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A home equity line of credit or HELOC is a revolving credit line secured by your home. HELOCs have two phases: a draw period and a repayment period.

Your HELOC draw period is the window of time in which you can access your credit line before you must begin repaying what you have borrowed. A typical HELOC draw period is five years, though yours may be shorter or longer, depending on the terms of your borrowing agreement.

Here’s a closer look at how a home equity line of credit draw period works.

Understanding the Draw Period

What is a HELOC draw period? Simply put, it’s when you’re allowed to access your credit line. During the draw period, you can spend up to your credit limit and make payments to reduce the outstanding balance. That’s similar to how a credit card works.

Your choice of lender can influence how long your HELOC draw period lasts. Some lenders offer HELOCs with a five-year draw period; others extend it up to 10 years. Comparing HELOC options can help you decide which line of credit best suits your needs. Examine mortgage rates and consider getting preapproved for a HELOC to see what you might qualify for. Look for HELOC lenders that offer mortgage preapproval with no impact on your credit.

Recommended: HELOC Definition

How the Draw Period Works

The draw period on a home equity line gives you freedom and flexibility to spend, up to your credit limit. There are a few key details to know, however, about how a HELOC draw period works.

Accessing Funds

HELOC lenders can offer multiple ways to access funds during the draw period. Your options might include:

Paper checks

•   An ATM card or debit card

•   ACH transfers to a linked bank account

•   In-person cash withdrawals (if you opened your HELOC at a local bank)

Your HELOC lender should provide monthly statements showing your transaction activity, including how withdrawals were made, the amount, and the date. Keeping track of draws can help you calculate what your repayment installments may be later on.

Payment Structure

Your lender may require monthly payments during your HELOC draw period. The payment may be a set minimum dollar amount, or a payment equivalent to the interest only.

HELOCs typically accrue interest daily. Here’s how to find your daily interest accrual.

•   Divide your annual percentage rate (APR) by 365 (number of days in the year)

•   Multiply the result by your balance to find your daily interest accrual

For example, say you owe $50,000 to a HELOC at an annual APR of 5.00%. If you plug in the numbers, the math looks like this:

0.05/365 = 0.0001369863 x $50,000 = $6.85

Note that some lenders might use 360 instead of 365 to find your daily interest rate. That number assumes that every month has 30 days.

Your loan agreement should specify whether you’re required to make interest-only payments or a flat minimum payment. Keep in mind that if you can pay more than the minimum due, that’s usually a good idea. The bigger dent you can make in your balance during the draw period, the less you’ll have to repay later.

Have questions about home equity lines work in general? Explore our in-depth HELOC loan guide.

Interest Rates

HELOCs may have fixed or variable rates. A fixed interest rate stays the same for the life of the loan; variable rates, meanwhile, can increase or decrease over time based on changes to an underlying index or benchmark rate.

Variable-rate HELOCs can use the prime rate, LIBOR, or Treasury bill rate as their index rate. The prime rate is common, as it represents the rate at which banks lend to their most creditworthy customers. Lenders may charge a prime rate + a margin rate to set your HELOC rate.

Recommended: Understanding the Mortgage APR

Transitioning from Draw to Repayment Period

If you’re asking what is the draw period on a HELOC, it’s also important to ask what comes after. As you get closer to the end of your draw period, you’ll need to begin preparing for the repayment phase.

End of Draw Period

The end of your HELOC draw period is determined by the lender at the outset. Again, you may have five years, 10 years, or somewhere in between to spend with your credit line. Once the draw period ends, you can’t make any more withdrawals.

Your loan agreement should specify the end date of your draw period and when you’re expected to make your first regular monthly payment.

Can you extend a HELOC draw period? Maybe. Your lender might offer the option to renew your draw period so you have more time to access your credit line. You might pay a fee for the convenience.

The other option would be to refinance your HELOC into a new HELOC. That would give you a new draw period, followed by a new repayment term.

Repayment Terms

HELOC repayment may last anywhere from 10 to 30 years — it depends on the terms of your loan agreement. During the repayment period, you’ll make payments to the principal (meaning the amount you originally borrowed) and the interest.

HELOC repayment is amortized the same as other home loans, such as FHA loans or VA loans. Your lender should give you an amortization schedule showing how many payments you’ll make total and how much of each payment goes to principal vs. interest.

Can you pay off a HELOC during the draw period? Yes, if your lender allows you to do so. Be aware, however, that your lender might assess a prepayment penalty for an early HELOC payoff. Prepayment penalties allow lenders to recoup some of the interest they lose out on collecting when a borrower pays a loan off early.6

Impact on Monthly Payments

How much will you have to pay monthly to your home equity line of credit? It’s an important question to ask when planning your budget once the draw period ends.

