While medical doctors have high earning potential, the first few years of a doctor’s career — known as residency — tend to be defined by long hours and relatively low pay.
So if you’ve got a medical career ahead of you — and medical school student loans to pay off — what sort of financial life can you expect? In this article, we’ll explore the average pay for medical residents and what they can do to manage their finances during this time.
Key Points
• The average medical resident earns around $66,712 annually their first year (PGY-1), which translates to $5,560/month before taxes.
• Residents often work up to 80 hours/week, making their hourly rate roughly $16–$17.
• Budgeting, roommate living, and minimizing fixed costs like transportation and subscriptions can help stretch income.
• Meal prepping and cooking at home can significantly reduce monthly expenses.
• Refinancing student loans during residency may reduce interest accrual and allow for low monthly payments, though federal benefits may be forfeited.
How Much Do Medical Residents Make?
So, how much do doctors make during residency? According to the Association of American Medical Colleges, the average medical resident salary was $66,712 as of July 2024. Before taxes, that’s roughly $5,560 per month.
Medical residents are known to work very long hours. The Accreditation Council for Graduate Medical Education requires hospitals to ensure that residents work no more than 80 hours a week. If you do the math, an annual salary of $66,712 breaks down to $16-$17 an hour if a resident puts in a full 80 hours a week.
Making that money stretch can be a challenge — especially in high cost-of-living areas. To help, here are six tips for getting by (and even thriving) while living on an average resident salary.
The average resident has little time to keep track of their expenses, but building a simple budget could be the difference between making it work and ending up short. Your first step should be to make a list of all “necessary” spending, such as rent, utilities, transportation, and food.
Next you’ll want to look how much you bring home each month, including your resident’s salary and any additional income from your partner or family support. Then look at how much money you have left over. That’s how much you have to spend on “extras” each month, like dining out, travel, or clothing. You might decide to set spending limits for each category (for example, $100 for eating out) or monitor your spending as the month progresses. Or, you can do both.
2. Consider Personal Preferences and Trade-Offs
A budget can feel like a hassle, but if you set it up right, it can also be freeing. By knowing exactly how much you can spend, you can then decide what’s important for you to prioritize and what you don’t mind cutting out.
Maybe you’ll decide that you want to cut cable, but you don’t want to stop meeting up with friends at your local wine bar. Or perhaps you’ll give up eating out so you can spend more on rent. Making a budget is just analyzing each trade-off. Ask yourself, “Do I want this, or something else?”
3. Focus on Fixed Costs
One substantial way you can make an impact on your budget is by making “big wins” on fixed costs, such as housing, car payments, or utilities. For example, lowering a bill by $20 each month is going to have a bigger effect than saving a few dollars on small purchases. Looking at your own fixed spending, where could you ask for better rates or cut back entirely?
While you’re at it, look at your subscription services and other memberships. Though not often considered a “fixed cost,” they can add up quickly to become a significant expense. When you put them on autopay, it’s easy to forget about them and miss the chance to cancel them each month or year. Take time to go through your credit card statement to make sure you’re not paying for a service that you’re not able to use because you’re so busy.
4. Share a Living Space
When you’re trying to save money, there’s usually no financial win that’s bigger than saving on your housing costs. To do this, you can move into a more affordable place, live with roommates, or rent out a room in your place. Not only can a roommate help you save on rent, but also on utilities like water, electric, and cable.
Some folks don’t like the idea of having roommates because they lose some privacy. But if you’re a busy resident who’s not home very much and is trying to eke by on a small salary, it can be a great way to save money.
5. Choose Less Expensive Transportation
Transportation may be your second biggest expense after housing, especially if you have a car payment. But even if you’ve already paid off the vehicle, you’ll need to cover the cost of car insurance, as well as maintenance and sometimes parking. It can add up.
If you’re living in an area with good public transportation or you’re able to live within walking distance of the hospital, you might want to get rid of your car to save money. In some areas, Uber or Lyft offer a flat-rate, monthly pass option that can be less expensive than owning and maintaining a car.
If you’re not ready to sell your car quite yet, simply try using it less. Even this small act may save you money each month. For example, if you’re spending $120 per month on gas but could ride public transportation for $30 per month, you may save over $1,000 on transportation in a year.
6. Cook at Home
While it may be unreasonable to think that a medical resident will cook every meal, it may be worth taking a few hours each week to make a batch of meals that you can eat throughout the week. Preparing meals and eating at home could potentially save residents hundreds of dollars a month.
Another Option: Refinance Medical School Loans
Like most people who attended medical school, there’s a very likely chance you took out student loans. Managing these loans while you’re living on an average resident salary may be important for your financial success.
It is important to understand your medical school loan repayment strategies. One of the first decisions you may want to make is whether you want your loans to go into forbearance or to make payments on your loans during residency.
Student loan forbearance may seem like an ideal option for a person on a medical resident salary, but that might not always be the case. Federal medical school student loans accrue interest during that time, and that interest is added to your balance at the end of your forbearance period. This is called compounding, or capitalization, and means that you’re paying interest on top of interest.
You may want to consider refinancing your medical resident student loans. Refinancing is the process of paying off one loan (or many loans) with another, generally to lower your overall interest rate or to change the terms of your loan.
Refinancing student loans won’t be for everyone, as you will lose access to federal loan programs such as Public Service Loan Forgiveness (PSLF) and income-driven repayment plans.
Refinancing student loans won’t be for everyone, as you will lose access to federal loan programs such as Public Service Loan Forgiveness (PSLF) and income-driven repayment plans.
💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.
The Takeaway
Despite the relatively low pay compared to fully licensed physicians, residency is an important phase that offers invaluable training and experience. It’s important for residents to manage their finances wisely, considering the long-term benefits of their education and the potential for higher earnings in the future.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
What is the average salary for medical residents in the United States?
The average salary for medical residents in the United States typically ranges from $50,000 to $70,000 per year, depending on factors such as the year of residency, specialty, and location.
How does the salary of a medical resident compare to that of a fully licensed physician?
Medical residents generally earn significantly less than fully licensed physicians. For example, while a resident might make between $50,000 and $70,000 annually, a practicing physician can earn anywhere from $150,000 to over $400,000 per year, depending on their specialty and experience.
What factors can influence the salary of a medical resident?
Several factors can influence a medical resident’s salary, including the year of residency (PGY-1 to PGY-4), the specialty they are pursuing, the geographic location of the hospital or institution, and the specific hospital or program they are affiliated with.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
With inflation and interest rates rising, many people are looking for ways to generate additional income these days — and finding reliable sources of passive income, which require less effort than most jobs — has become particularly desirable.
