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Budgeting is key to financial success, but with so many strategies available, it can feel overwhelming. One of the most powerful and simplest approaches is the pay-yourself-first method. This system turns traditional budgeting upside down by prioritizing saving and financial goals before addressing everyday expenses. Instead of saving what’s left over at the end of the month, you save first — and spend what’s left after.

If you tend to live paycheck to paycheck, adopting a pay-yourself-first mindset could help you break free from that cycle and start getting ahead. Whether you’re working toward building an emergency fund, saving for a house, or investing for retirement, this strategy can help you get there faster. Here’s a closer look at why this method works so well and how to put it into practice.

3 Reasons to Pay Yourself First

Before we get into what it means to pay yourself first, let’s explore why you might want to adopt the so-called “reverse budgeting” method.

1. To Save Consistently

One of the biggest advantages of the pay-yourself-first budget is that it creates a consistent saving habit. Many people intend to save whatever money remains at the end of the month, only to find that there isn’t much — or anything — left.

By paying yourself first, you’re removing the temptation to spend that money. It becomes a non-negotiable — just like your rent or electric bill. You commit to putting aside a set amount each month into a savings account or investment account, treating your future self as a priority. Over time, these small contributions can accumulate into a sizable savings or investment fund, providing financial stability and peace of mind.

2. To Prepare for the Future

Financial emergencies are almost inevitable. Whether it’s a car repair, medical bill, or trip to the vet, unplanned expenses can derail even the most careful budgets. Paying yourself first ensures you’re building a safety net before life throws a curveball.

Beyond emergencies, the pay-yourself-first strategy also helps you prepare for long-term goals. Whether you’re hoping to buy a home, travel, or fund a child’s education, prioritizing savings makes it easier to achieve big-picture plans without relying on debt. And while retirement may seem a long way off, the sooner you start saving, the more time your money has to grow through compound returns (when your returns start earning returns of their own).

3. To Stay Motivated

Budgeting can feel restrictive and discouraging, particularly when the main focus is on cutting expenses and limiting spending. Paying yourself first changes that mindset. Instead of seeing what you’re giving up, you see what you’re gaining — a growing savings account, a bigger retirement fund, and real progress toward your goals.

Each month that you pay yourself first is another step forward. That sense of progress can inspire you to stay on track, stick with your budget, and look for even more ways to improve your financial well-being.

How to Start Paying Yourself First

If the idea of paying yourself first sounds appealing, here’s a simple step-by-step guide to getting started.

1. Assess Your Income and Spending

Before you can determine how much to pay yourself, you’ll need to get a sense of your overall financial picture. You can do this by gathering up the last several months of financial statements and using them to calculate your average monthly income and average monthly spending. Next, you’ll want to categorize your monthly expenses and divide the list into essential spending (like housing, utilities, groceries, debt payments) and nonessential spending (dining out, entertainment, clothing).

Once you have a clear picture of your income and expenses, you can start identifying how much room there is to pay yourself first. Keep in mind that the goal here is to prioritize saving as if it were an essential bill.

2. Determine How Much to Pay Yourself

How much you should siphon into savings each month depends on your income, expenses, and goals. A good starting point is 10% to 20% of your take-home pay, but don’t be discouraged if that feels out of reach at first. Even saving 5% is better than nothing, and you can gradually increase the percentage as your financial situation improves.

To hone in the right amount to pay yourself, you’ll want to consider your short- and long-term financial goals, how soon you want to reach them, and how much you’ll need to save monthly to meet those goals.

If saving for multiple goals feels too overwhelming, it’s okay to prioritize. For example, If you don’t have a solid emergency fund, you might start there. Once that’s in place, you might bump up your 401(k) contributions and/or start saving for another goal like a downpayment on a home or car or your next vacation. The key is to start somewhere and commit to regular contributions.

3. Trim Unnecessary Expenses

If your current spending habits don’t leave much room for saving, you’ll need to find some places to cut back. The easiest way to find extra money is to look closely at your nonessential spending and consider what you can live without.
Some areas where people tend to overspend include:

•   Eating out or ordering takeout frequently

•   Subscriptions and streaming services

•   Unused gym memberships

•   Impulse purchases or retail therapy

•   Expensive cable or phone plans

Redirecting even $50 or $100 per month from nonessential spending into savings can make a big difference over time. Trimming the fat in your spending not only eliminates waste, but also helps you start spending with more intention, rather than making decisions impulsively or passively. Like other budgeting methods, the pay-yourself-first strategy helps ensure that your spending aligns with your values and goals.

4. Review Your Bank Accounts

To successfully pay yourself first, you need the right banking set-up. It’s a good idea to have multiple accounts to separate your savings from your everyday spending. This prevents the temptation to dip into savings for nonessential expenses.

At a minimum, you’ll want to have one checking account that doesn’t charge any monthly fees (bonus if it also earns some interest), along with at least one savings account that pays a competitive annual percentage yield (APY). To help grow your savings faster, you may want to open a high-yield savings account. These accounts offer significantly higher APYs compared to traditional savings accounts. You can often find the best rates at credit unions and online banks.

5. Automate Your Savings

Once you’ve decided how much to pay yourself each month and where to put those payments, automating your finances is key. By setting up automatic transfers from your checking account to your savings accounts, you eliminate the need to make a decision each month. It happens behind the scenes — just like a bill payment.