Your HELOC payment amount is determined by:

•   Your principal balance

•   Interest rate and fees

•   Repayment term

If you have a fixed-rate HELOC, your monthly payments will be the same for the entirety of your repayment term. If you took out a variable-rate HELOC, your payments could change over time if your rate rises or falls.

Strategies During the Draw Period

Your HELOC draw period is for spending, but there are some things you can do to minimize what you’ll have to repay later. Here are a few tips for managing your home equity line of credit during the draw period and beyond.

Making Principal Payments

You may be obligated to make minimum or interest-only payments during the draw period, but consider whether you could make payments to the principal as well. For example, you might:

•   Apply your tax refund to the principal

•   Use a year-end bonus to wipe out some of the balance

•   Make biweekly payments or micropayments toward the principal

•   Double up on your regular monthly payments

Reducing your principal balance can shrink the amount of interest that accrues. And it can lower your monthly payments once you enter the repayment period.

Monitoring Interest Rates

If you have a variable-rate HELOC, it’s a good idea to keep an eye on interest rates. If you anticipate a rate hike sometime in the future, you may want to explore HELOC refinancing options.

Refinancing a variable-rate HELOC into a fixed-rate line of credit can offer some predictability with monthly payments. You don’t have to worry about your rate — and your payment — going up over time. You could also consider using a fixed-rate personal loan to pay off your HELOC debt. The advantage of this approach is that personal loans aren’t tied to your home. So if you lose your job or get sick and can’t work, you don’t have to worry about losing your home if you fall behind on the loan payments.

Monitoring Interest Rates

If you have a variable-rate HELOC, it’s a good idea to keep an eye on interest rates. If you anticipate a rate hike sometime in the future, you may want to explore HELOC refinancing options.

Refinancing a variable-rate HELOC into a fixed-rate line of credit can offer some predictability with monthly payments. You don’t have to worry about your rate — and your payment — going up over time. You could also consider using a fixed-rate personal loan to pay off your HELOC debt. The advantage of this approach is that personal loans aren’t tied to your home. So if you lose your job or get sick and can’t work, you don’t have to worry about losing your home if you fall behind on the loan payments.

Planning for Repayment

Your regular monthly HELOC payments may be significantly higher than your minimum or interest-only payments. So it makes sense to look at your budget to make sure you can afford what you’ll be expected to pay.

A HELOC repayment calculator is a helpful tool for estimating monthly payments and the total interest paid. You can just plug in your HELOC balance, rate, and repayment term to see how your payments might add up.

The Takeaway

What is a draw period on a HELOC? It’s your window to spend before repayment begins. The tips we’ve shared here can help you make the most of your draw period. If you’re still in the “shopping for a HELOC” phase, do your research: Look at different lenders’ interest rates, find out what is a HELOC draw period at various lenders, and inquire about prepayment policies and annual fees to find a lender whose offerings fit your needs.

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 from SoFi, brokered through Spring EQ.

FAQ

Can I make principal payments during the draw period?

Yes, you should be able to make principal payments during the draw period if your lender allows it. You can review your loan agreement or contact your lender to ask if principal payments are allowed and how to make them. Paying down the principal during the draw period can reduce what you have to repay later and potentially save you money on interest.

What happens if I don’t use my HELOC during the draw period?

One of the great things about a HELOC is that you only pay interest on the amount of your credit line you use. If you don’t use your HELOC during the draw period, there would be nothing to repay with interest later. You may still be responsible for paying annual maintenance fees or other fees associated with your line of credit.

Are there fees associated with the draw period of a HELOC?

HELOCs can come with a variety of fees, including annual or membership fees. If your lender charges an annual fee, you’ll pay it yearly during the draw period and the repayment period. The same goes for membership fees, which should all be explained in your loan agreement.7

How does the draw period affect my credit score?

HELOCs can affect your credit scores in the draw period in two key ways: payment history and credit utilization. Making the required monthly payments on time and keeping your HELOC balance low, relative to your overall credit limit, are the simplest ways to keep your credit score in good standing. Once you enter the repayment period, you’ll just want to continue making monthly payments on time.8

Can the draw period be extended?

Your HELOC lender may allow you to extend your draw period by renewing your line of credit. You may pay a fee to do so. If your lender doesn’t offer renewal, you might look into refinancing your line of credit into a new HELOC with a new draw period.