Creating and managing passive income streams isn’t a truly passive activity, however. Generating passive income usually requires upfront work, or sometimes a substantial investment to get the ball rolling. And depending on what your passive income ideas are, whether you’re renting out property or selling a product via online platforms, you’ll likely have ongoing tasks to keep the money coming in. That said, passive income can in some cases deliver more income with less effort than a traditional job that requires a fixed number of hours per week.
Key Points
• Passive income is money earned without regular, active involvement.
• Investing in businesses, P2P lending, and rental properties are some ways to generate passive income.
• Benefits of passive income include extra money with less effort, freedom, and flexibility.
• Initial work and investments are often needed to set up a stream of passive income.
• The opposite of passive income is active income, which usually involves a job and is also known as earned income.
What Is Passive Income?
Passive income is money that you earn without active involvement. In other words, it is income that isn’t attached to an hourly wage or annual salary. Passive income ideas could include things like cash flow from rental properties, dividend stocks, sales of a product (that requires little or no effort), royalties, and more.
Essentially, these side hustles can help you earn money without contributing much, if any, active effort. If you are paid for a service you perform, that’s active income — you have to put in time and energy in order to get paid. If you can continue making money while staying mostly hands-off, that can be a form of passive income. That doesn’t mean you won’t have to put work in up front to get started — you probably will. But besides some maintenance, passive income shouldn’t require your active involvement.
There are obvious benefits to these low-effort side hustles over traditional active income. Earning more money without putting in more hours offers the opportunity to make extra cash without burning yourself out. If you’re successful enough, it might even give you the freedom and flexibility to quit your day job and do whatever you want instead, whether that’s going to school, traveling, writing, or making art.
39 Passive Income Ideas to Help You Make Money
There are a number of ways to earn passive income. Some options, like the following types of passive income, take relatively little active supervision.
A fairly simple way to earn passive income through your investment portfolio is to invest in bonds with high yields. That is, you’ll receive regular payments from the bond-issuer, generating income and return on your investment.
Similar to a CD, a bond is a way of locking up a certain amount of money for a fixed period of time. In short, bonds are purchased for a fixed period of time (the duration), investors receive interest payments over that time, and when the bond matures, the investor receives their initial investment back.
Generally, investors earn higher interest payments when bond issuers are riskier. An example may be a company that’s struggling to stay in business. But interest payments may be lower when the borrower is trustworthy, like the U.S. government.
2. Invest in a Business
Although this may take an up-front investment, buying into a business and becoming a silent partner can be another passive income source.
Even if the company you are thinking of investing in seems solid, it’s important to have an understanding of the challenges the organization may face. There are some red flags to look out for, such as a company whose revenue is earned from just a couple of clients — or just one client — as opposed to several.
It’s also important to lay out the exact terms of your investment and compensation.
3. Become a Peer-to-Peer (P2P) Lender
Peer-to-peer (P2P) lending platforms are another type of crowdfunding that allows people to borrow money from individual investors. Through these sites, you can be matched with an individual seeking a loan, and lend your money at a rate that could be higher than the usual bank rates.
That’s because investors taking part in peer-to-peer lending tend to bear the bulk of any risk. It is possible that borrowers will default on their loans, leading to a higher risk if an investor were to lend money with a lower credit rating, for example. Returns are never guaranteed and while investors will receive a return on the money they invest, they could also lose some or all of it in the long run.
4. Buy a Rental Property
Another popular passive income source is rental property. You might want to purchase a home to rent out to an ongoing tenant or list a property on a short-term rental site. Hiring a property management company lessens your day-to-day involvement, thereby making this venture a more passive income strategy than active.
Obviously, setting up this type of income requires a pretty big outlay, and it may be a while before your investment property generates a profit over and above the many expenses required to run it, if it ever does. In addition, there are always risks in the rental markets to keep in mind.
5. Invest in Crowdfunded Real Estate
If you don’t have thousands of dollars to spend on a piece of property, you can always check out your options on crowdfunded real estate sites. These may require a smaller initial investment, and likewise the costs are also shared.
Crowdfunded real estate investments can be complex, however, and you’ll want to balance the risks and rewards.
6. Invest in Dividend Stocks
When companies choose to share a portion of their profits with the investors who own shares of the firm, those payments are called dividends, and they work generally the same way from company to company.
Typically, dividends are paid in cash (though some might be paid in stock), on a regular schedule. Dividends are usually paid quarterly, though there are variations.
Investors might receive dividends from companies they’re invested in, or from mutual funds they’re invested in that hold shares of dividend-paying companies.
There is no guarantee that investing in dividend stocks will continue to earn you passive income. As Liz Young Thomas, Head of Investment Strategy at SoFi, points out, “A stock’s dividend yield will fluctuate because it’s based on the stock’s price and prices can be volatile. You should also consider other factors like a company’s track record of increasing the dividend, the dividend payout ratio, debt load, and cash on hand when determining the overall health of an investment.”
If you’re just getting started with investing, you may want to use automated investing tools to help you choose the appropriate allocation of assets for your goals.
Typically, an automated platform — also called a robo-advisor — is a digital investing service that provides you with a questionnaire so you can establish your financial goals, risk preferences, and time horizon.
On the backend, a sophisticated algorithm then recommends a pre-set, automated portfolio that aligns with your responses. These portfolios often have lower account minimums compared with traditional brokers, and the portfolios themselves are typically comprised of low-cost exchange-traded funds (ETFs) — which adds to the cost efficiency of some robo products.
You can use a robo investing as you would any account — for retirement, as a taxable investment account, or even for your emergency fund — and you typically invest using automatic deposits or contributions. The allocation in each portfolio is usually pre-determined, and investors cannot change the investments.
One way to earn income in a retirement account is by investing in mutual funds. You can choose the level of risk you want to take with your money by finding a mutual fund that is higher or lower risk.
When you join a company’s affiliate program, you earn a commission from every product that someone purchases from that company. In many cases, all you have to do is post the link on your blog, website, or social media pages.
10. Rent Out Your Car
Another one of the best passive income opportunities is renting out your car on a site like Turo. It’s basically the Airbnb of cars, and could generate thousands of dollars per year, in some cases.
11. Advertise on Your Car
If you have a clean driving record as well as a newer car, consider getting in touch with a car advertising agency. You simply drive around town with ads on your car and easily generate passive income.
12. Rent Your Parking Space
Do you have space in your driveway that you aren’t using? Then rent it out on platforms like Stow It, where you can find people who will pay to rent out the space.
13. Rent Storage Space
If you have extra space in your garage, shed, or storage unit, then you could start earning passive income by using a peer-to-peer storage site like Stashii to find people who need your space.