Consider setting your transfer to occur on the same day you receive your paycheck. This ensures the money is moved before you have a chance to spend it elsewhere. Alternatively, you might see if your employer will do a split direct deposit, where most of your paycheck goes into checking and a certain percentage goes directly into savings.

6. Review and Adjust Based on Your Goals

Life is constantly changing, and your personal budget should reflect that. It’s a good idea to periodically review your financial goals, income, and spending habits to make sure your savings strategy still aligns with your priorities. You might set a reminder in your calendar to review your budget every three to six months. You’ll also want to go over your budget whenever you experience a major life change (like a new job, move, or marriage).

Some questions to consider when doing a budget review:

•   Am I meeting my savings goals?

•   Can I afford to increase how much I pay myself?

•   Are there any expenses I can reduce or eliminate?

•   Have my financial goals changed?

Adjustments are normal and necessary. The key is to remain proactive and intentional with your money. As your income increases and/or debt decreases, look for opportunities to boost your savings rate and pay yourself even more.

The Takeaway

The pay-yourself-first strategy isn’t simply a budgeting method — it’s a shift in mindset that puts your financial well-being front and center. By prioritizing savings before spending, you can build a habit of consistency, prepare for the future, and stay motivated as you work toward your goals.

This approach to budgeting is also easy to implement. To get started, you simply need to assess your income and expenses, decide how much to pay yourself based on your financial goals, cut unnecessary expenses to free up savings, and automate your savings to stay consistent.

Remember that it’s fine to start small. The key is that you start — and stick with it. Over time, you’ll likely gain momentum and confidence, and those early efforts will pay off in the form of more financial flexibility and greater peace of mind.

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.

FAQ

Are there any disadvantages to paying yourself first?

While paying yourself first is a powerful savings strategy, it can present challenges if your income is irregular or your monthly expenses are high. Automatically transferring money into savings before covering essentials could cause cash flow issues, especially during emergencies or months with unexpected costs. Prioritizing savings without a flexible plan could also lead to relying on credit cards or loans to make ends meet. It’s important to balance saving with realistic budgeting to avoid financial strain.

What types of accounts are best for paying yourself first?

High-yield savings accounts, retirement accounts, and investment accounts are ideal for paying yourself first. High-yield savings accounts offer easy access and better interest rates than traditional accounts, making them ideal for short-term goals. Retirement accounts often provide tax advantages for long-term saving. For building wealth, automated investments in diversified portfolios can be beneficial. You’ll want to choose your accounts based on your goals, time horizon, and tolerance for risk.

How does paying yourself first help with financial stability?

Paying yourself first builds financial stability by prioritizing savings before spending. This habit ensures you’re consistently setting aside money for emergencies, future goals, and retirement, rather than relying on leftover funds. Over time, it can help you create a financial cushion that reduces stress, prepares you for unexpected expenses, and lessens the need for high-interest debt. This proactive approach also helps you build long-term financial security.

Can I still pay myself first if I have debt?

Yes, you can — and often should — pay yourself first even if you have debt. Building savings, even a small emergency fund, can prevent further debt when unexpected expenses arise. It’s about balance: You might prioritize high-interest debt repayment while also saving a small portion of your income. Over time, having savings can improve your financial flexibility, reduces reliance on credit, and can help you make faster progress toward becoming debt-free.

What are the biggest challenges of paying yourself first?

One of the biggest challenges of paying yourself first is sticking to the habit, especially when money feels tight or unexpected expenses arise. It can be tempting to skip saving in favor of immediate needs or wants. People with irregular incomes may also find it challenging to divert a set amount of money to savings each month. To overcome these hurdles, it’s a good idea to start small, automate your savings, and track your progress to stay committed and motivated.

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.

SOBNK-Q225-111

Living beyond your means can easily happen. Typically, it’s a case of your spending outstripping your earnings. This in turn means it’s hard to pay off debt and save for your financial goals.

Sound familiar? If you find yourself running out of money before the next payday, you could be leaving above your means.

Here, learn more about this issue and the warning signs. Then you can begin to take action and take control of your money.

What Does “Living Beyond Your Means” Mean?

Simply put, ”living above your means” means that you are spending more money than you are earning. People are able to do this by relying on credit cards, loans, and prior savings to cover their expenses. However, the process is not sustainable, and eventually overspending is likely to catch up to you.

Living beyond your means can also mean that you’re spending most or all of what comes into your checking account each month and, as a result, don’t have anything left over for saving or investing, such as building an emergency fund, saving for a short-term goal like buying a car or a home, or putting money away for retirement.

Here are ten red flags that you’re living a lifestyle you simply can’t afford — and tips for how to get back on track.

1. You Live Paycheck to Paycheck

One of the most obvious and common signs of living beyond your means is when there’s little to no money left after you pay your bills. If your paycheck disappears within days of receiving it, and you’re counting down the days until the next one, that’s a major warning sign.

Living paycheck to paycheck means you have no cushion for emergencies and would not be able to cover your living expenses if you were to lose your income. This puts you in a precarious situation, where any financial bump in the road could throw your entire financial life into disarray.

