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Ideas for making money at home are everywhere. And some of the best ones revolve around things you can do online or off, using skills and experience you already have.

Figuring out which money-making idea works for you often depends on how much time you have and how much extra income you’re interested in generating. You might start a side hustle, explore small business ideas, look for passive income options, or get a full-time remote job.

Need some inspiration? Here are more than 40 options to consider.

40+ Creative Ways to Make Money

Creative thinking is key to finding different ways to earn an income, especially if your goal is to learn how to make money with no job. Some of the easiest ways to earn extra cash from home are selling a service (i.e., your time and skills) or selling a product.

Can you earn money online without selling anything? Absolutely, and there are plenty of ways to do it. We’ve broken down some different ideas by category to help you find your perfect money-making idea.

Recommended: Free Credit Score Monitoring

Money-Making Craft Ideas

Selling handmade crafts can be an excellent way to turn a hobby into a side hustle or full-fledged business. You don’t necessarily need to be an expert artisan to get started.

Craft trends come and go, but here are some classic products to consider trying:

•   Crocheted items, such as scarves or baby clothes

•   Handmade soap

•   Handmade candles

•   Bath bombs and bath scrubs

•   Paper goods

•   Jewelry

•   Lip balms

•   Home decor items

•   Lamps and lighting

•   Pillows

•   Vinyl stickers or decals

•   Handpainted signs

•   Hair accessories

•   String art

•   Art prints

•   Tote bags

•   Wreaths

•   Holiday decorations

•   Bookmarks

•   Keychains

•   Dog bowls and other pet accessories

Once you zero in on your craft idea, think about how much time you’ll need to make each item and how much money you’ll need to spend on supplies. This can help you figure out how to price each item and how much profit you stand to make. Tip: Do some online research and see how other sellers are pricing and marketing their items.

Another important consideration is where you sell your goods. Luckily, there’s no shortage of options — here are some to consider:

•   Facebook Marketplace

•   Local Facebook bargain or community groups

•   Etsy

•   Amazon Handmade

•   aftcra.com

•   Craigslist

•   eBay

•   Your own website

•   Craft fairs

•   Local boutiques

If you’re selling your crafts online, remember to factor in shipping costs, taxes, and any fees the platform charges when setting your prices. Otherwise, you could end up shrinking your total profit.

Money-Making Website Ideas

You don’t need a website to earn extra cash from home, but having one could open up new money-making opportunities. To set up a website, you’ll need to find a hosting company and choose a domain. Your domain is your site name.

Once your site is set up, there are several ways you could use it to make money:

Selling products

A website is a great way to sell products you create, such as an e-book, digital printables, or an online course. If you’re selling handmade items, like crafts or clothing, you could set up a shop page on your site instead of using a third-party selling platform.

Selling services

If you don’t want to make a product, you could try selling a service instead. For example, you might use a website to offer services such as writing, photography, graphic design, tutoring, or online coaching.

Affiliate marketing

Affiliate marketing means recommending products and services sold by other people, then collecting a commission when the person you referred makes a purchase. For instance, if you have a pet blog, you could include an affiliate link to your favorite dog food brand. When someone clicks the link and buys the dog food, you make money.

Ads

Hosting ads on your website is another way to potentially earn extra cash from home. Every time someone visits your site and views an ad, you make money. The more traffic — or views — your website gets, the more you could earn.

Sponsored content

Sponsored content is an article, video, social media post, or other type of content that someone pays you to create and post. So again, say you have a pet blog. A dog food company might reach out and ask you to write a sponsored post reviewing their newest product. In turn, they pay you a flat fee for writing and publishing the post. You could also make money if your readers buy the product through your affiliate link.

If you’re interested in making money with a website, it helps to learn more about how to drive traffic. For example, it’s a good idea to know how search engine optimization (SEO) works and how to use it to drive people from Google or other search engines to your site. You may also want to consider how you can use social media to send additional traffic your way.

Money-Making Business Ideas

Thinking about becoming your own boss? If you prefer online business ideas, there are plenty of opportunities to consider, including:

•   Coaching or consulting

•   Interior design

•   Freelance writing or editing

•   Starting an e-commerce store

•   Virtual accounting

•   Transcription services

•   Teaching online through a platform like Outschool

Now, what could you do offline to make money from home? Some small business ideas you might pursue could include starting a home baking business, offering childcare services in your home, or tutoring.

If you’re interested in starting a home business, it’s important to check into any legal requirements in your state first. For example, if you want to launch a baking business from home, you might be subject to local or state restrictions on home kitchens. The same applies if you want to care for children in your home. Once you reach a certain number of children, you may need to register with the state as a daycare center.

Side Hustle Money-Making Ideas

There are lots of low-stress ways to earn money. Will these opportunities make you rich? Not necessarily. But they could be a good way to earn some extra cash in your spare time without a lot of effort.

Here are some ideas to explore:

•   Taking online surveys

•   Joining an online focus group

•   Selling things you no longer need

•   Getting paid to watch videos, play games, or read emails

•   Customer service representative

•   Earning free gift cards or money with cashback apps

•   Becoming a mock juror online

•   Getting paid to test websites or apps

Home Jobs to Avoid

While there are lots of ideas for making extra money, some are better than others. Here are ones to avoid:

•   Illegal side hustles or jobs

•   Work-from-home job scams

•   At-home jobs that require a lot of work for little pay

•   Pyramid schemes or multi-level marketing (MLM) programs

There’s a simple rule of thumb to keep in mind when researching ways to earn extra cash: If something seems too good to be true, it probably is. Words and phrases like “guaranteed,” “make money while you sleep,” or “easy money” are often telltale indicators that an at-home job opportunity isn’t everything it seems. It’s also a good idea to be wary of any work-from-home job that requires you to pay fees or a deposit up front before getting started.

Tips for Making Money From Home

If you’re pursuing money-making ideas from home, it helps to know some of the do’s and don’ts so you can avoid job scams while maximizing your earning potential.

