.

Pros:

• Some studies show that people spend less when they use cash.

• This budgeting method is a tangible, tactile plan to spend only the money you have available.

Cons:

• The budget itself does not address saving.

• Going to the bank each month to get cash can require extra time and effort.

5. Zero-Sum Budgeting

The idea here is to spend every dollar that you have. No, this doesn’t mean spend every dollar on whatever the heck you want. Instead, you would assign a specific purpose to each dollar that you earn, whether it’s for savings or discretionary spending.

It’s called a zero-sum budget because after you’ve picked a job for each dollar, you’ll end with zero leftover dollars. The theory behind the budgeting strategy is that dollars without a job will be spent carelessly.

To create a zero-sum budget:

• Start with your monthly after-tax income.

• Assign dollars to each of your non-negotiable bills, such as rent, insurance, student loan payments, and groceries.

• Assess how much money you have left for discretionary spending and saving.

• Then assign where your remaining money is going to go. Specificity can help: For example, say “dining out” and “Netflix” instead of “entertainment.” Say “retirement savings” and “extra payments towards debt” instead of “saving.”

Pros:

• This budget requires you to think critically about every dollar you spend.

• Done right, zero-sum budgeting makes room for savings goals.

Cons:

• Because you are breaking spending down into small categories and assigning a dollar value, this budget requires more effort than some of the other budgeting systems.

6. 50/30/20 Budget

The book, “All Your Worth” by Sen. Elizabeth Warren and Amelia Warren-Tyagi popularized this variation on proportional budgeting, which calls for a 50/30/20 budget. Here’s the breakdown:

• With your after-tax dollars, allocate 50% to “needs,” or expenses like housing, utilities, and food.

• Put 30% to “wants,” which would include things like dining out, travel, premium streaming services, or some new artwork for your home’s walls.

• The remaining 20% of monthly income has an important job: It goes toward savings goals.

Here’s how the benefits and drawbacks of this budgeting method stack up.

Pros:

• This budget gives clear but flexible spending guidelines.

• The 50/30/20 rule definitely emphasizes saving, which can be important to achieving short- and long-term goals.

Cons:

• This budgeting system may not be detailed enough for some people, since it allocates money in broad strokes.

• The 50/30/20 rule may not help identify areas of overspending, which can be an important aim for some budgeters.

7. 60 40 Budget

This is a different type of budgeting that also uses a proportional approach. The 60 40 budget is a very general way of managing your money. Here are this budgeting system’s principles:

• The 60 represents 60% of your after-tax income, which is allocated towards the “musts” in life: food, shelter, utilities, debt, and other basic needs.

• The 40 represents the rest of your income, to be allocated as you see fit. Some people like to subdivide this quantity into smaller buckets, such as 20% for non-essential spending (entertainment, dining out, etc.) and 20% for savings.

Here are the upsides and downsides of this plan:

Pros:

• This budget provides a good deal of freedom and flexibility.

• The simplicity of the plan can be a positive for people who don’t like complicated, time-consuming budgets.

Cons:

• This budget rule may not provide enough guidance for those who really need to take control of their finances. For instance, it doesn’t offer a detailed way to track and rein in overspending.

• The 60 40 plan leaves savings allocation up to the individual. That means some people could say they can’t afford to save and thereby sidestep this important path to achieving financial security.

Sticking to a Budget

You now have lots of ideas on different types of budgeting strategies that you can utilize. But next is the hard part — putting theory into practice. Here are some tips to consider as you embark on your budgeting journey:

Overcoming Mental Barriers

Having financial discipline and sticking to a budget is difficult. If you are struggling with discipline, you might try these tactics:

• Start by acknowledging the issue. Out loud. You can only fix a problem if it’s been identified.

• Create space for yourself to succeed. For example, put a 20-minute block on your calendar to look over your budget every week.

• Try anchoring the task of budgeting to another activity that you either enjoy (making coffee on Sunday morning). This way, you’ll start to associate the two tasks and think about them in tandem.

Setting Realistic Expectations

A common pitfall when setting a budget is to be too restrictive in your spending targets right out of the gate.

While it’s great to have big goals, it is unlikely that you’ll make sweeping changes in your spending just because you set lofty targets. And in fact, missing big targets could be disheartening.

• Instead, try to set yourself up for success by choosing realistic targets for the upcoming months. Increase or decrease those targets as you are able to amend your behavior.

• Celebrate victories as they come. Pat yourself on the back for meeting a goal, and know that success in budgeting comes from making everyday adjustments to behavior.

Considering Irregular Expenses

No matter what methodology of budgeting you choose, there will always be the issue of irregular expenses. Irregular expenses can be both expected, like annual memberships or holiday gifts, and unexpected, like car repairs. Some ideas:

• Find a place for the irregular expenses in your budget as you do for regular monthly expenses.