2. Your Credit Score Has Dropped

A declining credit score is often a silent but powerful indicator that you’re overspending. This drop can result from late payments, high credit utilization (the amount of credit you’re using compared to your total limit), or accumulating too much debt.

If you’re relying heavily on credit cards to cover basic living expenses — like groceries, gas, or other monthly bills — it likely means your spending has outpaced your income. Over time, this kind of borrowing not only hurts your score but also racks up interest charges that dig you deeper into the hole.

3. You’ve Stopped Your Retirement Contributions

If money is feeling a little tight, you may feel that now is not the time to worry about retirement. While this may seem like a short-term fix, it can significantly damage your long-term financial health.

Halting retirement contributions — even temporarily — means missing out on compound returns (when the returns you earn start earning returns of their own), employer matches, and overall portfolio growth. If you’re regularly suspending or avoiding savings altogether, it may indicate your current expenses are too high to support your financial goals.

4. A Big Portion of Your Income Goes to Housing

Housing is typically the largest monthly expense, but if your rent or monthly mortgage payment is above 30% of your monthly pre-tax income, you may be financially overextended.^[1] This can make it hard to have enough money leftover to cover other expenses, save, invest, and build wealth over time.

Staying below 30% can be difficult if you live in a region of the country where the cost of housing is high. Nevertheless, spending a lot more than a third of your income on housing can leave you “house poor,” and put your other financial obligations at risk.

5. Your Savings Account Isn’t Growing

If your savings balance has stayed flat — or worse declined — over the past few months, it’s a sign that your lifestyle is too costly. A lack of progress in savings makes it hard to handle unexpected events or set aside funds for the future.

Making regular deposits into a savings account, such as a high-yield savings account — in addition to your 401(k) or IRA — allows you to work towards your short- and medium-term financial goals, such as putting a downpayment on a home or a car or going on vacation.

6. You’ve Been Charged an Overdraft Fee More than Once This Year

An overdraft fee is charged when there’s not enough money in your account to cover a check or debit card payment. Overdrawing from your account often means the bank will lend you money to cover the overage. You’re then responsible for paying back that amount, as well as an overdraft fee, which can potentially be more than the overdrawn amount. (That said, there are some banks that offer no-fee overdraft protection.)

Mistakes happen, and a one-off overdraft isn’t necessarily an indicator of overspending. But repeat offenses can be a sign that you are living too close to the edge and don’t have a clear picture of how much money is going in and coming out of your account each month.

7. You’ve Never Set a Budget

A lack of budgeting can be a fundamental sign of living beyond your means. If you’ve never taken the time to outline your income, expenses, and saving goals, you may well be spending money in ways that aren’t sustainable.

Without a budget, it’s easy to underestimate your monthly expenses or overestimate what you can afford. You might think you’re managing fine but in reality you could be accruing debt, missing saving opportunities, or overspending in certain categories.

Many people think making and following a budget will be too complicated. But having a budget can actually simplify your spending decisions by letting you know exactly what you can and can’t afford. Having a budget also helps to ensure you have enough money to cover essentials, fun, and also sock some away in savings.

8. You’re Leasing a Car You Can’t Afford to Buy

Leasing a vehicle you would not be able to purchase outright or finance can be a major financial red flag. Leasing lets you rent a high-end lifestyle, but many people end up with leases they really can’t afford.

You might be covering your monthly auto payments, but if you can’t do that while meeting your other expenses and also putting money into savings, then your car is likely too expensive. Leasing also means you’re never building equity in a vehicle and may face additional costs for mileage or wear-and-tear penalties.

9. You’re Only Making Minimum Payments on Credit Cards

It’s fine to use your credit card to pay for everyday expenses and the occasional big purchase. But if you can’t pay off most of the balance each month, it’s a red flag that you’re living beyond your means.

While minimum payments keep your account in good standing and avoid late fees, most of the payment goes toward interest, which means they don’t address the underlying debt. Minimum payments are also designed to be small, so it takes much longer to pay off your balance, sometimes even years. This can trap you in a cycle of debt where you’re constantly paying off interest rather than reducing the principal, making it highly challenging to ever become debt-free.

10. You Don’t Have an Emergency Fund

Not having a stash of cash you can turn to in a pinch can be a sign that you’re living above your means. You may be gambling on the fact that nothing will go wrong. But life is unpredictable, and you could well get hit with an unexpected expense (like a major car repair or medical bill) at some point, or potentially lose your job.

Without savings to fall back on, you may be forced to rely on high-interest credit cards or loans, which can lead to debt that’s hard to repay. This financial strain can cause stress, damage your credit, and disrupt long-term goals like saving for retirement or buying a home. An emergency fund provides a buffer that protects your financial stability.

How to Live Below Your Means and Get Back on Track

Overspending can feel like a slippery slope — once you’re living above your means, it can be tough to stop the cycle. But financial recovery is entirely possible. The key is to learn how to live below your means and establish habits that promote long-term stability. Here’s how to get started:

1. Create a Realistic Budget

A solid budget is the foundation of any financial turnaround. Start by tracking all your income sources and listing every expense, from rent to streaming services. Categorize your spending into needs, wants, and goals/savings, then determine if you want to rejigger how much you are spending in each area.

One popular budgeting framework is the 50/30/20 rule. This divides your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment beyond the minimum. This set-up ensures that your essential expenses are covered while also allowing for some “fun” spending and future financial security.