When exploring ways to make money from home, do:

•   Look for opportunities that fit your skill set or interests

•   Consider how much time you can put in to making money

•   Weigh any up front investment of time or money that might be required

•   Remember to keep track of work-related expenses using a spending app

•   Report the income you earn on your taxes if you’re required to do so

When looking at ways to make money from home, don’t:

•   Assume it’s easy to make money online

•   Give out personal or sensitive information to people you don’t know

•   Fall for work-from-home job scams

•   “Forget” to report the money you make on your taxes

•   Get frustrated and give up if you’re not making money right away

Also, don’t be afraid to try and try again if something isn’t working out. After all, there’s no single option for how to make extra income from home. You may start off doing one thing and find that another side hustle or job idea is a better fit. And you don’t have to limit yourself to just one thing either — having multiple side hustles can mean multiple streams of income.

The Takeaway

Whether you’re selling goods online, starting a business, or using your website to turn a profit, there’s no shortage of ways to make money from the comfort of home. In fact, you may discover there are multiple opportunities that fit your schedule and interests. As you’re researching your options, factor in how much time and money is required. It’s also a good idea to be wary of opportunities that sound too good to be true, because they probably are. Once you start drawing an income, don’t forget to report it on your taxes, if you’re required to do so.

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

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

FAQ

How can I make $100 a day from home?

Some of the best ways to make $100 a day from home include taking surveys for money, using cashback apps to shop, offering freelance services, and selling printables or handcrafted items online. You can also make $100 a day from home by flipping items you no longer need on sites like eBay, Facebook Marketplace, or Craigslist.

How can I make fun money?

If you just want to make some extra money to spend on “fun,” some of the easiest ways to do it include selling things you no longer need, doing odd jobs in your spare time, or getting paid to take surveys and play games through various mobile apps. You can also research weird ways to make money, like donating plasma or selling your hair.

How can I make money just sitting at home?

Some of the best ways to make money sitting at home are passive income ideas that require little to no work. For example, you may be able to make passive income by investing in stocks that pay dividends, setting up an affiliate marketing website to earn commissions when people shop at your affiliate partners, or opening a digital printable shop on sites like Etsy.

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There are a grand total of nine states that don’t tax retirement income, and that’s because those states don’t tax income at all. This can be important for seniors to know, as holding onto as much retirement income as possible can be important — whether it’s coming from pensions, Social Security, a 401(k), or elsewhere.

Equally important to know: As of 2025, there are 15 states that don’t tax pensions, and 41 states — plus the District of Columbia — that don’t tax Social Security benefits. Paying less in taxes can lower the strain on a retiree’s budget and help their money last longer. That becomes especially important when and if inflation shrinks purchasing power — as it has in recent years.

How Much Can State Taxes Take Out of Retirement Income?

Each state taxes income, including retirement income, differently. So, there are different states that don’t tax pensions, and then there are states that don’t tax Social Security, etc.

Accordingly, how much of a bite state taxes take out of retirement income can depend on several factors, including the applicable tax rate where you live, and your specific tax brackets.

Taxes can be an important consideration when choosing where to retire, and when to retire.

Getting your financial house in order is also important. A money tracker app can give you a bird’s eye view of your finances and help you keep tabs on where your money is coming and going.

Understanding State Income Tax

As of 2025, 41 states levy taxes on wage and salary income, while nine states do not assess individual income tax. The state of New Hampshire exclusively taxes dividend and interest income, while Washington taxes capital gains for certain high-income individuals.

In some states, the same tax rate applies to all taxable income. Other states use a graduated tax system with individual tax brackets, similar to the way the federal tax system works.

California has the highest marginal tax rate, at 13.30%. Other states with double-digit tax rates include Hawaii (11.0%), New York (10.90%), New Jersey (10.75%), and Oregon (9.90%). Aside from the states that have no income tax, the lowest marginal tax rate belongs to North Dakota and Arizona, which both have an income tax rate of 2.50%.

Further, if you were to look at the average retirement savings by state, it may help provide some more insight into where many retirees live — and why.

15 States That Don’t Tax Pensions

Altogether, there are 15 states that don’t tax federal or private pension plans. Some of these are states that have no income tax at all; others have provisions in state law that make them states with no pension tax. Here are which states don’t tax pensions:

State	Pension Tax Policy
Alabama	Pension income excluded from state income tax
Alaska	No state income tax
Florida	No state income tax
Hawaii	Pension income excluded from state tax
Illinois	Pension income excluded from state tax
Iowa	Pension income excluded from state tax
Mississippi	Pension income excluded from state tax
Nevada	No state income tax
New Hampshire	Only taxes interest and dividend income
Pennsylvania	Pension income excluded from state tax
South Dakota	No state income tax
Tennessee	No state income tax
Texas	No state income tax
Washington	Only taxes capital gains for high income earners
Wyoming	No state income tax

Keep in mind that state or local government employee pension benefits may be treated differently. New York, for example, specifically excludes pension benefits paid by state or local government agencies from state income tax. If you move to another state, however, that state could tax your New York pension benefits.

41 States That Don’t Tax Social Security

Understandably, many people have questions about Social Security, including whether the program will remain solvent in the future. Another big one: How will taxes affect your benefit amount? That’s why it’s important to know which states don’t tax Social Security.

The good news is that 41 states and the District of Columbia do not tax Social Security benefits. So if you’ve chosen to retire, or at least are thinking about choosing a retirement date (which can affect your total Social Security payouts), you don’t need to worry about it. Similar to the states that don’t tax pensions, these states either have no income tax at all, offer exemptions, or have elected to exclude Social Security benefits from taxable income calculations.