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SOHL-Q125-055

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Zero-based budgeting is one method that can help you account for every dollar so you better understand your cash flow situation. This in turn can help you better manage your money and hit your financial goals.

You may be among those people who feel as if your money disappears as you pay for groceries, gas, utility bills, dining out, student loans, and everything else on your plate, without really knowing how much you earned or how much you are spending. That’s where a budget like the zero-based budgeting method can help.

A budget provides a framework to see how much is coming in and what it’s being spent on. It gives you the chance to recalibrate so you can, say, put more into savings. Here, learn more about zero-based budgeting and whether it would be a good fit for you.

How Zero-Based Budgeting Works

When building a zero-based budget (sometimes referred to as 0-based budget), your income minus your expenses should equal zero. In other words, with zero-based budgeting, every dollar of your income has purpose.

This doesn’t mean you won’t have any money in your bank account, since you might want to allocate some of your budget to savings. Rather, using this method could help you know exactly how much you will spend, save, and invest in any given month. And depending on your monthly needs, these figures may change or stay the same.

Recommended: How to Deposit a Check

How to Build a Zero-Based Budget

As with most budgeting techniques, you might want to start the zero-based budgeting process by making a list of your expenses.

•   Start with your fixed and necessary expenses first, such rent, utilities, groceries, transportation, insurance payments, and debt payments. You know that these payments have to be covered each month, so you could allocate income to each necessary expense.

   Tally these expenses and subtract them from your total income. The resulting figure could be the amount available for discretionary expenses.

•   Next, you could allocate those remaining discretionary funds. You might consider such spending as dining out, gym memberships, travel, and entertainment.

•   Also consider savings. That could include money that you pay to yourself to save for short-term goals such as an emergency fund. Or you might target longer-term goals such as stocking an online retirement account or saving for the down payment on a house.

•   Keep in mind that some expenses might be seasonal, such as vacations or holiday gifts. You might want to determine how you’d like to save for these expenses. You may choose to allocate funds in a single month, or it may make sense to set aside a small amount over each monthly period.

   It might take a little bit of extra planning to figure out how much you’ll need and how to divide up the cost. When doing so, don’t forget about one-off expenses, such as paying for an annual homeowners insurance premium.

•   Some expenses may also be variable — for example, say you’re hit with an unexpected bill when your car needs a new transmission — and these can be tricky to deal with. One way you could build them into the budget is to have a line item such as “savings for variable expenses” to help you cover them. This line item would be different from your other savings. You could keep the funds in a high-yield savings account so it earns some interest.

A simple example of a zero-based budget for someone who makes $6,000 a month might look like this:

Rent/Housing	$3,500
Utilities	$200
Car payment	$300
Gas	$200
Groceries	$400
Savings	$750
Eating out	$200
Entertainment	$150
Student loan payments	$200
Credit card payments	$100
Total	$6,000

In this example, the person’s income less their total expenses — $6,000 minus $6,000 — equals $0. As mentioned above, every dollar has a job to do.

Finally, remember that with a zero-based budget every dollar should have a purpose. So if at the end of figuring out your expenses, you find yourself with some extra cash, it needs to go somewhere. You might want to put a little extra toward savings or pay off some debt quicker.

But if you don’t allocate the funds, they might get spent. The problem is you may not know where you spent that money, and keeping track of it is the whole point of this exercise.

Tracking Your Budget

You might want to keep an eye on your spending throughout the month to make sure you’re sticking to your budget. This process could be dynamic, meaning it shifts in real time. If you find that you don’t need to spend as much on one budget item one month, you could shift that extra cash into another category the next month.

•   If you find yourself needing extra money in your checking account to cover an expense, you could look for places to save.

•   If you find yourself with little wiggle room in your budget and need to add to or boost your existing expenses, you might want to increase your budget with extra sources of income, like a side hustle.

Tools and Tips for Tracking a Zero-Based Budget

There are several tools that can make it easier to manage a zero-based budget. A few ideas to consider.

•   There are various online calculators for different budgeting tasks, such as emergency fund calculators. Search and find one that could help you with the math for your zero-based budget.

•   To better track your spending, see what tools your bank offers. Many have budgeting apps and/or trackers that can help you understand where your money is going.

•   You might also investigate third-party budgeting apps. Some are available for free; others require payment.

•   Tech tools can also help with managing your money when budgeting, from direct deposit to facilitate receipt of your paycheck to online bill pay to cover expenses seamlessly.

•   Some people will like to manage their budget with pencil and paper (a ledger-style pad can be helpful) or an online file, such as Excel or Google Sheets. It’s your choice.