• Create a list of possible and expected annual expenses even before you build out your monthly budget. That way, you can spread out the cost of large and irregular budget items across months.

• It might also be helpful to build up an emergency fund to help cover for unexpected costs.

Staying Out of the Weeds

Don’t get overwhelmed by the details when budgeting. Some advice:

• Avoid strategies that feel complicated or require hours of effort. You need a budget you will stick with, and that is likely one that suits your style and feels simple.

• Test-drive a couple of budgets to see which suits you best.

• Recognize that a budget is never going to be perfect. And that’s okay! If you are tracking every last dollar and go over in a category or two, it may feel like a failure when it’s not.

Leveraging Technology

For some folks, a pen and paper method of tracking spending and keeping a budget will work best. Others may find this challenging, given how much of our lives have been moved to the computer. If so, you might consider the ways that technology can aid you in creating and sticking to a budget.

There are plenty of apps that can help you with budgeting and make tracking spending and saving easier. There’s a good chance that your financial institution offers one.

3 Great Benefits of Direct Deposit

It’s Faster

As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

It’s Like Clockwork

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

It’s Secure

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

The Takeaway

As you review different types of budget plans and hunt for an easy way to track your spending, take a look at what a SoFi Checking and Savings account can offer. You can easily see your spending on our app’s dashboard, plus there are Vaults and Roundups to help you save. You’ll also enjoy a competitive annual percentage yield (APY) and no account fees, which can boost your finances, too.

SoFi Checking and Savings: The smart, simple way to help your money grow.

FAQ

What’s the best budget plan?

The best budget plan is one that works for you. In order to choose the best fit, consider your goals and needs. Some people want to control their spending and like a really detailed budget, such as a line-item budget. Other people are more focused on making sure they allocate funds towards savings, in which case a 50/30/20 rule could be a good option.

What are the simplest way to budget?

A basic budget typically requires the following: knowing your take-home pay, evaluating your “musts” (spending on basics like housing, food, and debt), tracking your spending on “wants” (dining out, clothes, travel), and allocating for savings.

What is the 50/30/20 rule budget?

In this popular proportional budget strategy, you divide your take-home pay into three buckets: 50% for the “needs” in your life (housing, utilities, food, debt); 30% for the “wants” (dining out, shopping for clothes and other items, entertainment); and 20% for savings (for, say, your emergency fund or retirement).

Mar

2023

12 Tips for the Cheapest Way to Rent a Car

By Anna Davies | Budgeting & Goals, money | Comments Off

There’s nothing like the convenience and freedom of having a car at your disposal when traveling, but it can definitely add to the cost of a trip.

What’s more, it can be hard to know just how much a car rental will add to the bottom line because the daily rate you see advertised may wind up not reflecting the amount you will pay once surcharges are added to the bill. Additional insurance, mileage, and other fees can really add up.

But with some smart strategies, you can control the costs of renting a car. These include uncovering special offers and deals, knowing which day of the week is cheapest to rent a car, and avoiding those pricey add-ons that you don’t truly need.

Here, you’ll learn some of the best ways to rent a car for less.

12 Tips to Save Money on Car Rentals

These tactics can help you save money the next time you rent some wheels while traveling.

1. Understanding All Those Add-On Costs

At first glance, advertised deals on car rentals can seem inexpensive.

The sticker shock may come once you’re actually at the counter. That’s because, in addition to the base rate of a rental car, costs may include:

• Additional driver cost. Are you going to be the only driver or will you be sharing driving duties with someone else? If someone else will be driving, it’s a good idea to add them to the rental to potentially avoid liability if something were to happen if someone else were behind the wheel.

• Fuel Purchase Option (FPO). This option allows a renter to pay for the full tank of gas at the time of rental and return the tank empty. It may be cheaper to fill the tank yourself. However, if you are the kind of person who likely returns a car close to the deadline and is racing to catch a flight, the FPO can save time and might be worth it.

• Fuel and Service. If you forgo the FPO and don’t return the car with a full tank, you will likely be charged for the cost of fuel, as well as a fee for the refueling service.

• Insurance. Insurance can include Loss Damage Waiver, Liability Insurance, Personal Accident Insurance, and Personal Effects Coverage. This insurance may or may not be necessary, depending on your existing car insurance coverage or the possibility of coverage via the credit card used for the reservation.

• Premium Emergency Roadside Service. This service can provide roadside assistance in the event of an emergency.

• Additional fees and taxes. Fees and taxes are not optional and can add up. Taxes and fees are dependent on where you rent your vehicle (different states have different taxes). There is typically an additional fee for cars rented at an airport or a hotel.

• Toll fees. This typically includes not only the cost of driving on toll roads, but also convenience fees for having a transponder included in your rental to seamlessly pay those charges.