State	Social Security Tax Policy	State	Social Security Tax Policy
Alabama	Not included in income tax calculations	Missouri	Not included in income tax calculations
Alaska	No state income tax	Nebraska	Not included in income tax calculations
Arizona	Not included in income tax calculations	Nevada	No state income tax
Arkansas	Not included in income tax calculations	New Hampshire	Not included in income tax calculations
California	Not included in income tax calculations	New Jersey	Not included in income tax calculations
Delaware	Not included in income tax calculations	New York	Not included in income tax calculations
Florida	No state income tax	North Carolina	Not included in income tax calculations
Georgia	Not included in income tax calculations	North Dakota	Not included in income tax calculations
Hawaii	Not included in income tax calculations	Ohio	Not included in income tax calculations
Idaho	Not included in income tax calculations	Oklahoma	Not included in income tax calculations
Illinois	Not included in income tax calculations	Oregon	Not included in income tax calculations
Indiana	Not included in income tax calculations	Pennsylvania	Not included in income tax calculations
Iowa	Not included in income tax calculations	South Carolina	Not included in income tax calculations
Kentucky	Not included in income tax calculations	South Dakota	No state income tax
Louisiana	Not included in income tax calculations	Tennessee	No state income tax
Maine	Not included in income tax calculations	Texas	No state income tax
Maryland	Not included in income tax calculations	Virginia	Not included in income tax calculations
Massachusetts	Not included in income tax calculations	Washington	Not included in income tax calculations
Michigan	Not included in income tax calculations	Washington, D.C.	Not included in income tax calculations
Mississippi	Not included in income tax calculations	Wisconsin	Not included in income tax calculations
		Wyoming	No state income tax

Montana and New Mexico do tax Social Security benefits, but with modifications and exceptions.

8 States That Don’t Tax Capital Gains

Federal capital gains tax applies when an investment or asset is sold for more than its original purchase price. The short-term capital gains tax rate applies to investments held for less than one year. Investments held for longer than one year are subject to the long-term capital gains tax.

States can also tax capital gains, though not all of them do. The states that do not tax capital gains are the same states that do not have income tax or have special tax rules on which income is taxable. They include:

•   Alaska

•   Florida

•   Nevada

•   New Hampshire

•   South Dakota

•   Tennessee

•   Texas

•   Wyoming

As far as how much capital gains are taxed at the state level, the tax rate you’ll pay will depend on where you live. Some states offer more favorable tax treatment than others for capital gains.

13 States That Don’t Tax 401(k), TSP, or IRA Income

Yet another potential area where states can generate tax revenue is by taxing retirement accounts such as 401(k) plans, individual retirement accounts (IRAs), and Thrift Savings Plans (TSPs). In all, there are 13 states that don’t levy taxes on retirement income derived from these sources:

•   Alaska

•   Florida

•   Illinois

•   Iowa

•   Mississippi

•   Nevada

•   New Hampshire

•   New Hampshire

•   Pennsylvania

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   Wyoming

35 States That Don’t Tax Retirement Income From the Military

There are certain states that tax military retirement income, but most do not. In all, 35 states don’t tax military retirement income, including those that don’t have income taxes, and others that have specifically carved out exceptions for military retirement income.

•   Alabama

•   Alaska

•   Arizona

•   Arkansas

•   Connecticut

•   Florida

•   Hawaii

•   Illinois

•   Indiana

•   Iowa

•   Kansas

•   Louisiana

•   Maine

•   Massachusetts

•   Michigan

•   Minnesota

•   Mississippi

•   Missouri

•   Nebraska

•   Nevada

•   New Hampshire

•   New Jersey

•   New York

•   North Carolina

•   North Dakota

•   Ohio

•   Oklahoma

•   Pennsylvania

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   West Virginia

•   Wisconsin

•   Wyoming

9 States That Don’t Tax Retirement Income

As covered, there are a lot of different tax levels and tax types — some include different types of retirement income, some just involve plain old income tax itself. As such, it’s not really easy to determine which states don’t tax retirement income whatsoever. But if you were to boil it down to a list that accurately answers the question “which states don’t tax retirement income,” it would mirror the short list of states that don’t tax income at all.

•   Alaska

•   Florida

•   Nevada

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   Wyoming

In addition, as mentioned above, while New Hampshire does tax certain types of income, it doesn’t really tax most forms of retirement income. So if you live in this state, your Social Security benefits and pension benefits can go further when it comes to covering your retirement expenses.

5 States With Low Retirement Income Taxes

Taking everything into account — taxes on income, pensions, Social Security, military retirement income, and more — there are several states that offer retirees relatively low retirement income taxes. Aside from the nine that don’t tax income at all, these states may be a good option for seniors, as they offer low retirement income taxes in one form or another:

•   Alabama

•   Georgia

•   Mississippi

•   Pennsylvania

•   Washington

Which States Have the Lowest Overall Tax Burden on Retirees?

Again, there is a lot to consider when trying to determine an overall tax burden, especially on retirees. But if you were to whittle down a list of a handful of states in which the tax burden is the absolute least on retirees? It would come down to the states with the overall smallest income tax burden, and a few other factors.

Delaware

Delaware hasn’t been discussed much, and though it does have state income taxes, a few other factors make it particularly appealing for retirees. Specifically, its state income tax rate tends to be relatively low (2.2% – 6.6%), and it has low property taxes, no sales taxes, and no applicable estate taxes.

Nevada

Nevada is a state with no state income taxes — a big win for retirees — and that also has relatively low property taxes, and no estate taxes. It also doesn’t tax income from most retirement accounts, or military retirement income.

Wyoming

Wyoming is similar to Nevada in that it has no state income taxes, low property taxes, and no estate taxes. There are applicable sales taxes, but it’s a drop in the bucket compared to the overall tax burdens seen in other states.

Can You Have Dual State Residency?

Generally, most people are residents of just one state. It is possible, however, to have dual residency in two different states. This can happen if you live in each state for part of the year to attend school or to work.

For example, the state of Virginia distinguishes between residents who maintain a home in the state for 183 days or more during the year and domiciliary residents who claim Virginia as their legal state of residence. Under state law, it’s possible to be a resident of Virginia and a domiciliary resident of another state.

For instance, a college student from California who lives in Virginia during the school year would be a dual resident. However, you can have only one domicile — in this example, it would be California.

If you live and earn taxable income in two different states during the year, you may have to file tax returns in both those states unless a reciprocity agreement exists. Reciprocity agreements protect taxpayers who work in states other than the one in which they’re legal residents from being hit with double taxation.

What to Consider Before Moving to a Tax-Friendly State

Moving to a state that doesn’t tax pensions and Social Security could yield income tax savings, but it’s important to consider the bigger financial picture. Paying no or fewer income taxes on retirement benefits may not be much of a bargain if you’re stuck paying higher property taxes, or your heirs are left with steep inheritance taxes, for instance.