A Zero-Based Budget on an Irregular Income

Many people earn a variable income, whether that means being a seasonal worker or a freelancer whose earnings ebb and flow. A variable income can pose some challenges to building a zero-based budget, but they’re not insurmountable.

Adapting Zero-Based Budgeting for Inconsistent Income

First, you could consider maintaining a buffer of cash, or a cash cushion, to help cover your expenses as your income varies.

You could then use your previous month’s budget as a base for the current month, using the buffer to cover any shortfalls. You might want to replenish this buffer when you have extra money in a month. You may also try building your budget based on a low estimate of your monthly income to increase the odds that you’ll be able to stay within your budget.

An irregular income means that you might spend more time adjusting your budget as your income fluctuates. You might need, say, multiple budgets. A seasonal worker could have, say, a high season and a low season budget that they use at various points during a typical year.

Recommended: How to Transfer Money

Other Budgeting Strategies to Consider

There are other budgeting methods that may be worth a try. One rule of thumb, called the 50-30-20 rule, allocates percentages of your income to different categories. When using this rule, 50% of income goes to necessities, like housing, utilities, and food. The next 30% of income goes to discretionary spending, and the final 20% is allocated to savings or additional debt payments.

You may also consider a budgeting system known as reverse budgeting, in which you focus on savings goals rather than expenses. To use this method, you might want to determine your short- and long-term savings goals, such as a down payment on a house, paying down student loan debt, and retirement.

You could figure out how much you need to save for those goals and then automate the savings. The money could be taken from your checking account and put into a savings account each month. You might use the money left in your checking account to pay for necessary expenses first, and the rest you could use however you’d like.

Comparing Zero-Based Budgeting to Other Methods

Finding the right budget to fit your needs is an important process, and it may take some trial and error. It can be wise to experiment with a couple of techniques to find one that feels like a good fit.

For example, some people may find the granular “every dollar has a job to do” approach of zero-based budgeting suits them. They may find it very helpful to know every single expense that occurs during a week or a month. Other people may prefer, say, the 50/30/20 budget rule, since they only need to stay focused on three key buckets of spending their money.

Pros and Cons of Different Budgeting Styles

Here are some points to consider as you decide whether zero-based budgeting is right for you.

•   Pros: For a personal budget, a zero-based budget can provide insight on expenses and spending habits which can help a person manage their money better. In a business context, this budget can also be used, allowing managers to delve into their operations and cost savings and maximize their resources.

•   Cons: No doubt about it, zero-based budgeting can require considerable time and effort. It may be too detailed for some people’s tastes. They might prefer a simpler approach or to use tech tools to manage their finances.

Recommended: Money Management Guide

The Takeaway

Zero-based budgeting is a technique in which every dollar you earn has a job to do. By managing your money this way, you can have a very in-depth understanding of your finances and your spending and saving habits. However, this technique can be time-consuming and may not suit an individual’s needs. Budgeting in general, though, is an important way to see where money is going and to fund the things you care about most. Your bank may offer valuable tools that can assist with this process.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

How much time does zero-based budgeting take each month?

The amount of time it takes to manage zero-based budgeting each month will vary depending on each person’s situation, needs, and speed with organizing their financial details. That said, it may initially take several hours per month to establish this kind of budget, and then a few hours per month to keep it running.

What tools can simplify zero-based budgeting?

There are a variety of tools that can simplify zero-based budgeting. For some people, using a ledger pad or an online file (such as Excel or Google sheets) can be helpful. Others may want to use an online budget calculator, tools provided by their bank, or third-party apps to track and optimize their spending and saving.

Are there challenges to maintaining a zero-based budget?

There are challenges for most budgets, and the zero-based system is no exception. Some people may find tracking their expenses and accounting for every single dollar earned to be a very involved process that takes too much time and effort. In addition, those with a fluctuating income (such as seasonal workers) may find zero-based budgeting to be a challenging technique.

How can I stay consistent with a zero-based budget?

Staying consistent with zero-based budgeting requires diligent tracking of your income, spending, and savings. It can be a detailed process, and it can involve re-evaluating the figures on a regular basis, especially if you earn a fluctuating income. While this sounds as if it must be a time-consuming pursuit, there are tech tools that can help automate this process somewhat.

What should I do if I exceed my budget in a category?

If you exceed your budget in a category, there are a couple of options. You could cut your spending in that category, or you could borrow funds from another category and economize there. For instance, if your spending on dining out is running high, you can either rein it in or borrow funds from, say, your entertainment or travel spending to cover it.