Recommended: How to Save Money on Gas

2. Considering Your Insurance Coverage

One way to get the cheapest possible deal on a rental car is to make sure you’re not doubling up on insurance coverage.

Find out what your car insurance covers. It may cover collision damage, and your homeowner’s or renter’s insurance may cover personal items that could be stolen from your vehicle.

But the disadvantage would be that if the worst were to happen, you would need to file a claim through your personal insurance, which could cause your rate to increase.

As noted above, your credit card’s car rental coverage may be a money-saving option. This can be a good travel hack that allows you to waive the insurance offerings from a rental car company yet not need to use your personal car insurance to file a claim.

Some pointers:

• If you are renting a car with a credit card, as many people do, find out if your card has the coverage you need. You can check your card’s benefits to see if it includes primary car rental coverage. If it does, it’s a good idea to read the fine print for exactly what the insurance covers, as well as any coverage limits.

• Calling your credit card company, as well as your car and home insurance companies, with any questions can give you a full picture of whether or not added car rental insurance is necessary for your situation.

You may also be able to waive roadside service if you have a membership to another roadside assistance company.

3. Looking Beyond Airports and Hotels

Because of the fees associated with renting from an airport or hotel — which can add as much as 20% to your total bill — it may be cheaper to rent from an outpost within the city.

The flip side is that it’s less convenient, and you may need to take a taxi or use a rideshare service to get to and from the car rental agency.

Comparing costs of rentals both at the airport and within 20 miles (adding in the cost of getting to that other location) can help you assess whether giving up some convenience will pay off.

4. Signing Up For Loyalty Programs

Before you rent a car, it can be helpful to sign up for several loyalty programs across rental companies. (To avoid junk mail, consider creating a separate email address to register for loyalty programs.)

Some rental car programs will give you an automatic percentage off just for being a member. Other rental car programs may give additional perks, such as upgrades or separate lines at the agency, which can help you avoid the hassle.

5. Using Your Memberships

There are various ways to snag a reduced price on your car rental, including working your memberships.

Many big-box stores and wholesale clubs have ties with rental car companies that can net you significant discounts if you’re a member. Auto clubs (like AAA), trade associations, unions, as well as AARP, may also offer rental car perks and discounts, including insurance on rental cars.

Shop around, and don’t be surprised if the most enticing deals emerge from an unexpected source.

6. Booking Early

Reserving a car as soon as you know your travel dates can be a money-wise move. Here’s why: Rental car companies often keep a limited number of cars in their fleets. As a result, they need to estimate demand several weeks ahead of time. To encourage customers to book early and help them manage their pool of vehicles, they may offer lower rates when you reserve in advance vs. last-minute.

Booking a car in advance can help you not only get a better deal but also help to ensure you’ll get the car you want. This can help you avoid paying for a Suburban when all you need is an economy car.

If you do book early, consider searching prices again right before your trip.

• If you find a better deal last-minute, you may be able to request a price adjustment from your original agency.

• Or you may be able to cancel your current reservation and book a cheaper reservation at another company.

Before you book, you may want to read through the cancellation policy and make sure there is no penalty for canceling.

7. Shifting Your Dates

Prices of rental cars can fluctuate based on demand, and these fluctuations can sometimes be significant.

Of course, you can’t always change the days of your trip. But as a frugal traveler, you may want to weigh the cost-benefit of not having a rental car for a few days to score a lower rate.You could reap significant savings.

The cheapest day to rent a car can vary depending on market demand, but you may see lower rates on Fridays and Saturdays, and the highest rates on Sundays, Mondays and Tuesdays.

8. Noting Any Damage Before You Drive Away

You may be eager to get on the road, but it’s a good idea to do your due diligence and make sure you point out and/or document any damage to the car when you receive it. Consider the following:

• No matter how minor a scratch or ding, you could get charged for the damage unless you account for it on your rental agreement prior to driving away.

• You may be asked to mark damage on the car rental agreement, but you may also want to take photos as well. That way, there is less likely to be any dispute about the extent of any damage or markings.

9. Paying Tolls in Cash if You Can

Rental car companies commonly tack on fees for using their transponder (the gizmo that lets you whiz past toll booths), in addition to the toll itself.

You may also have to pay a daily convenience fee for having the transponder even if you don’t use it.

To avoid using the rental company’s transponder, try these hacks:

• Pay cash at tolls that still accept it. For cashless tolls, you may be able to pay online later.

• It may also be possible to use your own transponder. Some transponders (such as E-ZPass) can be used in multiple states, so it could be worth doing your research beforehand to see if your personal transponder is accepted.

• For a longer-term rental, you might consider buying a transponder or toll pass that is accepted in the state where you’ll be driving. In many cases, the fee for the pass goes into your account as credit for tolls.