Recommended: 50/30/20 Budget Calculator

2. Reduce Unnecessary Expenses

To find room in your budget for saving and paying more than the minimum on debts, you may need to cut back on nonessential spending. For example, you might free up funds by cooking more and eating out less, getting rid of streaming services you rarely watch, and/or quitting the gym and working out at home.

To cut back on impulse purchases, you might institute the 30-day rule: When you feel the urge to buy something you want but don’t need, commit to waiting 30 days before making the purchase. If after the waiting period, you decide you truly want the item and it aligns with your financial goals, go ahead and buy it. There’s a strong chance, however, that the urge to buy it will have passed.

3. Build an Emergency Fund

Living paycheck to paycheck leaves little room for error. An emergency fund is your financial safety net — it prevents one unexpected bill from becoming a crisis.

Financial advisors often recommend setting aside at least three to six months’ worth of living expenses for emergencies. But you don’t have to come up with that entire sum overnight. Begin with whatever amount you can afford, even if it’s just $10 a week. Consider setting up an automatic transfer to a separate savings account earmarked for emergencies so you’re not tempted to spend it. Or, if your bank offers it, you might dedicate a savings vault within your account for emergency savings.

This buffer provides peace of mind and helps you avoid falling into debt when life throws curveballs.

The Takeaway

Living above your means doesn’t always look like luxury vacations or designer clothes. Often, it’s more subtle: relying on credit cards, skipping savings, or struggling to cover basic expenses. The good news is that these warning signs are not life sentences — they’re signals that you can change course.

Learning how to live within your means involves awareness, building a budget, and making one smart money decision at a time. With consistent effort, you can shift from financial survival to financial security — and ultimately, financial freedom.

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.

FAQ

What are the long-term impacts of living beyond your means?

Living beyond your means can lead to chronic debt, poor credit, and financial instability. Over time, high-interest credit card balances and loans can become unmanageable, making it difficult to build savings or qualify for major purchases like a home. This behavior often leads to stress, strained relationships, and limited future financial opportunities. Without change, it can also delay or prevent retirement, forcing individuals to work longer or rely on others for support later in life.

What are the first steps to take if I’m overspending?

The first step is to track your spending for a full month to understand where your money is going. Then, categorize your expenses and identify areas where you can cut back, such as dining out, subscriptions, or impulse purchases. Creating a realistic budget is crucial — allocate funds for needs, savings, and limited wants. Set financial goals and consider using a budgeting app or cash envelopes to stay disciplined. If overspending is tied to emotional triggers, you might benefit from speaking with a financial counselor.

How can I start saving if I have no extra money?

Start by reviewing your expenses and identifying small, nonessential costs to reduce or eliminate — like daily coffee runs or streaming services. Even setting aside just $5 to $10 a week adds up over time. You might also want to automate your savings (so money is transferred to a savings account before you can spend it) and boost your income through side gigs or selling unused items. The key is to start small and build momentum through consistency and gradual lifestyle adjustments.

What percentage of my income should go toward housing?

Financial experts generally recommend spending no more than 30% of your gross monthly income on housing. This includes rent or mortgage payments, property taxes, insurance, and utilities. Staying within this limit helps ensure you have enough left over for other essential expenses like food, transportation, savings, and debt payments. In high-cost areas, it may be harder to stay under 30%, but exceeding it by too much can strain your finances and reduce your ability to build long-term wealth.

What helpful resources exist if I’m struggling financially?

There are many free and low-cost resources available. Nonprofit credit counseling agencies, like the National Foundation for Credit Counseling (NFCC), offer budgeting help and debt management plans. Local community organizations often provide food assistance, utility aid, and housing support. Government programs like SNAP, Medicaid, and unemployment benefits can also offer relief during tough times. In addition, financial literacy websites, public libraries, and budgeting apps offer tools and guidance to help you regain control of your finances.

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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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SOBNK-Q225-108

The amount you’ll end up paying in income taxes doesn’t have to remain a mystery until you complete your federal return.

With a fundamental understanding of how taxes work and some basic information about your household, you may be able to estimate what your tax liability or refund will be. And with that knowledge, you can better plan your finances for 2025 and 2026.

Read on for a look at what your 2025 taxes might look like, and how your income, filing status, and other factors can impact your bottom line.

What Is an Income Tax Calculator?

A federal tax calculator for 2025 can help you estimate the federal tax you may owe on the income you earn this year. It isn’t meant to replace the tax service or software you usually use to complete your return. But it could help you plan ahead and make informed choices as you prepare for a potential tax bill, or refund, when you file in 2026.

Historical Tax Rates, Compared

Most people think taxes are too high now, but they could be — and have been — much higher. In 2025, the top tax rate is 37% for individuals whose taxable income is over $626,350 ($751,600 for married couples filing jointly). But in 1944, the highest rate — for anyone who made over $200,000 — was 94%. It wasn’t until 1987 that the top rate dropped below 40%.

The current rates, dictated by the Tax Cuts and Jobs Act of 2017, are set to end on December 31, 2025. It’s up to lawmakers to decide if those rates will be extended into 2026 and beyond. The tax code, officially called the Internal Revenue Code, is interpreted and implemented by the U.S. Treasury Department and the Internal Revenue Service (IRS), but tax laws are written by Congress.