14. Invest in Real Estate Investment Trusts (REITs)
An alternative to becoming a property owner or landlord are real estate investment trusts, or REITs. REITs are publicly traded companies on the stock market that own income-producing real estate, such as apartment complexes, office buildings, retail centers, storage units, and more. They give you the chance to invest in real estate portfolios without having to manage the properties yourself. REITs sometimes come at a higher risk than other types of funds, so it’s important to research potential REITs or REIT funds, and consider how they may play a role in a diversified portfolio.
Perhaps you don’t have a car, but you do have a bike that’s just sitting around. Your bike could be a lucrative passive income source, especially if you live in a high-traffic area. List your bike on Spinlister to get started.
16. Rent Out a Room or Property
Even if you don’t own an investment property, with your landlord’s permission, you may be able to rent out a room in your apartment or list it on Airbnb.
17. Pet Sit in Your Home
If you love pets, you can earn passive income by welcoming pets into your home while their owners are on vacation. For instance, you could charge $30 to $80 per day just for running a doggy daycare. You can gain clients through word of mouth or use a site like Rover to find customers.
18. House Sit for Someone
When your friends go out of town, they may need someone to stay in their home and do simple things like water their plants and collect their mail. You can easily make money and have somewhere new to stay for a little bit. Along with making yourself available to friends, you can sign up to be a house sitter on HouseSitter.com.
19. Buy and Sell Domain Names
Some domain names are cheap, while others cost a lot of money because they are in high demand. One thing you could do to start another passive income stream is to purchase domain names you think will be popular. Purchase low for around $10 to $100 and then sell them for a much higher price later on.
20. Rent Your Tools
Have you ever done a home improvement project that required you to purchase tools? You may never need to use those tools again. Thankfully, now you can rent tools, and rent out your tools, on peer-to-peer platforms such as Sparetoolz to earn passive income.
21. Invest in Royalties
Let’s say you don’t have any songwriting ability, but you would like to make money on other artists’ work. You can invest in royalties through Royalty Exchange and earn passive income on the intellectual property.
22. Purchase a Billboard
You can make thousands of dollars per month if you own a billboard where companies can advertise their products and services. Do your research and make sure you get the right permits before committing to a billboard.
23. Purchase a Blog
If you don’t have the time or energy to create content for your own blog, then look into ones that are already successful and see if the owners are willing to sell. You could also hire someone to manage your blog so that you’re truly earning in a passive way.
24. Create an Online Course
If you have a special skill or knowledge about a certain topic, you may be able to create a video course where you teach people about that topic and charge them to take the course.
25. Sell Digital Products
You may want to research online platforms where you can sell everything from digital art to e-books. Whether you’re an artist, graphic designer, or writer, you can create digital products to sell online.
26. License Your Photos
Many companies, bloggers, and individuals use stock photos on a regular basis. You may be able to upload your best photos to stock media platforms and earn passive income on them.
27. Create a Mobile App
If you’ve been dreaming about an amazing phone app that you think a lot of other people would use, you may want to look into hiring a development team to create it.
28. Sell a Product
You may be able to earn passive income through sales of a product that you create. This could be a book that you write or a physical product that you design and make. You might also list items you already own on sites like eBay and earn extra income through those sales.
29. License Your Music
Do you love to write songs? Then you could license your music and start earning passive income. You’ll just have to team up with a music licensing company to get started.
30. Self-Publish a Book
Through platforms like Amazon’s KDP, you can self-publish a book and earn a royalty on it every time someone makes a purchase. You will be able to set the price of your book and be in full control of your book’s Amazon page, where you can list pictures of the book, reviews, and videos promoting it.
31. Sell Blank Books
You can start selling books online without having to write anything. How? By focusing on blank books, such as journals, sketchbooks, and planners. Simply find a design you believe will appeal to people and begin collecting royalties when people buy your books.
32. Create Greeting Cards
Another artistic endeavor that could be a good passive income stream is creating greeting cards that you sell to a wholesale or retail stationery company that accepts independent artist submissions.
33. Sign Up for Dropshipping
If you want to sell products and make money online but don’t want to store any of the goods, you could always look into dropshipping to create passive income. With dropshipping, you don’t have to have much money to start since you don’t need inventory to fulfill orders for customers.
34. Start a Blog
Blogging seems like a pretty cool space to operate in and gives you a lot of creative freedom. You can make your blog all about crafts, share tutorials, ideas, and more. It’s up to you how your space operates.
Blogging might seem like too much work to many people, but it doesn’t have to be a full-time job for everyone. For some people, blogging can be fun after a day at the office — and, with time and effort, it could turn into something more lucrative.
Here are a few ideas on how you can make passive income from blogging:
• Affiliate marketing
• Google AdSense: Cost Per Click and Cost Per Impression
• Sponsored posts
• Selling products
35. Start a YouTube Channel
If you enjoy creating videos more than writing, then consider starting your own YouTube channel. Once you get enough viewers, you can begin to generate passive income through YouTube advertising.
36. Publish an Ebook
Like an online course, an ebook is a way to share your expertise with the world. Anyone can self-publish a book online through services like Amazon’s Kindle Direct Publishing, iBooks Author, or Kobo Writing Life.
The percentage of royalties you earn varies depending on the publisher. Of course, the more marketing you do, the more copies you’re likely to sell — and there’s no shortage of online marketing strategies to investigate. But once you write and publish the e-book, it’s out there ready to generate passive income for you.
37. Create a Podcast
Podcasts are still popular, and they can generate some passive income for you. If you start a podcast that resonates with people, then you can grow your audience and monetize your show by sponsoring with ad partners. If you get enough listeners, you may be able to sign up for podcast advertising networks.
38. Start an ATM Business
When people are out at a bar or nightclub or they’re frequenting a cash-only business, they may need cash right away. If you own an ATM business and you place your ATM in high-traffic locations, you could start to generate passive income through surcharge fees. Typically, you could earn around $3 per withdrawal.
39. Start a Vending Machine Business
Similar to an ATM business, a vending machine business allows you to use your creativity and determine high-traffic areas where you could make a lot of money. If you buy in bulk, you’ll be able to save on the snacks and drinks you purchase for your machines.
Potential Benefits of Earning Passive Income
There are only 24 hours in a day. If you go to a job each day that pays you a set amount of money, that is the maximum amount that you’ll ever make in a 24-hour period. That is called earned income.
By investing some of that earned income into different passive income ideas, you may be able to increase your earnings. Diversifying your income stream may also improve your financial security. Some benefits of passive income are:
• More Free Time: By earning money through passive income sources, you might be able to free time in your schedule. You may choose to spend more time with your family, pursue a creative project or new business idea, or travel the world.
• Financial Security: Even if you still plan to keep your 9-to-5 job, having multiple sources of income could help increase your financial security. If you lose your job, become sick, or get injured, you may still have money coming in to cover expenses. This is especially important if you are supporting a family.