Also, consider the overall cost of living. If everyday essentials such as housing, food, and gas are higher in a state that has no income tax, then your retirement benefits may have less purchasing power overall. If costs end up being higher than you anticipated, you might end up working after retirement to fill any retirement income shortfalls.

The Takeaway

There are a number of states that tend to be more tax-friendly for retirees, and those generally include the states that don’t levy any income taxes. That list comprises states such as Alaska, Nevada, Texas, Florida, and Tennessee. But there are other potential taxes to take into consideration, and states all have different tax rules in regards to pensions, retirement accounts, capital gains, and more.

As such, if you’re hoping to save on taxes during retirement, you’ll need to do a little digging into the specifics to see what might affect you, given your unique financial picture. It’s wise to take into account other tax types as well (property taxes, etc.), and overall cost of living. Doing a thorough cost-benefit analysis before making a decision to move could be beneficial.

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

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

FAQ

What is the most tax-friendly state to retire in?

The most tax-friendly states for retirees are states that don’t tax pensions and Social Security, and have a low tax-profile overall for sales and property tax. Some of the best states for retirees who want to avoid high taxes include Alabama, Florida, Georgia, Mississippi, Nevada, and South Dakota.

Which states have no 401(k) tax?

States that do not tax 401(k) distributions are generally the same states that don’t tax income. Those states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. New Hampshire and Washington don’t tax 401(k) distributions either.

Which states do not tax pensions?

States that do not tax pensions include the nine states that have no income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Additionally, six states — Alabama, Hawaii, Illinois, Iowa, Mississippi, and Pennsylvania — exclude pension income from state taxation.

How can I avoid paying taxes on retirement income?

The simplest way to avoid paying taxes on retirement income is to move to a state that has the smallest applicable tax burden on retirement income sources. That would include the short list of seven states that don’t have any sorts of state income tax. You can also consult a professional.

Which states are tax-free for Social Security?

There are a grand total of 41 states that don’t tax Social Security benefits, and that list includes the nine states that don’t tax income at all.

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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.


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.

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

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Home equity loans and lines of credit (HELOCs) can put cash in your hands to fund home improvements, debt consolidation, or other financial goals. But if you have a HELOC, what happens if you sell your house?

The good news is that you won’t carry the debt with you. Balances owed to HELOCs are paid off using proceeds from the sale. (The same is true of selling a house with a home equity loan.) This is a requirement before the property can change hands.

Understanding HELOCs and Home Sales

Can I sell my house if I have a HELOC? Absolutely, though it’s important to understand how having a HELOC to repay affects the sale process and the amount of profit you get to walk away with.

Here’s a simple HELOC definition: A HELOC is a revolving line of credit secured by your home. When a home is sold, any debts attached to the property, including all mortgages, must be cleared so the new owner can take possession. That applies to your primary mortgage as well as any HELOCs or home equity loans you owe.

HELOCs and home equity loans are junior liens. A lien is a legal claim against a piece of property that protects a lender or creditor’s interest in it. Junior liens are subordinate to senior liens, which in the case of a home would be your primary mortgage — assuming you still have one. Liens, whether senior or junior, must be cleared before a piece of property can be sold.

In other words, you can’t take your HELOC with you. Once the HELOC is paid off after you sell, you won’t have access to your line of credit any longer.

Recommended: HELOC Loan Guide

Settlement of HELOC Upon Sale

HELOC debts must be settled when you sell the home; you can’t take your line of credit with you. Settlement means the debt is paid or cleared and is no longer attached to the property. Here’s what happens to a HELOC when you sell your house.

Paying Off the HELOC Balance

Who handles the repayment of a HELOC balance when a home is sold? Typically that responsibility falls to the title company. Title companies conduct title searches when a home is sold to ensure that there are no outstanding liens on the property. They also offer title insurance to buyers.

HELOC payoff happens during the closing process.

•   The title company requests a payoff amount from the HELOC lender.

•   Funds to buy the home are sent to an escrow account that’s controlled by the title company.

•   The title company uses funds from the escrow account to pay off the HELOC lender, along with your primary home loan.

•   All remaining funds are forwarded to the seller.

Can you pay off a HELOC prior to closing? Certainly, though you’d need to come up with the money to do so out-of-pocket. If you don’t have cash on hand to settle the debt, you’ll need to use the proceeds from the sale.

Once a HELOC is paid off, you can check state or county property records where you live to make sure the lien was released. Lien release means the debt is cleared from the home.

Closing the HELOC Account

After a HELOC is paid off, you’ll need to make sure the line of credit is closed, since this may not happen automatically. Your lender might require documentation to close your HELOC, including:

•   Closing documents showing proof of sale

•   Payment receipts from the title company showing the HELOC was paid off

•   Authorization from you to close your credit line

In turn, you should get a statement in writing from your lender attesting to the HELOC’s closure. It’s also wise to follow up with a check of your credit reports to make sure your line of credit is listed as closed and paid in full or paid as agreed.

Impact on Sale Proceeds

Selling a house with a home equity loan or HELOC shrinks the amount of profit you get to keep. The share of proceeds you keep depends on how much you owe on the home, including the first mortgage and HELOC, and the sale price.

Deduction of HELOC Balance from Sale Proceeds

When a home is sold with a HELOC, it’s usually the title company that handles repayment of the debt. The upside is that you don’t have to worry about calculating how much you’ll need to pay to settle the HELOC or arrange for payment to be sent to the lender.

Instead, the money comes right off the top. So, for example, say you sell your home for $500,000. You owe $250,000 on your first mortgage and $50,000 to a HELOC. After you deduct $300,000 for the combined mortgage debt, you’d be left with $200,000.

Potential for Remaining Equity

Selling a home with a HELOC assumes that your home’s value has increased since you bought it. If your home value climbed substantially, it’s possible that you could still have a decent amount of equity in the home even if you sell it with a mortgage and a HELOC in place. You may find it helpful to calculate your total equity before making a move to sell a home with a HELOC. You just need to know what you owe on the home in combined mortgage debt and your home’s approximate value.

A home equity calculator can help with this step. You can then decide what you’d like to do with the proceeds from the sale, once your HELOC is paid off. For example, you might apply it as a down payment on the next home you buy.