How Is the Tax Rate Decided?

Currently, there are seven federal income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The more taxable income you have, the more you can expect to pay.

That’s because in the U.S., income tax rates are graduated, which means each of these progressively higher tax rates is assigned to a specific income range, rather than a household’s entire taxable income. Each time your taxable income reaches a new level, you’ll pay a higher rate, but only on the portion that’s in that range.

The ranges, or brackets, differ depending on a taxpayer’s filing status (single, married filing jointly, married filing separately, or head of household), as seen in the table below.

Income Tax Rates and Brackets for 2025 Tax Year

If you’re a single filer with $60,000 in taxable income in 2025, for example, you won’t pay your highest tax rate (22%) on that entire amount. You’ll pay 10% on up to $11,925 of your taxable income; 12% on the amount between $11,926 and $48,475 ($36,550); and 22% on the amount between $48,476 and your taxable income of $60,000 ($11,525).

Recommended: How Much Do You Have to Make to File Taxes?

How to Calculate Federal Taxes in 2025-2026

Determining your income tax each year is, of course, much more complicated than simply applying the various tax rates to the money you’ve earned.

Depending on the complexity of your return, it may take several calculations to come up with the final amount you owe — or what you’ve overpaid and can expect to be refunded. Whether you’re filing taxes for the first time or you’ve been paying income taxes for years, here’s a quick summary of the basic steps that may go into figuring out your federal taxes in 2025-26:

1. Calculate Your Gross Income

This is the total of all the money you made for the year. Think income from your job, including tips; business income; dividend and interest income; etc.

2. Determine Your Adjusted Gross Income (AGI)

Once you know your gross income, you can subtract certain adjustments, such as alimony payments, student loan interest, health insurance premiums (if you’re self-employed), some retirement contributions, and more to determine your AGI.

3. Subtract Applicable Deductions

A tax deduction is an amount you can subtract from your AGI to further reduce your income and lower your tax. You can either choose to list, or itemize, all the tax deductions that apply to you, or you can take the standard deduction. Most taxpayers go with the standard deduction, which for tax year 2025 is:

•   $15,000 for single filers and married individuals filing separately;

•   $22,500 for heads of households; and

•   $30,000 for married couples who file jointly.

However, you may want to run the numbers to see if it makes sense to go with itemized deductions. Some common deductions that must be itemized but could help further reduce your tax burden include mortgage interest, charitable contributions, and medical and dental expenses. But there are many more options to choose from.

4. Apply the Appropriate Tax Rates from the Table

Once you’ve calculated your taxable income, you can apply the 2025 tax rates. Remember, your entire taxable income won’t be taxed at the same rate; the tax rate goes up at various levels, or brackets.

5. Use Any Applicable Tax Credits

Unlike tax deductions, which reduce how much of your income is subject to taxes, tax credits directly reduce dollar-for-dollar the amount of tax you owe. When you’re preparing for tax season, your tax professional or tax software can help you find your applicable tax credits.

Some common credits include the Child Tax Credit, education credits, the Saver’s Credit for retirement savings contributions, and the premium tax credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the federal marketplace.

6. Don’t Forget What You’ve Already Paid

Keep in mind that you’ve likely had money withheld from your paychecks throughout the year to put toward your federal income tax. Or, if you’re self-employed, you may have been making quarterly estimated tax payments. Once you know what you owe (after applying tax credits), you can subtract what you’ve already paid to get a final tax amount. If the number is positive, you can expect to owe the IRS. If it’s negative, and your calculations are correct, you can expect to get a refund.

How Much Does the Average American Pay in Taxes?

A Tax Foundation analysis of the most recent available data from the IRS (2022) found that the average tax rate for all U.S. taxpayers was 14.5%, and the average amount of income taxes paid was $13,890. The highest-earning Americans paid an effective average tax rate of 26%, while the bottom 40% paid about 4% of their income to the IRS.

Of course, there are other types of taxes you may also have to pay, including sales tax, property tax, state and local taxes, estate tax, and more. And this means taxes can eat up a hefty portion of your hard-earned money.

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

Example Tax Scenarios

Your federal income tax bill each year will depend on several factors, including your gross income, your filing status, the deductions and credits you can use to lower the amount you owe, and what you’ve already paid during the year. Here are two basic examples of how taxes might be calculated in 2025 for a single filer with a salary of $80,000 and a married couple with a gross household income of $120,000.

Joe, the Single Filer

Joe has a salary of $80,000 in 2025, so his gross income is $80,000.

He decides to go with the standard deduction in 2025, which is $15,000 for a single filer. This brings his taxable income to $65,000.

Joe then uses the applicable tax brackets.

•   The first layer of Joe’s taxable income, up to $11,925, is taxed at 10%, which comes to $1,192.50.

•   The next layer of Joe’s taxable income, from $11,926 to $48,475, is taxed at 12%, which comes to $4,386.

•   The next layer of Joe’s taxable income, from $48,476 to $65,000 is taxed at 22%, which comes to $3,635.50.

Joe would have a total federal income tax of $9,214.

Joe finds a couple of credits he can apply that take another $1,000 off of his tax bill. And he figures out that he will have paid $7,000 in federal income tax withholding for the year.