• Tax Benefits: You may want certain legal protections for your personal assets or to qualify for tax breaks. Consulting with an attorney and/or tax advisor to explore setting up a formal business structure like a sole proprietorship, a limited liability company (LLC), or a corporation, for example, might help you decide if this is a good route for your particular situation.
• Location Flexibility: If you don’t have to go into an office each day, you’ll be free to move around and, possibly, live anywhere in the world. Many streams of passive income can be managed from your phone or laptop.
• Achieve Financial Independence: The definition of financial independence is having enough income to cover your expenses without having to actively work in order to cover living expenses. This could allow you to retire early and have more freedom to live your life the way you choose. Whether you’re interested in retiring early or not, passive income can be one way to help you reach financial independence.
• Pay Off Debt: Passive income may help you to supplement your income so that you will have the opportunity to pay off any debts more quickly.
Potential Downsides of Earning Passive Income
Although it might sound like a dream come true to quit your job and travel the world, earning through passive income is not quite that simple.
• Earning Passive Income Is Not a Passive Activity: Whether you’re generating passive income through a rental income, running a blog, or in another way, you will still need to put in some time and effort. It takes upfront investment to get these income sources up and running, and they don’t always work out as planned.
If, for example, you run an Airbnb, you have to maintain the property, ensure a high-quality experience for guests, and address any issues or concerns guests may have to secure positive reviews.
• Passive Income Requires Diversity: In order to earn enough passive income to quit your job and cover all your expenses, you would most likely need more than one source of income. Although you may no longer need to clock into a 9-to-5 job, you will likely still need to spend time managing multiple income streams.
• It’s Lonely at the Top: It might sound great to never have to go to the office again and to have the freedom to travel, but earning money through passive income can become lonely.
Not having anyone to talk to during the day might make you feel lonely, and if you aren’t self-motivated, you may find it difficult to stay on task if you need to manage your passive income streams.
• Getting Started May Require Investment: Depending on how you plan to create passive income, it may require an initial financial investment. You may need money for a down payment on an investment property, the development of a product you plan to sell, or for investment into dividend stocks.
Managing Passive Income Streams
No matter which type of passive income you choose to pursue, it’s important to keep track of your personal finances and both your short-term and long-term financial goals.
Tracking multiple sources of income in a monthly budget can be a complex task. To be profitable, it’s important to pay attention to how much money you put into the maintenance of your passive income stream(s), such as property upkeep or monthly online services.
The Takeaway
Establishing passive income streams is one way to diversify your income and can help you build wealth and achieve financial freedom in the long term. There are a variety of ways to earn passive income, such as through investing, rental properties, and automated investing.
Some passive income sources require a financial commitment or upfront investment, such as purchasing a rental property, and others may require a time commitment. And passive income, of course, is rarely 100% passive. Often there is considerable time and effort that goes into setting up a passive income stream. And some sources of passive income (from investing, real estate, running a business or creative endeavor) require ongoing maintenance.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.
FAQ
Do you need to pay taxes on passive income?
In most cases, yes, you’ll need to pay income taxes (or any other applicable taxes) on the income generated by passive income streams.
What are some advantages of creating passive income streams?
Generating passive income may help you reach your financial goals sooner, pay off debt, or even achieve financial independence, though there may be some drawbacks and extra responsibilities that come along with it.
Why might it be a good idea to try and develop passive income streams?
Creating passive income streams may help diversify your income and can help you build wealth and achieve financial freedom in the long term. There are a variety of ways to earn passive income, such as through investing, rental properties, and automated investing.
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For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.
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It’s a common (and frustrating) experience to have to pay a fee when you access your cash at an out-of-network ATM. Especially considering how much ATM fees are.
While there are different ATM fees for different banks, currently, an ATM withdrawal will cost you $4.77 on average. When you are just trying to take out $20, that can be a lot! But no matter how much cash you are withdrawing, ATM fees can be costly.
To better understand ATM fees and avoid paying them, read on. You’ll learn typical costs and smart ways to avert those ATM charges and keep more of your hard-earned cash.
Key Points
• Out-of-network ATM fees average $4.77 per transaction.
• Banks charge about $1.58 as a non-network fee, while ATM owners charge $3.19 as a convenience fee.
• ATM fees tend to be higher at airports and tourist locations.
• Some financial institutions offer refunds for out-of-network ATM fees.
• Using peer-to-peer payment apps can help avoid ATM fees.
🛈 SoFi members interested in ATM fees can review these details.
What Are the Different Types of ATM Fees?
Bank account holders typically pay no fees for using in-network ATMs. However, these machines may not always be conveniently located.
Indeed, approximately 60% of ATMs today are owned and serviced by independent operators and their affiliates — not banks. If you use an out-of-network ATM, you could end up paying a fee to your bank, as well as a fee to the ATM operator.
How much ATMs charge depends on the type of fees your bank and the owner of the ATM impose. Here are some typical charges for using an ATM:
The “Out-of-Network” Fee (From Your Bank)
This fee can be charged by your bank for using a non-branded or non-partner ATM. It’s kind of like going to a doctor that’s not on your insurance plan — you might be able to do it, but it could be more expensive.
On average, this charge accounts for about $1.58 of the total fee, according to Bankrate. The fee can apply to any type of transaction performed at an ATM, including withdrawals, transfers, and even balance inquiries. Typically, you will be told about such a fee — with a message that pops up on the screen — before you finalize your ATM transaction.
The Surcharge Fee (From the ATM Owner)
This one comes from the ATM owner, and can be thought of as a convenience charge for using an out-of-network ATM. The average ATM surcharge in the U.S. currently runs $3.19, according to Bankrate. However, surcharges can vary by state and venue, and you may encounter higher amounts in places where ATMs are in greater demand.
If you’re at an entertainment venue or theme park in a popular tourist destination, for instance, you could pay considerably more.
When using an ATM that isn’t part of your bank’s network of machines, the machine should notify you about a fee charged by the bank or company that operates the ATM.
International and Foreign Transaction Fees
Traveling overseas can come with even more fees to watch out for, such as foreign transaction fees on both purchases and ATM withdrawals.
When using an ATM in a foreign country, you can incur a fee of around 1% to 3% of the transaction amount. Some financial institutions, however, have no foreign transaction fees, and can be worth looking at if you frequently travel overseas.
💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.
How Much Are ATM Fees in 2025?
As mentioned above, ATM fees can take a bite out of your money. Here are specifics on how much ATMs charge, as of September 2025:
• The average out-of-network fee that a bank charges its customers is $1.58.
• The average surcharge by the ATM’s owner/operator when you use an out-of-network terminal is $3.19.
• The total average out-of-network fee is approximately $4.77 per transaction.
Why Do Banks and ATM Owners Charge These Fees?