When you’re ready to buy your next home, you can research what’s required for mortgage preapproval and shop around to find the best mortgage rates. Some options, like FHA loans, allow for a smaller down payment.

Considerations for Underwater HELOCs

Being underwater in a home means you owe more than it’s worth. So, what happens to a HELOC when you sell upside down? And can you sell in that scenario? The answer is yes, but being underwater can add a wrinkle to the process.

Insufficient Sale Proceeds to Cover HELOC

Your first mortgage takes priority for payoff when you sell a home. Any proceeds go to that loan first, before money is directed toward HELOC debt. If the sale proceeds aren’t enough to cover your first mortgage and HELOC, you end up in a negative equity scenario.

That means you’ll need to make up the difference in cash for the sale to go through. You may need to pull money from savings, liquidate some of your investments, or borrow from your retirement account to cover the gap. If you can’t or don’t want to do any of those things, you’ll have to look at other ways to deal with negative equity.

Options for Addressing Shortfalls

There are a few routes you might pursue to deal with a shortfall when selling a home with a HELOC. The possibilities include:

•   Delay the sale. You might decide to push the sale back to allow your home’s value to rise or to pay down some of the HELOC balance. Whether that’s feasible for you can depend on your reasons for selling. A HELOC repayment calculator can help you see how you will progress if you start making steady payments to chip away at what you owe.

•   Short sale. A short sale is an agreement between you and the lender to let you sell the house for less than what you owe. If you have a HELOC and a mortgage, both lenders would have to agree to a short sale.

•   Pay off the HELOC with another loan. While not ideal, you might consider getting a personal loan or line of credit to pay off your HELOC. This only moves debt around; it doesn’t reduce what you owe. But it can clear the lien on the home associated with the HELOC so the sale can go through.

Prepayment Penalties and Fees

Before you move to pay off a HELOC, whether to sell your home or for any other reason, read the fine print. Specifically, it’s important to check for prepayment penalties and other fees the lender might impose.

Early Termination Fees

When you get a HELOC, it comes with a set repayment term. For example, you might have five years in which to access your credit line and then 15 years after that to pay back what you borrowed.

Lenders may impose an early termination fee or prepayment penalty if you pay a HELOC off early. These fees are designed to help the lender recoup some of the interest they won’t get to collect as a result of you paying off your HELOC ahead of schedule.

If you owe a prepayment penalty, that money will be deducted from the sale proceeds when your HELOC is paid off. Understanding when this fee applies, if your lender charges one, and how much you’ll pay can help you calculate your net profit from the sale.

Reviewing HELOC Terms

Ideally, you scrutinized the terms of your HELOC agreement before you ever signed on the dotted line. But if you didn’t read through it that closely, or you did but now you’ve forgotten what it says, it’s time for a thorough review.

•   Go through your HELOC terms line by line to understand:

•   How long the repayment term lasts

•   If and when a prepayment penalty or early termination fee applies

•   How the fee is calculated, if applicable

•   When the fee is avoidable

•   Any other fees you might pay to close out a HELOC early

If there’s something in your agreement you don’t understand, don’t hesitate to ask the lender for clarification. The home selling process is hectic enough, and the last thing you need is to be blindsided by surprise fees.

Recommended: What Is a Home Equity Loan?

Steps to Manage Your HELOC Before Selling

If you’re ready to sell your home, it’s important to include HELOC planning on your to-do list. There are two critical steps to tackle before you head to the closing table.

Obtaining a Payoff Statement

A payoff statement offers a detailed breakdown of how much you’ll need to pay to close out a HELOC, including the principal, interest, and fees. You can request a payoff statement from your HELOC lender, though keep in mind the numbers may change slightly as your closing date approaches.

You can use the amount on your payoff statement to estimate how much will be left from the sale proceeds after your first mortgage and HELOC debt are paid. If you have an online account that you use to manage your HELOC, you may be able to log in and request an accurate payoff amount. Otherwise, you’ll need to reach out to the lender directly.

Planning for Closing Costs

Both sellers and buyers have closing costs they’re responsible for paying. The amount you have to pay can depend on the details of the transaction and where you live. Typical seller closing costs can range from 8% to 10% of the home’s sale price.

These costs are most often paid from the sale proceeds. So you’ll need to factor that into your calculations when estimating your profit.

Going back to the previous example of a $500,000 home sale, your closing costs could add up to between $40,000 and $50,000. If you deduct that from your estimated $200,000 in profit, you’d actually walk away with $150,000 to $160,000 instead.

The Takeaway

Understanding what happens to a HELOC when you sell your house can help you navigate the process with as few headaches as possible. And if you own a home but haven’t tapped into your equity yet, knowing what to expect can help you understand whether the time is right for a HELOC based on when you might want to sell.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

Will I owe money if my home sells for less than the HELOC balance?

If you’re upside down on your home when you sell with a HELOC, you’ll have to make up the difference to pay the line of credit off. If you can’t do that, you may need to delay the sale, arrange a short sale with the lender, or get a personal loan to pay the HELOC in full.

Are there fees associated with closing a HELOC when selling my house?

HELOC lenders may charge early termination fees or prepayment penalties if you pay your line of credit off ahead of schedule. If you owe this fee, it’s deducted from the sale proceeds, along with the amount needed to pay off the HELOC.

How does selling my home affect my credit score if I have a HELOC?

A paid-off HELOC can help your credit score since it shows you can handle debt responsibly. That impact, however, may be counterbalanced by the effects of applying for a new mortgage loan if you’re buying another home.

Can I transfer my HELOC to a new property after selling?

HELOCs are secured by your home so if you’re selling, the line of credit doesn’t transfer with you. If you’re interested in getting another HELOC, you’ll have to apply for a new one once you buy another home.

What happens if I don’t pay off my HELOC before selling my house?

If you don’t pay your HELOC off yourself before selling, then the HELOC balance is deducted from your sale proceeds. The title company handles repayment of HELOC debt for you from your sale proceeds, then passes on the remaining funds from the sale to you at closing.

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Prequalification for a credit card is an initial credit review conducted by a financial institution to determine if you might be a good fit for a credit card. You may request a prequalification offer, or you might receive one in the mail or by email. While it’s not a guarantee that you will be approved for a card, it can be a step in the process towards approval and may provide information about different cards that could be available to you.