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

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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SOBNK-Q125-080

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Living paycheck to paycheck is defined as spending almost all of your income on essentials and everyday expenses so you may not be able to save for future goals nor deal with a financial emergency.

According to a December 2024 report by PYMNTS.com, more than 67% of respondents reported they were living paycheck to paycheck at the end of last year. What can you do if you want to beat those odds and get ahead of your bills? Read on for some steps that may help you achieve financial breathing room.

6 Ways to Stop Living Paycheck to Paycheck

Maybe it’s inflation eating up your paycheck these days. Or maybe it’s just… life.

Either way, there are likely adjustments you can make — both big and small — to get yourself to a better place financially. Here are a few basics to consider if you’re wondering how to stop living paycheck to paycheck.

1. Set a Budget

Admit it: You knew the b-word was coming.

Making a budget is the best way we know of to get a better handle on your spending and saving. It can show you where your hard-earned money is going every month — and help you nudge it in a different direction if you don’t like what you see.

Yes, it involves sitting down and doing math. You can look at how much money is going in (say, the amount of direct deposits of your paycheck) and how much is flowing out to debt payments, living expenses, and one-off charges (like your home insurance).

If this feels daunting, know that spending apps that can help you set up budget categories and monitor your money movements all in one place, the process isn’t nearly as tedious as it used to be.

You’ll probably have to tweak your budget from time to time — to deal with quarterly or seasonal bills, for example, or if costs go up. And if you’re a freelancer or seasonal worker, it can be tough to budget on a fluctuating income. But creating a comprehensive and realistic budget you can stick to through thick and thin can help you make your paycheck go further.

2. Focus on the Essentials

As you determine your personal budgeting categories, you’ll also be setting spending priorities. That starts with focusing on the essentials. Unless you’re still living with your parents rent-free, it can be a good idea to figure out the amount you’ll need for food, utilities, shelter, and transportation before anything else.

After that, you can play around a bit with what’s most important to you — your “needs” vs. “wants.” You may have to let go of a few things (sorry, Netflix) when you run out of money to spend. That can help keep you from teetering on the edge of overdrafting your checking account.

No matter what happens, you’ll have a roof over your head and something to eat. The lights, heat, and water in your home will keep working. And you can get where you need to go.

Prepare for the Unexpected

If you’re worried that an unexpected bill could come along at any time and take a huge bite out of your finances, you aren’t alone. About 59% of Americans are unable to cover a $1,000 surprise bill with their savings, according to a 2025 survey by Bankrate.

Financial advisors typically recommend keeping at least three to six months’ worth of expenses stashed away in an emergency fund. If that amount is too daunting, you can start with a much smaller amount. Anything you can put away will help if you suddenly have to pay a medical, home, or car repair bill.

You might want to start an automatic savings program, transferring a small amount of money every paycheck into a dedicated savings account. That can help your emergency fund grow with a minimum of effort.
Two more tips:

•   Consider keeping your emergency fund in an online bank account which often offers low or no fees and higher interest rates, which can help your money grow faster.

•   If you want help doing the math, you can use an online emergency fund calculator.

4. Get Out of Debt

If debt payments (credit cards, student loans, etc.) are a big part of your monthly budget, you may want to rethink your debt payoff strategy.

To truly dump your debt burden — and reclaim the money you’re paying in interest every month so you can save it or use it for other things — it can help to have a debt reduction plan. There are many options to choose from, including these popular strategies:

•   The snowball method: With this strategy you put any extra money you can toward paying off your smallest debt — while making the minimum payment on the others. When that balance is paid off, you can move on to the next smallest bill, and so on — slowly eliminating all your debts.

•   The avalanche method: The avalanche method focuses on high-interest debt. With this strategy, you would put any extra you can toward the credit card or loan with the highest interest rate. When that bill is paid off, you move on to the bill with the next highest interest rate, and so on.

If you’re using credit cards just to keep your head above water, you could end up drowning in debt — especially as interest rates are rising. Try to budget with your credit card wisely, instead of thinking of it as a life raft. Charge only what you can afford to pay off each month.

5. Increase Your Income

If your main income stream just isn’t enough — and a pay raise isn’t coming anytime soon — you may want to consider your options for earning extra cash.

That might mean taking on a side hustle (something you can do when you’re not at your regular job), selling stuff you don’t use any more, or maybe renting out a room in your home. Whatever you choose, try to make it fun (or at least bearable), so you aren’t tempted to give up. And make sure the hours, effort, and money you put into the side gig (for supplies, uniforms, etc.) are worth it and you’re really getting ahead.