Banks and ATM owners typically charge these fees for several reasons, including to help cover the cost of operating ATMs and to process ATM transactions. For example, the surcharge fee charged by the ATM owner compensates them for the use of their machine. This fee typically goes for the operation and maintenance of the machines as well as to transaction processing costs. It also allows the ATM owner to make a profit.
If you use an out-of-network ATM, your bank may charge you for using an ATM that’s not in their network. This fee may also be a way to encourage you to use in-network ATMs.
💡 Quick Tip: The myth about online accounts is that it’s hard to access your cash. Not so! When you open the right online checking account, you’ll have ATM access at thousands of locations.
6 Smart Ways to Avoid or Minimize ATM Fees
If having to pay money to access your money frustrates you, there’s some good news — it is possible to avoid ATM fees or at least encounter them less frequently.
Here are some strategies to help you avoid these fees.
1. Use Your Own Bank’s Branded ATMs
Finding out where your financial institution’s ATMs are located in your area, or wherever you are traveling to, can save you money and hassle. These may be ATMs branded with the institution’s name and logo, or in a network of partner ATMs, such as Allpoint or Cirrus.
You can research this information on your bank’s website or app. For example, you can find fee-free ATMs via the SoFi app with just a few clicks on your phone.
Find a Bank With a Large Fee-Free ATM Network
When you’re choosing a bank, find out how big their ATM network is. The bigger the ATM network, the easier it should be to access an ATM, even when you’re traveling. For instance, SoFi makes it easy to find a fee-free ATM near you. When you open a SoFi checking account you have fee-free access to more than 55,000 ATMs worldwide.
3. Choose a Bank That Reimburses Out-of-Network Fees
Not all banks charge out-of-network ATM fees, so it can be in your best interest to shop around and compare ATM fees of different institutions. Look for a bank that doesn’t charge ATM fees, and/or a bank that refunds ATM fees charged by machine providers.
Online vs. traditional banks often have more lenient policies regarding ATM fees. They typically don’t have their own ATM networks, but will partner with large networks and may refund some fees charged by out-of-network ATM providers.
Another thing to consider as you’re choosing a bank is that some banks also charge fees for depositing cash at an ATM, especially out-of-network ATMs. Find out if any bank you’re considering does this, and search for an institution that doesn’t impose this fee. (While SoFi members are not able to deposit cash at ATMs, they can deposit money at participating retailers using the Green Dot Network. Just note that the retailers charge a small fee for this.)
4. Get Cash Back at the Point of Sale
Many retailers and convenience stores offer cash back when you make a purchase using a debit card. This can be a convenient way to get cash without paying an ATM fee. It can be a good idea, however, to make sure that neither the retailer, nor your bank, charges a cash-back fee.
That’s one difference between an ATM card vs. a debit card — with an ATM card you can only make ATM transactions, while a debit card allows you to make purchases at retailers and withdraw money at an ATM. However, you may still be charged ATM fees for withdrawing money with a debit card.
5. Use Peer-to-Peer Payment Apps to Pay People Directly
With a peer-to-peer (P2P) payment app like Venmo, PayPal, or Cash App — or a similar service offered by your financial institution — you can easily pay your friends via P2P transfers with just a few taps on your phone. That way you can avoid a trip to the ATM entirely.
Not only is sending money to friends online generally more convenient than having to go to the ATM, it also means you won’t have to carry sums of cash around.
6. Plan Ahead and Withdraw Larger Amounts Less Often
Fees are typically charged per transaction, so one way to avoid charges is to withdraw more cash than you need, whether you’re using your card or making a cardless withdrawal, whenever you go to the ATM. This can also yield significant savings when you are traveling overseas, where surcharges can be much higher than domestic ATM fees.
You may want to keep in mind, however, that there are usually some ATM withdrawal limits.
The Takeaway
ATM fees can be expensive and they can add up over time. Fortunately, there are ways to avoid these fees. Choose a bank with a large ATM network and use those in-network ATMs whenever you can. If your current bank charges ATM fees, consider switching to one that doesn’t, or look for a bank that reimburses you for these fees. A few simple steps like this can help you keep more of your cash.
🛈 SoFi members interested in ATM fees can review these details.
FAQ
Do ATMs charge a fee just to check your balance?
ATMs may charge a fee to check your balance, especially if you use an out-of-network ATM. Before you check your balance at an ATM, find out if you will be charged for the service before proceeding.
Are ATM fees higher at airports?
ATM fees are often higher at busy locations like airports that get a lot of foot traffic. Since not all banks or ATM networks are located at airports, the ATMs that are there may charge higher fees for the convenience of using them.
Why do some ATMs have higher fees than others?
ATMs in popular areas that get a lot of traffic, such as airports or bars, for instance, may charge higher fees for the convenience and easy access they provide. Fees may also vary based on different operational costs ATMs or their networks might have.
How do I find in-network ATMs for my bank?
To find in-network ATMs for your bank, check your bank’s website or mobile app.Typically, there will be an ATM locator on the app or website where you can plug in your location and find in-network ATMs near you.
What Is the difference between a surcharge and an out-of-network fee?
A surcharge is a fee charged by an ATM owner when non-customers use their machines for transactions. An out-of-network fee is charged by banks when you use an ATM that’s not in their network.
Essentially, both fees are related to using an ATM out of your bank’s network. That’s why it’s a good idea to use in-network ATMs whenever you can.
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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.
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See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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Setting up an emergency fund is an important step for financial security, but finding the cash can be tricky. Much as you might want to have a bundle of money waiting if you had a major medical bill due or endured a job loss, actually accruing an emergency fund may sometimes seem almost impossible. Monthly bills and expenses can siphon off your income, making it tough to save.
While it can be challenging, building an emergency fund can be done. It may take some time, but what’s important is to start saving and then keep it up, even in small amounts, to help protect your financial future.
Key Points
• Set a clear and achievable goal for an emergency savings fund, typically three to six months’ worth of expenses.
• When choosing an account for an emergency fund, a high-yield savings account may be an option to consider to help maximize growth.
• Cutting unnecessary expenses from a monthly budget can free up funds to put in an emergency account, as can windfall money like a tax refund or rebate.
• Automating savings with direct deposits can ensure consistent contributions.
• Use an emergency fund money only on real emergencies and work to replenish the account afterward.
What Is an Emergency Fund and Why Is It Important?
An emergency fund is a savings fund earmarked specifically for unanticipated expenses or financial emergencies that might crop up — such as job loss, major home repairs, or a medical procedure that results in a hefty bill. Financial professionals typically suggest having three to six month’s worth of income in an emergency fund.
An emergency fund is important because without this financial safety net, an individual might have to use high-interest credit cards or take out a loan to cover the emergency expense, which could result in having to pay down a significant amount of debt.