Joe estimates that he’ll owe $1,214 when he files his taxes 2026, and he’s building that into his budget so that he’s prepared when it’s time to pay. (Tip: An online budget planner can take the guesswork out of budgeting.)

Mary and Sam, Married Filing Jointly

Mary and Sam’s combined salaries in 2025 equal $120,000, so their gross income is $120,000.

They don’t have any kids yet, and they haven’t yet purchased a house. So, they decide to use the standard deduction in 2025, which is $30,000. This brings their taxable income to $90,000.

According to the applicable tax brackets:

•   The first layer of their taxable income, up to $23,850, is taxed at 10%, which comes to $2,385.

•   The next layer of their taxable income, from $23,851 to $96,950, is taxed at 12%, which comes to $7,938.

Mary and Sam would have a total federal income tax of $10,323.

Mary and Sam think they’re eligible for $2,000 in tax credits that they can take off their tax bill. And between them they will have paid $10,000 in federal withholding in 2025.

Mary and Sam estimate that they’ll get a refund of $1,677 when they file their 2025 tax return, and they plan to put that refund toward a down payment on a house in 2026.

Recommended: What Tax Bracket Am I In?

How Federal Taxes Impact You

The U.S. tax system is the federal government’s single largest source of revenue, and compliance with federal tax laws is mandatory. The money taxes bring in is meant to finance various public services, including veterans’ benefits, Social Security, health programs, national defense, education, transportation, and more.

That said, there’s a popular quote from an old Morgan Stanley ad that says: “You must pay taxes. But there’s no law that says you gotta leave a tip.”

For high earners, especially, taxes may be one of the most significant expenses they encounter each year and over their lifetime. But all taxpayers can benefit from understanding how taxes work and from the type of proactive planning that can help them legally hold on to more of their money. Staying on top of any changes can also help you avoid common tax filing mistakes, as many deductions, credits, and income thresholds are adjusted annually for inflation.

The Takeaway

If you have an idea of how much you’ll bring in from various income streams this year, and you’re aware of some of the basic deductions and credits that might reduce the amount you’ll owe, you can use the 2025 brackets to calculate a pretty good tax estimate.

Whether you expect to pay when you file your return or you think you’ll get a refund, calculating your tax bill in advance can help you budget appropriately. And you may even find some additional savings in 2025 and beyond.

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

FAQ

What will the tax brackets be for 2025?

The IRS has already published the 2025 tax rate table for single filers, married couples filing jointly, married couples filing separately, and heads of household. Each bracket has been adjusted slightly to reflect inflation.

How can you calculate estimated tax payments for 2025?

To calculate your estimated tax, you must figure your expected adjusted gross income, taxable income, deductions, and credits for the year.

Will tax returns be bigger in 2025?

Some taxpayers may qualify for a larger refund on their 2025 return (due in April 2026), thanks to inflation-related adjustments to the tax brackets and standard deduction amounts. Changes to the tax laws are expected to impact 2026 returns (due in April 2027), so it’s harder to predict what tax bills will look like at that time.

How much is the standard deduction for 2025?

The standard deduction amount depends on your filing status. In 2025, the standard deduction will be $15,000 for single filers and married individuals filing separately; $22,500 for heads of household; and $30,000 for married couples who file jointly.

What is the tax offset for 2025?

A taxpayer’s offset amount can vary depending on the type of debt that is owed.

What is the filing deadline for 2025 federal tax returns?

Federal income tax returns for 2025 are due on Wednesday, April 15, 2026.

Photo credit: iStock/Anastasiia Makarevich

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

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

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

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

SORL-Q225-015

The credit score you’ll need to buy a car will vary depending on your financial circumstances, the type of car you want to buy, and whether you’re buying used or new. That said, the average score needed to buy a car is 755 for new cars and 691 for used cars, according to the credit bureau Experian.

Looking to buy a car in the near future? Here’s what you need to know about the credit scores lenders may use when deciding whether to approve your auto loan application.

Minimum Credit Score to Buy a Car

Your credit score is a three-digit numerical representation of your credit history. There are two main credit scoring models used in the United States: FICO® and VantageScore®. FICO scores, which generally range between 300 to 850, are used in the majority of lending decisions.

If your credit score isn’t as high as you’d like, that doesn’t mean there will be no loan options for you. In fact, there isn’t a universal minimum credit score required to buy a car, though some lenders will set minimums of their own.

What’s important to know is that the lower your credit score, the harder it may be to secure a loan — and the more expensive borrowing could get. That’s because if you have poor credit, lenders may charge higher interest rates and fees.

Recommended: How Long Does It Take to Build Credit?

Understanding Auto Loan Credit Scores

Your credit score is based on information from your credit reports, which are maintained by the three major credit reporting bureaus: Equifax, Experian, and TransUnion. The report documents how you’ve managed credit in the past. For instance, it records how many credit accounts you’ve had, which accounts are active (and for how long), if you’ve paid your bills on time, and how much of your available credit you’re using.

There are many different credit scoring models out there, which use different parts of your credit report to calculate your score. For example, some models might ignore debt collections for smaller amounts, while others may consider them. Lenders can choose which credit score they wish to look at when considering you for a loan.

What Is a FICO Auto Score?