Recommended: 24 Best Paying Online Side Jobs for Teachers

6. Increase Your Down Payment

If you’re on the verge of buying a house, consider your options. You may want to think about ways to lower your ongoing monthly mortgage expenses. That’s another idea for how to stop living paycheck to paycheck.

A 20% down payment usually isn’t required to finance a home purchase, and most buyers put down less. Yes, your Realtor® and your lender can help you decide how much your down payment should be. But keep in mind that if you can scrape together more, you’ll borrow less, which means you can have lower monthly payments. You’ll also have more equity sooner, and you’ll pay back less interest over the life of the loan.

More Tips to Budget and Save Money

Okay, now that we’ve covered the basics, let’s drill down to some other lifestyle changes that can help you spend less and save more.

See the Benefits of Owning Less

It’s tough to say no to buying new, or better, or more — especially when you can make online purchases with just a couple of clicks and use a credit card to pay. But embracing financial minimalism and the mantra that “less is more” can help you change your spending behavior.

Budgeting is a great way to focus on needs vs. wants, and tracking your spending with an app, or even going old-school and writing down every penny you spend in a notebook, can help you set priorities.

Sit Down and Do the Math

It’s easier to get where you want to be if you know where you are. So it can be helpful to pull out all the paperwork when you’re creating your household budget. That means sitting down with purchase receipts, bank and credit card statements, income info, etc., to figure out how much you’re spending every month, what you’re spending it on, and how much you actually have to spend.

Look for Things to Cut

This is the painful part. If you really want to stop living paycheck to paycheck, there’s a good chance you’re going to have to get rid of some of the things you love.

That might mean cutting back on concert or theater tickets (or just choosing cheaper seats). You might have to back off on the morning trips to Starbucks. Or cancel app subscription services. The good news is, you get to pick your priorities — as long as those things track with what you realistically have and want to spend each month.

Embrace a No-Spend Period

It’d be pretty difficult to not spend any money at all for a year — or even a week. (Although some people are trying as part of the “no-spend challenge” trend.)

But by challenging yourself to only spend on things you absolutely have to have for a pre-set period of time, you can really get a feel for what’s important to you. And of course, you save money.

You can go big or small. You can challenge yourself for a year, or a month, or a week. You can try to go without buying anything new, or limit yourself in a specific category: no spending on clothes, shoes, or jewelry; no movies (at the theater or streaming); or no eating at restaurants, for example. And you can post your progress on Twitter or Instagram — if that helps push you to keep going — or you can keep it all private in your diary.

Put Your Savings into a Separate Account

It may seem super convenient to put all your money into a checking account. But that can also make that money super easy to spend.

Funneling some of your funds into a separate savings account can help you keep your hands off your cash as you set up your emergency fund or save for other short- and long-term goals.

And if you put the money into a high-yield online savings account, you typically can earn a higher interest rate than you would with a traditional checking account.

Don’t Be Afraid to Consider Drastic Changes

Some people need to make only a few minor changes to pull out of the paycheck-to-paycheck cycle. Others may need to get more radical. If you can’t get your spending under control, for example, you may need to cut up your credit cards. If you can’t afford your car payments or gas, it might make sense to take the bus or carpool to work. Or you may have to make some uncomfortable budget cuts — like going without cable or shopping at less expensive clothing stores.

When you’re thinking about what moves might help you get ahead, consider crunching the numbers first to see if the change really makes financial sense. Then, try to stay motivated by thinking about what you can do with the money you’ll save. Consulting money management guides can also give you a deeper understanding of how to make changes and spend less.

Avoid Lifestyle Creep

Another idea for how not to live paycheck to paycheck is to be aware of “lifestyle creep.” That’s when your personal cost of living increases as your income increases, perhaps so slowly that you may not notice until you are scrambling to pay your bills.

Maybe you got a raise and thought you could afford to spend a bit more on the things you want. Or maybe your friends are earning more money than they used to — and keeping up socially is hurting you financially.

If you’re overshooting your budget every month and can’t figure out why, it may be time to reexamine your priorities and focus on the larger goals (saving for a house or college for your kids) that could slip away if you can’t get a handle on your spending.

Set Financial Goals

When you’re just winging it financially from month to month and year to year, it can be much harder to live within your means. Setting short- and long-term goals — whether it’s to reduce your debt, build your emergency fund, or save for a new car or home — can motivate you to stay on track.

When you’re setting your goals:

•   Think about what you hope to accomplish and how it would make your life better. (Be specific.)