6 Steps to Building an Emergency Fund
Step 1. Set a Clear and Achievable Savings Goal
When it comes to the emergency fund amount you should have, most financial professionals recommend that you save three to six months’ worth of living expenses. Some people, however, may want to aim higher. If you are the sole provider for a family, have significant medical expenses, or are self-employed, you may want to allocate a higher amount, for example.
You can use an emergency fund calculator to help determine your savings target. Once you calculate that sum, you can divide it by 12 or 24 to get a one- or two-year savings plan for meeting the target.
The goal amount of your emergency fund may seem intimidating, but don’t let that discourage you. Even if you can only take a small amount ($25, say) from each paycheck as you save money from your salary, it will help make a difference.
Having some money in your bank account for emergencies is what matters.
Step 2. Choose the Right Account for Your Emergency Fund
The next important step is to get your emergency fund account set up. When choosing an account type, these are some considerations to keep in mind:
• Because an emergency fund is like a rainy day fund — you spend it only when a specific unexpected event warrants it, such as a costly medical procedure — putting it in a separate dedicated account can be helpful. Otherwise, if you leave the funds in your regular savings account, you might be tempted to spend the money.
• A savings account that could help your money make more money, such as a high-yield savings account, is one option to explore.These accounts can offer interest rates that are higher than those of standard savings accounts. And thanks to the power of compounding interest, your money may grow faster.
• Consider using savings vaults. These are essentially extensions of your savings account that let you organize your money into “buckets” and earmark it for specific goals, without having to set up a new account. That way, if you have a high-yield account, you can still earn the same competitive interest rate on your money and save for multiple goals at once, including an emergency fund.
Step 3. Find Room in Your Budget to Start Saving
If even a two-year timeframe for building your emergency fund amount feels intimidating, don’t worry. The important thing in terms of how to build an emergency fund is to begin saving and stick with it. If you only have a little bit of money to add per month, save that much. Good start!
Also, consider growing your savings by depositing windfall money in your emergency fund. Perhaps you’ll receive a tax refund, a bonus at work, a rebate, or other unexpected source of funds. Put that into your emergency account to help it grow.
Increase your savings with a limited-time APY boost.*
*Earn up to 4.00% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.30% APY as of 12/23/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 1/31/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.
Step 4. Automate Your Savings With Direct Deposit
Depositing money into your emergency savings consistently can help your fund grow. And letting technology do the work for you can make it practically effortless. You could set up automatic savings transfers into your emergency fund just after you get paid, for instance. Or, if you have a side hustle, you might decide to automatically deposit 10% or 20% of those earnings into your emergency fund.
Not only will you reap the satisfaction of saving, if the money isn’t sitting in your checking account, you won’t be tempted to spend it.
Step 5. Start Tracking Your Expenses and Spending
If it feels like you just don’t have any cash available to put toward an emergency fund, consider ways to manage your money better and cut your budget a bit.
Perhaps you could eat out a bit less often, save on streaming services, shop for basics at warehouse clubs, or find other ways to trim back. Once you lower or eliminate some costs, you can put that extra money toward your emergency fund.
One thing to be alert for is “lifestyle creep.” This happens when, as you begin to earn more, you also spend more. In other words, as your income grows, so do your expenses, meaning you don’t build wealth. If you get a raise at work and then lease an expensive car, you may struggle to increase your savings.
However, if your spending stays in check, you can put a portion of your increased earnings toward your emergency savings account.
Step 6. Know When to Use Your Fund and How to Replenish It
An example of a financial emergency is a major home repair such as a roof that suddenly starts leaking. It could also be a car repair, like a blown tire that needs to be fixed so you can drive to work, a medical emergency that results in a hefty bill, or a job loss.
After you use your savings to help pay for an emergency, remember to replenish your emergency fund. That can ensure that you are prepared for the next unexpected expense that might pop up, which could help you achieve financial security. Otherwise, you could wind up drawing down your savings and have nothing left when needed.
To replenish your account, determine your new savings goal and start setting aside funds to help you reach it. Deposit any windfalls into your account, cut back on whatever expenses you can and put the resulting savings into your fund, or take on a weekend job to earn some extra income to replenish your emergency stash.
How Long Does It Take to Grow an Emergency Fund?
Emergency funds don’t necessarily come together overnight. Saving after-tax dollars to equal six months’ worth of typical living expenses can take some work and time. Here’s an example to consider: If your monthly costs are $3,000, you would want to have between $9,000 and $18,000 set aside for an emergency, such as being laid-off.
• If your goal is $9,000 and you can set aside $200 per month, that would take you 45 months, or almost four years, to accumulate the funds.
• If you can put aside $300 a month, you’d hit your goal in 30 months, or two and a half years.
• If you can stash $500 a month, you’d have $9,000 saved in one and a half years.
A terrific way to grow your emergency fund is to set up automatic transfers from your checking account into your rainy-day savings. That way, you won’t see the money sitting in your checking and feel as if it’s available to be spent.
Next, we’ll take a look at how to accelerate saving for an emergency fund.
How Can You Grow It Faster?
You’ve just seen how gradually saving can build a cash cushion should an emergency hit. Here are some ways to save even faster:
• Put a windfall into your emergency fund. This could be a tax refund, a bonus at work, or gift money from a relative perhaps.
• Sell items you don’t need or use. If you have gently used clothing, electronics, jewelry, or furniture, you might sell it on a local site, such a Facebook group or Craigslist, or, if small in size, on eBay or Etsy.
• Start a side hustle. One of the benefits of a side hustle is bringing in extra cash; it can also be a fun way to explore new directions, build your skills, and fill free time.
These techniques can help you ramp up your savings even faster and be prepared for an emergency that much sooner.
How to Start an Emergency Fund on a Low Income
Even when money is tight, you can still build an emergency fund. It may require some extra time and dedication, but every small step you take to grow your emergency fund amount can make a difference. Consider these tips to help reach your goal:
• Go over your budget carefully. Look for any expenses you could reduce and direct that money toward your emergency fund instead. For example, pack lunch for work and bring it with you every day. Then use your “lunch money” to help bolster your emergency savings.
• Get on a regular saving schedule. For example, you could automate the transfer of a small amount of money (say, $20) every payday into your emergency fund.
• Take advantage of “found” money. Use any windfall, such as a tax refund, a rebate, or a birthday gift, to help build your account.
How to Build an Emergency Fund in College
Creating an emergency fund as a college student gives you a cushion to deal with unexpected expenses you might face while in school, such as your laptop dying or your car breaking down. Methods to build up your emergency savings as a student can include:
• Use student discounts. Taking advantage of the deals you get as a student can help you maximize your savings at stores, restaurants, and other retailers. Put the money you save into your emergency account.