If you are considering shopping for a new card, learn more here about what credit card prequalification is and isn’t.

What Is a Prequalified Credit Card Offer?

As noted above, credit card prequalification is when you are alerted that you may qualify for a particular credit card. Or you might request to be prequalified before formally applying for a card.

The prequalification process typically involves a card issuer conducting a basic review of a person’s creditworthiness to see if they’re likely to be approved for a new account. When you are prequalified, it means you seem to meet some of the key requirements for a card and have a good shot at approval. You still must, however, go through the steps of formal approval if you are interested in obtaining the card.

How Do Prequalified Credit Card Offers Work?

Credit card issuers will often invite people to fill out a form to see if they are likely to qualify for a new credit card. This process authorizes the card issuer to perform a soft credit check, which is often referred to as a “soft pull.” A soft vs. hard pull is basically a glimpse of someone’s credit profile, but it doesn’t affect their credit the way a deeper inquiry can.

Other times, card issuers will prequalify a potential customer based on general data that they’ve purchased. Or the card issuer may reach out because you have requested information from them in the past or are already a customer for one of their products.

But remember: Even if you receive a prequalified credit card offer, it doesn’t mean that you will be approved for a new account. It just means that based on the information reviewed, your application is likely to be approved.

Preapproved vs Prequalified Credit Card Offers

There’s often no difference between preapproved for a credit card vs. prequalified, and those terms may be used interchangeably. In some cases, however, being preapproved for a credit card can suggest that more extensive review was conducted, meaning that the odds of approval may be higher than if you were prequalified.

For example, a card issuer may conduct more detailed credit reviews before sending preapproved offers to potential consumers, while consumers who request a prequalification offer may be subject to a slightly less rigorous credit check. As you see, there’s some variation in how the terms are used, so don’t be surprised if they may vary from one issuer to the next.

Generally, however, being preapproved or prequalified may indicate that you are very much on track to get that new rectangle of plastic with your name on it, once a final review is completed. The issuer may have already done, say, a brief review of your qualifications.

A little extra intel: With other types of loans, such as mortgages, prequalification is usually a first step to securing funding, while preapproval takes you further along the road to getting a home loan. It can be as far as you can go in the process without having a contract to buy a property in place.

Recommended: What Is the Average Credit Score in America?

Benefits of a Prequalified Credit Card Offer

Understandably, most people don’t want to apply for a credit card unless they are likely to be approved. The reason? Every time you apply for any type of credit card, the issuer will do a hard pull to review your credit, which can lower your credit score by several points for a year.

By filling out a brief form to request a credit card prequalification, potential applicants can find out if the card they are considering aligns with their credit profile. And while there’s no guarantee that being prequalified will result in approval, it could improve your credit card approval odds.

When You May Need Credit Card Prequalification

Those with solid credit may not see any reason to be prequalified before choosing a new credit card and applying for it.

However, regardless of where you fall in the credit score ranges, it can be a good idea to get prequalified. That way, you won’t waste time applying if you don’t meet the requirements. You could also avoid needlessly adding another credit inquiry to your credit report. Having multiple new inquiries in a short period of time can have a negative impact on your credit score.

Tips for Getting a Prequalified Credit Card Offer

If you’re interested in getting a prequalified credit card offer, here are some tips:

•   Credit card prequalification offers are frequently sent by email or snail mail, so take a closer look at what arrives in your virtual and real-life mailbox.

•   If you haven’t received a prequalification offer, you can often find one on the card issuer’s website. Going to the card issuer’s website is also a way to protect yourself from scams.

•   Speaking of scams: Keep in mind that a prequalification offer can be fraudulent, and it’s wise to be especially cautious of links you receive by text or through social media. Going directly to the card issuer’s website is the best way to ensure that you aren’t risking identity theft.

•   When looking for a prequalification offer, it can be smart to be selective. Smaller card issuers may send prequalified offers to those with bad credit, but the cards may have very high interest rates and fees. Always read the fine print before moving forward.

•   Remember that even if you don’t think that you have the minimum credit score for a credit card with favorable terms, you might consider a secured card. While secured cards require a refundable deposit, you may find options with competitive interest rates and no or low fees.

•   If you are seeking out a prequalified credit card offer, it may be helpful to check your credit score without paying. Once you know your number, you can request a prequalification for a card in your range.

Recommended: How Does the Credit Rating Scale Work?

Tips for Improving Your Chances of Credit Card Prequalification

There are several things that you can do to improve your chances of getting a prequalification offer from credit card issuers.

•   First, you’ll want to maintain a credit score that’s as high as possible, since the way credit cards work involves tapping a line of credit and repaying it in a timely manner. Card issuers want to know that you have managed credit well in the past. Two important ways to build or maintain your score are to pay your bills on-time and to carry as little debt as possible.

•   You’ll also want to keep your income information updated with your creditors. You can include the income of your spouse or domestic partner, as long as you expect to access that income to repay debts. You should also include all other sources of income such as child support, alimony, government benefits, and investment income. By showing a higher income, you might receive a credit limit increase on any existing cards, which could in turn lower your credit utilization ratio (your balance vs. your limit) and build your score.

   A note about credit utilization ratios: Financial experts typically recommend that your balance not exceed 30% of your limit. Ideally, it would be just 10% or less of your credit limit.

How Does a Prequalified Credit Card Impact Your Credit Score?

Being prequalified for a credit card shouldn’t impact your credit score in any way. While an actual application requires a so-called hard pull that can affect your credit, the soft pull generated by a prequalified credit card offer has no effect on your credit history or credit score.

The Takeaway

Getting a prequalified credit card offer can indicate that you are likely to be approved for a new account, but it’s not a guarantee that your application will ultimately get the green light. Whether you receive a prequalification offer or request one, it typically does not involve a hard credit pull, meaning it shouldn’t impact your credit history. By understanding how prequalified credit card offers work, you can make the best decision when you’re looking to open a new account.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What does it mean if you are prequalified for a credit card?