•   Give yourself a timeline. (Be realistic.)

•   Try to make your goals measurable. (Baby steps are akay!)

Be Patient and Stay Positive

Getting your finances on track can be a little like dieting. You’re bound to slip up from time to time. And getting to your goals may take longer than you planned.

You may even be tempted to give up completely.

But if you stick with your plan, you can improve your financial health — and feel better about yourself and your future.

Recommended: Ways to Reward Yourself Without Breaking Your Budget

Track Your Spending with an Eye Toward Saving

If your goal is to save more, you’ll have to spend less. And one way to get the ball rolling is to track your spending for at least 30 days to see where your money is going.

Once you spot the things you can change, you can start cutting back on current and future spending, and catch up on old debts. Then you can move more and more money to savings — and get closer and closer to your goals.

It may help to choose a budget strategy that focuses on saving, such as the 70-20-10 budget rule, which divides after-tax income into three basic categories: 70% to monthly spending, 20% to savings and debt repayment, and 10% to donations (or to more saving and investing).

The Takeaway

Living paycheck to paycheck is like treading water: You may not be drowning in debt (yet), but you also aren’t getting any closer to your goals.

By taking six critical steps, including budgeting and reducing debt, you can be on a path to end the paycheck-to-paycheck cycle. Doing so can allow you to start building up more money in your bank account.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

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

The 70-20-10 rule is a budgeting strategy that focuses on both spending and saving. It says that, from your take-home pay, put 70% toward living expenses, 20% toward savings and debt repayment, and 10% toward donations (or you could put more toward saving and investing).

What is considered not living paycheck to paycheck?

If you aren’t living paycheck to paycheck, you’re living comfortably within or below your means, you’re putting savings away for future goals, and you have an emergency account set up so unexpected bills don’t send you spiraling.

What’s the best way to stop living paycheck to paycheck?

A good first step toward ending the paycheck-to-paycheck cycle is to find out where your money is going every month, and to set up a budget that prioritizes smart spending and saving.

Is living paycheck to paycheck stressful?

Yes, living paycheck to paycheck can be stressful. Living this way can create financial anxiety since you know you likely don’t have enough money to cover unexpected expenses, nor can you save for future financial goals.

How many Americans live paycheck to paycheck?

According to a study conducted in December 2024, fully two-thirds (67%) of Americans were living paycheck to paycheck. That can be seen as a sign that people need to manage their money more carefully to free up funds for savings and long-term goals.

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REIT is the abbreviation for Real Estate Investment Trust, a type of company that owns or operates properties that generate income. Investors can buy shares of REITs as a way of investing in different parts of the real estate market, and there are pluses and minuses to this option.

While developing and operating a real estate venture is out of the realm of possibility for some, REITs make it possible for people to become investors in large-scale construction or other real estate projects.

With a REIT, an investor buys into a piece of a real estate venture, not the whole thing. Thus there’s less responsibility and pressure on the shareholder, when compared to purchasing an investment property. But there is also less control, and most REITs come with specific risks.

What Are REITs?

When a person invests in a REIT, they’re investing in a real estate company that owns and operates properties that range from office complexes and warehouses to apartment buildings and more. REITs offer a way for someone to add real estate investments to their portfolio, without actually developing or managing any property.

Many, but not all, REITs are registered with the SEC (Securities and Exchange Commission) and can be found on the stock market where they’re publicly traded. Investors can also buy REITs that are registered with the SEC but are not publicly traded.

Non-traded REITs (aka, REITs that are not publicly traded) can’t be found on Nasdaq or the stock exchange. They’re traded on the secondary market between brokers which can make trading them a bit more challenging. To put it simply, this class of REITs has a whole different list of risks specific to its type of investing.

Non-traded REITs make for some pretty advanced investing, and for this reason, the rest of this article will discuss publicly traded REITs.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

Types of REITs

Real Estate Investment Trusts broadly fall into two categories:

•   Mortgage REITs. These REITs can specialize in commercial or residential, or a mix of both. When an investor purchases Mortgage REITs, they’re investing in mortgage and mortgage-backed securities that in turn invest in commercial and residential projects. Think of it as taking a step back from directly investing in real estate.

•   Equity REITs. These REITs often mean someone’s investing in a specific type of property. There are diversified equity REITs, but there are are specialized ones, including:

◦   Apartment and lodging

◦   Healthcare

◦   Hotels

◦   Offices

◦   Self-storage

◦   Retail

💡 If you’re interest in REITs, be sure to check out: What Are Alternative Investments?