• Start a side hustle. You could get a weekend gig walking dogs, for instance. Or if you knit or make ceramics, try selling your creations on Etsy. There is no limit to what you can try. The benefit of a side hustle is that you’ll make some extra cash that you can put towards your emergency fund.
• Gamify your savings. You can give yourself fun challenges that help you save cash. For example, you might challenge yourself not to buy any fancy takeout coffee for a month and put the amount saved in your emergency fund account. The next month, you might skip yoga classes and instead practice at home. Again, deposit the extra cash into your emergency account.
How to Stay Motivated While Saving
Now that you know how to start an emergency fund, the next step is to stick with your savings goals. These tips for staying motivated could help.
• Find a buddy. Pair up with a friend or relative who is also trying to save, and support one another through the ups and downs of the process.
• Give yourself a pat on the back. Recognize that saving can be hard and that you may not hit your goal every month. But every time you put money in your emergency fund, you are doing something positive for your financial health. Be proud of yourself, and give yourself a little treat now and then to celebrate your accomplishment.
• Use available tools. Many financial institutions, as well as other companies, offer ways to automate, track, and build your savings. See what is offered that could help you save more easily.
The Takeaway
Starting and keeping an emergency fund can be an important step in achieving financial security. By keeping at least three to six months’ worth of living expenses in an interest-bearing account, you will have a cash cushion if you should hit one of life’s unexpected speedbumps. Automating the process, directing any windfalls to the account, and replenishing it after withdrawing funds are all important steps in the process.
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
What expenses qualify as an actual emergency?
Expenses that qualify as actual emergencies that you could use your emergency fund savings to pay for include a major home repair, such as a damaged or leaking roof; a large medical bill as the result of a sudden medical procedure; car repairs necessary for your vehicle to operate properly; and daily living expenses you have to cover after a job loss, such as rent, utility bills, insurance, groceries, and so on.
Where is the best place to keep my emergency fund money?
Where you choose to keep your emergency fund money is up to you, but one option is a high-yield savings account that offers rates higher than the rate of a standard savings account. This could potentially help your money earn more money. Plus keeping your emergency fund in a bank account keeps it liquid so that it’s easier to access when you need it.
Should I invest my emergency fund in the stock market?
Where you decide to put your emergency fund is a personal decision, however, many financial professionals advise against investing it in the stock market. That’s because the market can be volatile and there is the risk of losing money. Also, when an emergency strikes, you often need money quickly. Money that’s invested in the stock market is typically not liquid and may take time to access. For instance, you might need to sell stocks in order to get your cash.
How is an emergency fund different from regular savings?
An emergency fund is different from regular savings because the money is earmarked specifically for an emergency that might arise, such as an unexpected medical bill. Ideally, emergency fund savings aren’t used for anything other than emergencies, while regular savings may be used for a variety of other purposes, such as a down payment on a house, purchasing a car, or taking a vacation.
You may want to keep your emergency fund in a separate savings account so that you aren’t tempted to spend it on non-emergencies.
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.
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/.
*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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Though money is a very important aspect of life, the topic of personal finance (or financial literacy) isn’t part of most people’s education, neither in school nor at home.
Not knowing financial basics can leave you to wing it when it comes to your money management, meaning you might wind up living paycheck to paycheck, having too much debt, or not saving enough for retirement.
To help you avoid those situations, read up on personal finance basics — the smart and simple steps to budgeting wisely, saving well, and spending sensibly.
Key Points
• Personal finance basics include budgeting, saving, investing, managing debt, and understanding credit.
• Budgeting can involve tracking income and expenses, setting financial goals, and making informed spending decisions.
• Saving is important for emergencies, future goals, and retirement. It usually involves creating a savings plan and automating contributions.
• Investing can help grow wealth over time. It involves understanding risk tolerance, diversifying investments, and considering long-term goals.
• Managing debt requires understanding interest rates, making timely payments, and prioritizing high-interest debt repayment. Understanding credit involves monitoring credit scores and maintaining good credit habits.
Personal Finance Definition
Personal finance is a term that involves managing your money and planning for your future. It encompasses spending, saving, investing, insurance, mortgages, banking, taxes, and retirement planning.
Personal finance is also about reaching personal financial goals, whether that’s having enough for short-term wants like going on a vacation or buying a car, or for the longer term, like saving enough for your child’s college education and retirement.
Top 10 Basics of Personal Finance
Here, learn about 10 of the most important foundations of mastering personal finance.
1. Budgeting Is Your Friend
Budgeting and learning how to balance your bank account can be key to making sure what’s going out of your account each month isn’t exceeding what’s coming in. Winging it — and simply hoping it all works out at the end of the month — can lead to bank fees and credit card debt, and keep you from achieving your savings goals.
You can get a quick handle on your finances by going through your statements for the past several months and making a list of your average monthly income (after taxes), as well as your average monthly spending.
It can be helpful to break spending down into categories that include basic needs (e.g., rent, utilities, groceries) and discretionary spending (e.g., shopping, travel, Netflix). To get a real handle on where your money is going every day, you may want to track your spending for a month or so, either with a diary or an app on your phone.
Once you know everything that typically comes in and goes each month, you can see if you’re going backward, staying even, or ideally, getting ahead by putting money into savings each month.
If you aren’t living within your means, or you’d like to free up more cash for saving, a good first step is to go through your budget and look for ways to cut back discretionary spending. Can you cook more instead of going out? Buy less clothing? Cut out cable? Quit the gym and work out at home?
You can also consider ways to bring in more income, such as asking for a raise or starting a side hustle from home.
You can’t predict when your car will break down or when you’ll have to make an emergency trip to the dentist. If you don’t have money saved up for what life throws at you, you can risk racking up high-interest credit card debt or defaulting on your bills.
To avoid this, you may want to start putting some money aside every month to build an emergency fund. A common rule of thumb is to keep three to six months of basic living expenses set aside in a separate savings account.
It can be a good idea to choose an account where the money can earn interest, but you can easily access it if you need it. Good options include: a high-yield savings account, online savings account, or a no-fee bank account. Using an online emergency fund calculator can help you do the math on reaching your goals.
3. Avoiding a Credit Card Balance
When you have a credit card at your disposal, it can be tempting to charge more than you can afford. But carrying a balance from month to month makes those purchases considerably more expensive than they started.
The reason is that credit cards have some of the highest interest rates out there, often over 20%. That means a small charge carried over several months can quickly balloon into a much larger sum. The same is true for other high interest debt, such as some private or payday loans.
If you already have high-interest debt, however, you don’t need to panic. There are ways to pay off that debt.
The avalanche method, for example, requires paying the minimums to all your creditors and putting any extra money toward the debt with the highest interest rate first. Once that’s paid off, the borrower puts their extra cash toward the debt with the next highest rate, and so on.