There are several versions of a FICO Score, including FICO Auto Score, which — you guessed it — is designed specifically for the auto industry. These scores help predict how likely a borrower is to repay an auto loan on time. This means your history of paying off a car loan could play an important role in determining your score.

How to Increase Your Credit Score Before Buying

As we mentioned, if you have a low credit score, it may be harder to secure a loan. And the loan you do secure may be more expensive. To make things easier and cheaper for yourself, you may want to look into ways to build your credit before applying for an auto loan.

Chief among the factors that affect your credit score is your payment history, which accounts for 35% of your FICO Score. One of the best things you can do for your credit file is to pay your bills on time, every time.

Tip: A spending app can help you spot upcoming bills, set a budget, and track where your money is going.

But payment history is just one factor that impacts your credit score. Your credit utilization — or the amount you owe versus your available credit — is also important and makes up 30% of your FICO Score. If you are using a lot of your available credit, lenders could worry that your finances are overstretched and, as a result, you may not have the resources to take on another loan. To help build your credit, consider lowering your credit utilization by paying down other debts first.

A long credit history can help improve your credit file, so you may want to avoid closing older accounts that are in good standing. And, if possible, try to avoid applying for multiple loans or credit cards in a short period of time. That’s because each application may trigger a hard inquiry, which can temporarily lower your credit score.

Your credit score updates at least every 45 days. To keep track of your progress as you work to improve your score, you can check your credit score without paying once a week from each of the credit reporting bureaus.

You might also consider signing up for credit score monitoring to help ensure your current credit score is always at hand.

While you’re at it, make it a habit of checking your credit report regularly. If anything is incorrect on the report, you are allowed to file a dispute with the company that reported the information and the credit bureaus that recorded it.

Recommended: How to Check Your Credit Score Without Paying

Where to Get an Auto Loan

When you’re ready to seek a loan, you’ll want to shop around for the best deals among several different lenders. You may consider getting loan offers from banks and credit unions, online lenders, and dealerships that offer financing. Credit scoring companies recognize that people often shop around to multiple lenders when seeking a loan. And in this case, they won’t penalize you for extra hard inquiries.

How Credit Scores Affect Auto Loans

The higher your credit score, the more likely it is that you’ve been responsible with credit in the past. Lenders see borrowers with higher scores as less of a risk, and they typically reward them with lower interest rates and better terms on auto loans.

On the other hand, lenders see borrowers with lower scores as a greater risk. To compensate for this risk, lenders may charge higher interest rates and offer less favorable terms.

Note that while the lowest FICO Score is 300, that is not necessarily your starting credit score. For instance, if you’re just starting building credit and have no credit history, you may in fact have no score yet.

The Takeaway

While there is no minimum credit score you need to buy a car, a higher score can mean you qualify for a loan with lower interest rates and better terms. If you have a lower credit score, consider doing what you can to boost it before you apply for an auto loan. This may include paying your bills on time, lowering your credit utilization, and keeping older accounts open.

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

FAQ

How to get an 800 credit score from 720?

To raise your credit score from 720 to 800, focus on paying your loans on time, reducing the amount of credit you’re using, and possibly increasing your mix of credit.

What is the average American credit score?

The average credit score in the United States is 715, according to Experian.

How common is an 800 credit score?

Per Experian data, 22% of all Americans have a credit score of 800 or higher.

How rare is a 720 credit score?

A credit score of 720 falls within the “good” range. By that definition, roughly one in five of Americans have a good score.

How big of a loan can I get with a 700 credit score?

A credit score of 700 falls within the “good” range. This means that your loan request likely will not be denied. However, the exact amount you qualify for will depend on a number of factors, including your income, the type of loan you’re applying for, and your debt-to-income ratio.

Is a 720 credit score good enough to buy a car?

There’s no minimum credit score required for an auto loan. Still, a credit score of 720 is considered “good” and can help increase the chances you’re approved for a car loan.

Photo credit: iStock/Ridofranz

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

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

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

SORL-Q225-019

If you’re a consumer in the United States who has a credit history, then you probably have a credit score. More than one, in fact.

FICO® Scores are far and away the most widely used — 90% of lenders rely on them to assess a borrower’s creditworthiness. That said, there’s no single credit score that matters the most. Lenders can and do use a variety of credit scores to determine whether to approve your application for credit and what terms to offer you. Whether you’re looking to make a major purchase or focused on building up your credit profile, it’s a good idea to understand the different types of credit scores out there and how to keep tabs on yours.

Types of Credit Scores

You may have noticed that your credit score varies depending on which website you visit. That’s perfectly normal. As we mentioned, anyone with a credit history probably has more than one score.

One reason for this is that the three main credit bureaus — Equifax, Experian, and TransUnion — may each receive slightly different information from lenders. As a result, your score could vary by bureau.

In addition, there are multiple different ways to calculate a credit score based on the information available. That’s why there’s sometimes a gap between your VantageScore® vs. FICO scores.

This can be an important difference to understand, since Vantage scores are often the credit scores available for free through online platforms. You may sometimes see one credit score (your VantageScore) when you get a free credit report, but then be surprised to learn, when you apply for a credit card or loan, that your FICO Score is different.