Pros of Investing in REITs

Investing in REITs can have several benefits, such as:

•   Diversification. A diverse portfolio can reduce an investor’s risk because money is spread across different assets and industries. Investing in a REIT can help diversify a person’s investment portfolio. REITs aren’t stocks, bonds, or money markets, but a class unto their own.

•   Dividends. Legally, REITs are required by law to pay at least 90% of their income in dividends. The REIT’s management can decide to pay out more than 90%, but they can’t drop below that percentage. Earning consistent dividends can be a compelling reason for investors to get involved with REITs.

•   Zero corporate tax. Hand in hand with the 90% payout rule, REITs get a significant tax advantage — they don’t have to pay a corporate tax. To put it in perspective, many dividend stocks pay taxes twice; once corporately, and again for the individual. Not having to pay a corporate tax can mean a higher payout for investors.

•   Tangibility. Unlike other investments, REITs are investments in physical pieces of property. Those tangible assets can increase in value over time. Being able to “see” an investment can also put some people at ease — it’s not simply a piece of paper or a slice of a company.

•   Liquidity. Compared to buying an investment property, investing in REITs is relatively liquid. It takes much less time to buy and sell a REIT than it does a rental property. Selling REITs takes the lick of a button, no FOR SALE sign required.

Compared to other real estate investment opportunities, REITs are relatively simple to invest in and don’t require some of the legwork an investment property would take.

Cons of Investing in REITs

No investment is risk-free, REITS included. Here’s what investors should keep in mind before diving into REITs:

•   Taxes on dividends. REITs don’t have to pay a corporate tax, but the downside is that REIT dividends are typically taxed at a higher rate than other investments. Oftentimes, dividends are taxed at the same rate as long-term capital gains, which for many people, is generally lower than the rate at which their regular income is taxed.

However, dividends paid from REITs don’t usually qualify for the capital gains rate. It’s more common that dividends from REITs are taxed at the same rate as a person’s ordinary income.

•   Sensitive to interest rates. Investments are influenced by a variety of factors, but REITs can be hypersensitive to changes in interest rates. Rising interest rates can spell trouble for the price of REIT stocks (also known as interest rate risk). Generally, the value of REITs is inversely tied to the Treasury yield — so when the Treasury yield rises, the value of REITs are likely to fall.

•   Value can be influenced by trends. Unlike other investments, REITs can fall prey to risks associated specifically with the property. For example, if a person invests in a REIT that’s specifically a portfolio of frozen yogurt shops in strip malls, they could see their investment take a hit if frozen yogurt or strip malls fall out of favor.

While investments suffer from trends, REITs can be influenced by smaller trends, specific to the location or property type, that could be harder for an investor to notice.

•   Plan for a long-term investment. Generally, REITs are better suited for long-term investments, which can typically be thought of as those longer than five years. REITs are influenced by micro-changes in interest rates and other trends that can make them riskier for a short-term financial goal.

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

Are REITs a Risky Investment?

No investment is free of risk, and REITs come with risks and rewards specific to them. As mentioned above, they’re generally more sensitive to fluctuations in interest rates, which have an inverse influence on their value.

Additionally, some REITs are riskier than others, and some are better suited to withstand economic declines than others. For example, a REIT in the healthcare or hospital space could be more recession-proof than a REIT with properties in retail or luxury hotels. This is because people will continue using real estate associated with healthcare spaces regardless of an economic recession, while luxury real estate may not experience continued demands during times of economic hardship.

Risks aside, REITs do pay dividends, which can be appealing to investors. While REITS are not without risk, they can be a strong part of an investor’s portfolio.

Investing in REITs

Investing in publicly traded REITS is as simple as purchasing stock in the market — simply purchase shares through a broker. Investors can also purchase REITs in a mutual fund.

Investing in a non-traded REIT is a little different. Investors will have to work with a broker that is part of the non-traded REITs offering. Not any old broker can help an investor get involved in non-traded REITs. A potential drawback of purchasing non-traded REITs are the high up-front fees. Investors can expect to pay fees, which include commission and fees, between 9 and 10% of the entire investment.

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The Takeaway

Investing in REITs can be a worthwhile sector to add to your portfolio’s allocation. They carry risks, but also benefits that might make them a great addition to your overall plan.

After all, REITs allow investors to partake of specific niches within the real estate market, which may provide certain opportunities. But owing to the types of properties REITs own, there are inevitably risks associated with these companies — and they aren’t always tied to familiar types of market risk.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Invest in alts to take your portfolio beyond stocks and bonds.

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


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