4. Paying Your Bills on Time
If you miss bill payments or make late payments, your creditors might impose late payment penalties. If you delay payment for a prolonged period, your account could go into delinquency or be sent to collections.
Late payments can also affect your credit score — the number lenders use to help judge whether to give you loans and credit.
Your payment history accounts for 35% of your credit score, so a history of late and missed bill payments can be a major strike against your score. A poor credit score can make it difficult for you to get loans, and the loans you do get are likely to have higher interest rates.
To make sure you never miss a due date, it can be helpful to make a list of your bills and their due dates, set up auto payments when possible, and sign up for reminders.
Increase your savings with a limited-time APY boost.*
*Earn up to 4.00% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.30% APY as of 12/23/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 1/31/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.
5. Starting Early to Save for Retirement
When you’re young, retirement can feel far away. But putting money away as early as possible means you’ll have more years to save, spreading the savings across your life rather than racing to catch up.
Perhaps the biggest reason to start as early as you can, however, is the power of compound interest.
Because you earn interest not only on your contributions but also on accumulated interest, small amounts can grow over time. If you have an employer-sponsored plan, such as a 401(k), you may want to consider contributing, especially if your employer offers to match your contributions.
Depending on your situation, you may be able to open a traditional IRA, Roth IRA, or SEP IRA, as well.
6. Investing
Saving for retirement may not be enough for you to have what you need to live comfortably after you stop working. Plus, there may be things you want to be able to afford later in life but before you reach retirement age.
For other long-term savings goals, you may want to invest additional money, keeping in mind that all investments have some level of risk and the market is volatile, meaning it moves up and down over time.
To get started with investing, you can choose a financial firm you want to work with and then open a standard brokerage account. From there, you can put your money in a mutual fund or an exchange-traded fund or ETF (which bundle different types of investments together), or, if you’re prepared to do a fair amount of research, pick and choose your own stocks and bonds.
7. Getting Insured
When it comes to insurance, sometimes it’s best to prepare for the worst. That means making sure you have health insurance and car insurance (which is typically required by law). You also may want to consider renters or homeowners insurance to protect your home and belongings.
If you have children or other people who are dependent on you financially, it can be a good idea to get long-term disability insurance and term life insurance. Many people can purchase health and disability insurance through their employers. If you don’t have that option, it’s possible to go through an insurance agent, broker, or the insurance company directly.
8. Taking Advantage of Credit Card Rewards
If you have a decent credit score, you can look into getting a credit card with rewards that may give you travel miles or cash back on your purchases. If travel is your priority, you may want to look for a flexible travel rewards credit card, meaning their rewards can be applied to many different airlines and hotels.
You may want to look for a card that not only offers rewards but also offers a nice signup bonus for spending a certain amount within the first few months. One with no annual fee would be ideal, too.
Whichever card you pick, it’s a good idea to familiarize yourself with its rewards program: the value of its rewards units (points, miles or cash back), how to redeem them, whether your rewards expire, and any minimum redemption amounts.
You may also want to keep in mind that credit card interest rates are typically a lot higher than credit card rewards rates. So, to avoid seeing your earnings swallowed up by finance charges, it can be wise to make sure to pay your full statement balance by the due date every month.
9. Checking Your Credit Reports Regularly
You can request a credit report for free from the three main credit reporting agencies — Equifax®, Experian®, and TransUnion® — at AnnualCreditReport.com.
It can be a good idea to periodically order a copy of your report and then scan it for any errors or signs of fraudulent activity. If you see anything that isn’t right, it’s wise to contact the credit reporting agency or the account provider as soon as possible and file a formal dispute if needed.
Checking your report can help you spot — and quickly address — identify theft. It can also help you make sure there aren’t any errors on the report that could negatively affect your credit score. If you ever want to obtain a lease, mortgage, or any other type of financing, then you’ll likely need a solid credit report.
10. Choosing Your Bank Wisely
There are lots of financial institutions out there, so it can be a good idea to shop around and make sure you find a place that really suits your financial needs. Choices include:
• A traditional bank. These typically have physical locations throughout the country and offer a wide range of financial products and services. If you want to know you can have an in-person chat about your money, this option might work well for you.
• Credit union. These are nonprofit organizations owned by the members of the union. They’re similar to a traditional bank, but membership is required to join, and they’re often smaller in scale and have fewer in-person locations. However, they may have lower fees and higher interest rates than a traditional bank.
• Online bank. These institutions don’t usually have any in-person locations — everything happens online. Because of this, they often have very competitive fees and interest rates on checking and savings accounts. If you don’t necessarily need in-person money talk and would prefer to handle your money at home (or on the go), an online bank could be a great option.
When making a bank choice, it can be a good idea to make sure the bank you choose has a user-friendly website and app, as well as conveniently located ATMs that won’t charge you a fee for accessing your money.
3 Personal Finance Rules to Know
Once you’ve established some fundamental procedures, you can start thinking about some overarching rules that can help you make better money decisions. Three rules you may want to keep in mind include:
• Keep your goals in mind. Without a clear set of goals, it can be difficult to do the hard work of budgeting and saving. Defining a few specific goals — whether it’s buying a home in five years or being able to retire at 50 — gives you a picture of what personal financial success looks like to you, and can keep you motivated.
• Learn to distinguish wants from needs. Merging these two concepts can wreak havoc on your personal finances. Needs generally include food, clothing, shelter, healthcare, reliable transportation, and minimum debt payments. Everything else is likely a want. This doesn’t mean you can’t have wants, but it can be important not to trade financial security in pursuit of these things.
• Always pay yourself first. This means taking some money out of each paycheck right off the bat and putting it towards your future goals. Setting aside money in a savings account, IRA, or 401K plan via automatic payroll deductions helps reduce the temptation to spend first and save later.
The Takeaway
Being good with your money requires a set of basic skills that many of were never actually taught in school. Learning personal finance basics like how to choose a bank, set up a budget, save for retirement, monitor your credit, manage high-interest debt, and invest your money can be key to reaching your goals and building wealth over time.
One simple way to become more organized with your money can be to open the right bank account.
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
What are the basics of personal finance for beginners?
Personal finance basics typically include budgeting, saving, investing, managing debt, and understanding credit. These principles can help you manage your money well and reach your financial and personal goals, whether short- or long-term.
What are the five basics of personal finance?
To manage your money well, it’s typically important to have a comprehensive understanding of the five key areas of personal finance: income, spending, saving, investing, and protection.
What is the 50-30-20 budget rule?
The popular 50/30/20 budget technique says to divide up your take-home pay into three categories: 50% toward needs, 30% toward wants, and 20% toward savings or additional debt payments.
About the author
Jacqueline DeMarco
Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.
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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