Recommended: FICO Score vs. Your Credit Score

How FICO Works

Generally speaking, your FICO Score is calculated based on the following factors and their relative weights:

•   Payment history (35%). This reflects how often you’ve made on-time payments on your debt. Late or missed payments or accounts sent to collections can negatively impact your score.

•   Amounts owed (30%). This is your credit utilization ratio, or the amount of available credit that you’re using. Ideally, aim to keep this ratio below 30%.

•   Length of credit history (15%). This looks at the average length of your credit accounts. Typically, a longer history is a sign to lenders that you have more experience successfully managing your debt.

•   New credit requests (10%). When you open a credit account, the lender may do a “hard” credit inquiry, which could cause your score to temporarily drop.

•   Credit mix (10%). This refers to the mix of credit types in your portfolio, which may include credit cards, car loans, or other types of credit.

How Experian Works

As one of the three main credit reporting bureaus in the U.S., Experian collects information about your credit accounts and payment history and includes those details in your Experian credit report.

The bureau does make it possible for you to access your FICO Score for free, though it also offers a paid service that provides credit score monitoring for all three bureaus.

How Equifax Works

Equifax is another U.S. credit reporting agency that offers similar services to Experian.

Again, while you’ll likely have a credit report from both Equifax and Experian, the scores may differ slightly based on the information each bureau has collected. It’s worth noting that Equifax also allows you monthly access to your VantageScore credit score based on the agency’s data.

Which Credit Score Bureau Is Best?

There’s no one “best” credit score bureau. All three bureaus collect consumer information and produce credit scores.

When you want to look at your credit report, it’s a good idea to request a copy from each of the bureaus. That’s because lenders may choose to pull your credit report from any one — or all — of them. By checking all three scores, you can be aware of negative information that affects your credit score and have a chance to correct any inaccuracies you see.

Recommended: Why Does Creditworthiness Matter?

How Can You Obtain Your Credit Score?

You have several options when it comes to accessing your credit score. You may be able to see it on your credit card statements or when you bank online. You can use free credit score websites or purchase your score from a credit bureau.

MyFICO offers a free service that allows you to check your FICO Score and receive your Equifax credit report each month. (You can also pay for a plan that includes three-bureau credit report access, identity theft insurance, and more.)

Another avenue to consider: A spending app, which often offers credit scores. Unless otherwise indicated, you’ll likely be seeing your VantageScore credit score.

Remember, credit scores update every 30 to 45 days, so it’s a good idea to check yours every so often.

How Can You Obtain Your Credit Reports?

While your three-digit score is a great way to see how your credit is faring, the best way to fully understand everything in your credit history is to read the full credit report. If you see any information that looks suspicious or incorrect, you can file a dispute directly with the credit bureau to have it removed.

Every American is entitled by law to pull their credit reports from all three bureaus for free once a week via AnnualCreditReport.

What Is a Good Credit Score Range?

FICO Scores range from a low of 300 to a maximum of 850. (That’s right: The starting credit score is not zero.) Here’s how FICO categorizes scores:

•   300 to 579: Poor

•   580 to 669: Fair

•   670 to 739: Good

•   740 to 799: Very good

•   800-850: Exceptional

If your score is lower than you’d like, be aware that it can take some time to build credit.

One great way to build your credit is to try to lower your overall credit card utilization. This means paying down your debt, particularly balances on revolving debt. And because on-time payments count for such a heavy part of the score, keeping up with your bills each and every month can also be a big help.

Finally, try not to sweat every fluctuation. Sometimes, filing a dispute or multiple hard inquiries in a short time frame can ding your score, but those dips tend to be temporary.

The Takeaway

If you have a credit history, then you likely have more than one credit score. So which credit score matters the most? Short answer: Whatever score the lender uses when considering your application for credit. Generally, FICO Scores are used in most decisions, though each lender has its own policies around which scoring model and version to use.

Regardless of the scoring model, staying on top of your bills, paying down debt, and regularly reviewing your credit report can help ensure you’re on firm financial footing.

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

FAQ

Is FICO or TransUnion more accurate?

FICO and TransUnion serve different purposes. FICO is a credit scoring model that uses a proprietary algorithm to calculate credit scores. TransUnion is one of the three major credit reporting bureaus in the United States that collects credit information about consumers from lenders and creates credit reports.

Do lenders look at FICO or TransUnion?

What a lender reviews — whether it’s just your credit score (like your FICO Score) or your complete credit report (like from TransUnion) — usually depends on the type of credit you’re applying for. For smaller lines of credit, like a credit card, they may only check your score. But for larger loans, like a mortgage, they’re more likely to dig into your full credit history.

Why is my FICO score 100 points lower than Credit Karma?

Credit Karma provides its users free access to their Vantage Score, which is calculated using a different algorithm than the FICO Score. If your score on Credit Karma is different from your FICO Score, it’s likely because of the different calculations.

What is a good FICO score?

According to FICO, a “good” credit score falls between 670 to 739. Credit between 740 to 799 is considered “very good,” while credit scores of 800 and above are considered “exceptional.”

Do lenders use FICO or Vantage?

The majority of U.S. lenders use FICO Scores to assess a potential borrower’s creditworthiness. However, a VantageScore is what you’re more likely to see on many web platforms that offer free credit scores.

Photo credit: iStock/tolgart

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

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

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

SORL-Q225-020