A prequalified credit card offer means that the card issuer has done a preliminary review of your credit profile and determined that you are likely (but not guaranteed) to be approved for the card. The credit company may have conducted a soft pull on your credit, which doesn’t impact your credit score, but it will likely need to do a hard pull to approve you.

Is it better to be prequalified or preapproved?

When it comes to credit cards, there’s typically no difference between being preapproved and prequalified. For other types of loans, such as mortgages, a preapproval typically carries more weight than a prequalification and usually reflects that the lender has done a deeper dive into vetting you for funding.

Can you be denied a credit card after prequalification?

Yes, you can be denied a credit card after prequalification. Being prequalified is not a guarantee that your application will be approved but an indication that you are a good candidate. When you apply for a credit card, the card issuer will take a more thorough look at your credit, conduct a hard credit pull, and may decline your application if they determine you are not creditworthy for their card.

What can prevent you from being prequalified for a credit card?

You may not be prequalified for a credit card when you appear less creditworthy than the card requires. For example, your credit score could be lower than the range sought, or your credit utilization ratio might be higher than the card issuer wants to see.

How many hard inquiries are too many?

While there’s no fixed number of hard inquiries that’s considered too many, having multiple hard inquiries within a few months can negatively impact your credit score. Each hard pull can lower your credit score by several points, often for up to a year, so multiple inquiries could ding your score by a significant amount. Applying for numerous new accounts can be interpreted by the credit-scoring algorithms as a sign of potential financial problems.

Is 10 hard inquiries a lot?

Whether 10 hard inquiries is a lot depends on the time frame. If you have 10 hard inquiries within a few months, then it will probably be seen as a sign of potential financial distress since you are seeking multiple sources of credit in a fairly short time frame. However, if those inquiries are spread out over a couple of years, that may be less of a problem.

Also, the credit-scoring formulas will effectively combine multiple hard inquiries for a single instance of seeking an auto, home, or student loan within a short period of time (from 14 to 45 days for FICO® Scores). That would typically be considered rate-shopping behavior and not a sign of financial problems.

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

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

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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The 50/30/20 budget rule (aka the 50 30 20 rule) is a simple budgeting technique that involves dividing your money into three basic buckets. It can be an effective way to manage your earnings, allocating 50% of your take-home income to “musts,” 30% to “wants,” and 20% to saving for your future.

For anyone who has ever felt that budgeting was too complicated and headache-triggering to take on, this guideline can make things clear and easy.

What Is the 50/30/20 Rule?

The 50/30/20 budget or “rule” is a budgeting framework that can be relatively easy to create and implement. It’s one potential way to help keep your finances on track and help you work towards your goals.

The 50/30/20 numbers refer to percentages of your take-home income that you would allocate to three main categories: ”needs” or “musts” (essentials), “wants” (nonessentials), and saving (financial goals), respectively.

The primary goal of the 50/30/20 rule is to learn to prioritize saving money by making it a key part of your spending plan.

Everyone’s financial needs and goals are different, however. And, while these percentages can be a great starting point, you may find that you need to tweak these exact numbers to better suit your needs and current financial situation.

Where Did the 50/30/20 Rule Come From?

The 50/30/20 budget rule gained popularity when Sen. Elizabeth Warren explained it in her book, “All Your Worth: The Ultimate Lifetime Money Plan,” which was first published in 2005.

The simplicity of the concept (and the math) contributed to its appeal. The idea of dividing one’s money into three instantly understandable buckets proved to have staying power.

How the 50/30/20 Rule Works

In the 50/30/20 budget, you allocate your take-home (or after-tax) income into three main categories or buckets according to percentages.

Recommended: Check out the 50/30/20 calculator to see a breakdown of your money.

50% to “Needs”

These are things you cannot live without and the bills you cannot avoid paying. Consider them the “musts;” the items that you need to survive or that would leave you in a difficult situation if you didn’t pay them.

Here are some examples of typical needs:

•   Rent or one of the different kinds of mortgage payments that are possible (in a nutshell, your housing costs)

•   Utilities, including electricity, wifi, and water

•   Car payments and/or other transportation expenses (say, to get to work)

•   Groceries (but not that pricey takeout salad)

•   Basic clothing (what you need to wear in daily life, at work, and/or to stay warm; not the latest style of jeans just because they’re cool)

•   Insurance payments

•   Healthcare costs

•   Debt payment, such as the minimums on student loans and/or your credit card

The “needs” category does not include items that are extras, such as Netflix, dining out, and clothing beyond what you need for work. Those fall under the next category.

30% to “Wants”

Also known as personal, discretionary, or nonessential spending, these are the things you buy that you could technically live without. This includes:

•   Dining out or takeout food

•   Going to the movies, a show, or a concert

•   Vacation/travel costs

•   Streaming channel subscriptions (unless they are somehow vital for your work)

•   New clothes, simply because you feel like buying them

•   Electronics that are cool but not vital to your job

•   Spa treatments

•   Ubers or taxis instead of public transportation.

Wants are all the little extras and upgrades you spend money on that make life more fun.

20% to Savings

This is the money you save for future financial goals. This category often provides a means to financial security. This includes:

•   Money put into an emergency fund

•   Saving for a down payment on a home

•   IRA or other retirement contributions

•   Extra payments to help pay off your loans sooner (minimum payments are part of the “needs” category).

Even though the budget is written as 50/30/20, the purpose of this system is to prioritize the saving aspect, this 20%. (It may be more appropriately named the 20/50/30 budget.) The goal here is to get people to save for tomorrow rather than just spend today.

The idea is to make space for the 20% without laboring over the rest. The minutiae of where your fun money is going ($5 for a latte here, $10 for an appetizer there) isn’t super important if you’re saving enough to meet your financial goals.

Another point to note: If you aren’t saving 20% of your income right now, that’s okay. The process of setting up the 50/30/20 budget will help you find out where your money is going so that you can make adjustments. After completing your budget breakdown, you can address the areas where you’d like to cut back.

Benefits of the 50/30/20 Budget

The 50/30/20 rule may be a minimalist budget, but it can pack the same powerful benefits you would get with a more labor-intensive budget.