10. Bringing Your Own Car Seat

Rental car companies may offer infant and child car seat rental options, but the additional charges can add up. You might pay $10 to $15 per day, per seat, plus tax, up to a cap of $66 and up.

In addition to the cost, you may not necessarily know the size and reliability of a rental car seat.

Obviously, it is not always convenient to bring your own seat, but It may be a better bet when possible. Even though car seats are bulky, airlines typically don’t charge baggage fees on them.

11. Think Small and Simple

This one may be obvi, but renting a larger or premium car will likely jack up your costs considerably. Though this is a no-brainer, it’s easy to creep into higher pricing tiers as you scroll through the options and see a cool SUV or convertible next to that economy sedan you originally thought you wanted to book.

For example, a recent search on Enterprise for a rental car found a compact car in Los Angeles for $75 a day, a mid-size SUV for $106 per day, and a convertible for $143 a day. That’s a major difference!

12. Let One Person Do the Driving

It’s not always possible, of course, to have a single driver (say, if you’re criss-crossing the United States), but for shorter distances, having just one driver can help you save money.

Many rental car agencies will add $10 to $15 a day for an additional driver who is not a spouse, domestic partner, or business partner. So, if you are on a trip with a friend and the distances are fairly short (perhaps zipping between Miami and the Florida Keys), having just one driver can help cut rental car costs.

The Takeaway

Car rentals often end up costing more than you expect, due to add-on costs and the details of when and where you rent a vehicle. To get the best deal on a rental, it’s a good idea to do some research in advance so you can get the best rates and opt out of the extras you don’t need.

You can also explore other ways to get a good deal, such as looking for discounts through clubs and organizations you already belong to, shifting your dates slightly, and trying other clever hacks.

If you, like many people, love to find easy ways to make the most of your money, see how opening an online bank account with SoFi can help you do just that. With a SoFi Checking and Savings account, you’ll earn a competitive annual percentage yield (APY) and pay no account fees, both of which can help your cash grow. You’ll also have Vaults and Roundups to help your savings grow, not to mention the convenience of spending and saving in one place.

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.

Building a Line Item Budget

What Is a Line Item Budget?

What Is Considered a Line Item?

What Are the Advantages of Using a Line Item Budget?

Allocating Expenses Is Simple

Interpreting the Budget Is Easy

Planning Your Future Finances

What Are Some Downsides to Line Item Budgets?

Best for Steady Earners

Typically Rigid

Requiring Detail

Budgeting: Is It Worth It?

Using a Line Item Budget for Personal Finance

Deciding What to Include in a Line Item Budget

Bills and Utilities

Debt

Education

Entertainment

Fees

Food

Home

Income

Investments

Medical

Personal Care

Savings

Services

Shopping

Taxes

Transportation and Auto

Travel

Get up to $300 when you bank with SoFi.

Putting Your Line-Item Budget Together

Line Item Budget Example

Alternatives to a Line Item Budget

50/30/20 Budget

Envelope Budgeting Method

Zero-Based Budget

The Takeaway

FAQ

What is an example of a line item budget?

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

How do I create a line item budget in Excel?

21 Facts About Debit Cards You May Not Know

21 Interesting Debit Card Facts

1. Over 80% of Americans Have a Debit Card

2. Most Debit Cards Have a Familiar Logo

3. Debit Cards Followed Store Credit

4. Magnetic Stripes Debuted in 1967

5. Magnetic Stripes Are on the Decline

6. Kids Can Get Debit Cards

7. Metal Debit Cards Exist

8. Some Debit Cards Are Going Green

9. Most People Have Daily Debit-Card Spending Limits

10. The Public Resisted Debit Cards Initially

Get up to $300 when you bank with SoFi.

11. You Can Customize the Photo on Your Debit Card

12. A West Coast Bank Released the First Debit Card

13. Debit Cards May Carry Fees

14. UK Banned All Debit Card Surcharges

15. Chip Technology Leads to Contactless Payments

16. Chip Technology Doesn’t Require a PIN

17. You Can Be Liable for Charges on a Lost Debit Card

18. Some Debit Cards Can Be Used Worldwide

19. There Were Three Major Players Until 2002

20. Debit Cards Are More Popular than Credit Cards

21. People Spend Less With Debit Than Credit Cards

The Takeaway

FAQ

Are debit cards more popular than credit cards?

What is the difference between debit and prepaid cards?

What debit card is the most popular?

What debit card fact is the most useful?

23 Ways to Cut Back on Spending and Expenses

23 Ways to Cut Down Your Spending

1. Canceling Subscriptions

2. Cutting the Cord

3. Revisiting Your Cell Phone Plan

4. Getting Into the Meal-Planning Habit

5. Actively Paying Down Credit Cards