Some of the payoffs of setting up and following a 50/30/20 include:

•   Knowing where you stand. As a popular adage goes, “what gets measured gets improved.” It can be hard to start spending less and saving more if you aren’t clear on how much and where you are currently spending.

•   Identifying easy ways to cut back. As with any budgeting process, the 50/30/20 budget can reveal opportunities to cut back on spending. Simply going through the process – and seeing exactly where your money is going each month – can help to motivate you to make some relatively pain-free adjustments.

•   Reducing financial stress. While building a budget may seem like a stress-inducing exercise, it can ultimately relieve a lot of financial worry. It can add structure and clarity to your spending. Instead of angsting over every purchase, you’ll have built-in boundaries that allow you to spend freely within your budget.

•   Simplifying the budgeting process. By having fewer categories than a traditional monthly budget, the 50/30/20 rule of thumb can be easy to set up and to maintain. It can also be simple to track a 50/30/20 budget digitally.

•   Achieving your savings goals. By making saving a priority and setting some money aside before you start spending, a 50/30/20 budget can help you work effectively towards your financial goals. Whether that’s creating an emergency fund, making a down payment on a home, or going on a great vacation is your decision.

Tips for Implementing the 50/30/20 Budget

Want to give the 50/30/20 budget a try? If you decide to go this route, or you’re just looking for some budgeting basics, here are some steps you can take to get started.

Gathering Your Financial Records

To get started with any kind of budget, it’s helpful to collect the last three months or so of bank and credit card statements, pay stubs, receipts, and bills.

Calculating Your Monthly Income

You can use your statements to figure out exactly how much money you are bringing in each month after taxes are taken out. You can think of after-tax dollars as the pot of money you have to siphon into the three budget categories each month.

Setting a Savings Target

You may want to begin with the most important category, which is the 20% (savings). Since the goal for this budget is to turn the 20% into a nonnegotiable part of the plan, you’d calculate 20% of your monthly after-tax income and set that figure aside for things like debt repayment, cash savings, retirement investing, and any other financial goals that you have.

Even if you don’t feel it’s realistic for you to put 20% into saving right now, you might run the exercise assuming that you will. You’ll be able to tinker with the numbers later.

Calculating Essential Monthly Expenses

Next, you may want to make a list of all of your monthly essential or fixed expenses, such as rent/mortgage, utilities, groceries, and insurance.

Currently, do essential items absorb more than 50% of your take-home income each month? If so, what percentage do they comprise? And, is there any way to reduce any of these monthly expenses?

Building a Hypothetical Budget

After adding up savings and essentials, what is left over is what can be allocated towards discretionary spending, or the “wants” outline above.

It can be helpful to keep in mind that the 50/30/20 numbers are just a guideline. If the cost of living is high where you live, for example, it may not be feasible to keep essentials to 50% of your take-home income. In this case, you may need to reduce spending on wants.

Or, you may decide that at this point you can’t quite afford to put 20% into savings. There are variations on the 50/30/20 theme that accommodate these situations, such as the 70/20/10 rule, which acknowledges that for some people, a hefty 70% will be needed for the “musts” of life.

Recommended: Cost of Living by State Comparison

Once you see your numbers in black and white, you can play with the percentages and come up with a workable plan for roughly how much you can spend on nonessentials, or fun, each month.

Putting Your Plan into Action

Now that you have a basic guideline of how much money you will put into one type of savings account each month and how much cash you can spend each month on wants, it’s time to give your budget a try.

You may want to plan on tracking your spending for two to three months to start. You can do this by saving receipts and logging expenses according to the three categories at the end of the day. Or, you could use a budgeting app that makes it easy to track and categorize expenses.

Another tip: Try automating your finances and having money transferred from your checking account to your savings right after payday. That way, you won’t see the cash sitting in your checking account and think it’s there for the spending.

Making Some Tweaks

After tracking your spending for several months, you’ll probably have enough data to refine your original 50/30/20 budget. From there you can adjust the categories based on your actual spending, not just your projected spending.

You may also find that you need to adjust your spending. Discretionary spending is typically the easiest place to do some trimming.

You may decide you need to cook at home (rather than get takeout) a few more times a week, save on streaming services by dropping a channel you rarely watch, or ditch the gym membership and work out at home.

It may also be possible to pare back some of your fixed monthly expenses. Reducing utility bills, saving on gas, and, if possible, rent, could free up more money for fun spending. You may also want to look into whether you are paying bank fees. Switching to an online bank or other financial institution with low or no fees could free up a bit more money in your budget.

After making some adjustments, you can execute your new and improved budget. You may want to continue to track spending in a method that works best for you until spending according to your budget becomes second nature.

Recommended: How to Make Money From Home

The Takeaway

The 50/30/20 rule of thumb is a set of easy guidelines for how to plan your budget. Using them, you allocate your monthly after-tax income to the three categories: 50% to “needs,” 30% to “wants,” and 20% to saving for your financial goals.

Your percentages may need to be adjusted based on your personal circumstances and goals. But using this simple formula can be a good way to get a better handle on your finances, and to start working more effectively towards your goals.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Is the 50/30/20 rule a realistic goal?

For many people, the 50/30/20 rule is a realistic way to budget for essentials, discretionary expenses, and savings contributions. For others, it may not be realistic. If you are just starting your work life, earn a lower salary, live in an area where housing is very expensive, or have considerable debt to manage, you might do better with a different budget guideline.

Is the 50/30/20 rule weekly or monthly?

When budgeting, people typically work with their monthly expenses, since that is how housing costs, utilities, and other payments (say, student loans and credit card debt) are assessed. You could, however, apply the 50/30/20 guideline to your weekly spending and see how your finances are tracking.

What is the 60/30/10 rule budget?

The 60/30/10 budget is a different version of the 50/30/20 rule that can work well for those with higher costs of living. It allocates 60% more for the “musts” of life and 30% for discretionary spending. The remaining 10% is for saving and paying off debt.

What is the 70/20/10 rule for money?

The 70/20/10 rule is a budgeting system that allocates 70% of one’s take-home income towards “needs” (minus debt) and “wants” (discretionary spending), 20% to saving and investing, and 10% towards debt repayment or donations.

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 during a 30-day Evaluation Period (as defined below).

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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY 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, 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 members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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