As anyone who has ever watched their bank account balance decline after paying bills knows, owing money is no fun. But debt often serves an important function in people’s lives, putting things that can cost tens of thousands of dollars or more — like a college degree or a starter home — within reach.
Such cases aren’t quite the same as racking up a high credit card balance on restaurant meals and shopping trips, underscoring that when it comes to owing money, there can be good debt and bad debt.
Key Points
• Good debt, such as mortgages, can build wealth through property value increases.
• Student loans are considered good debt as they can enhance earning potential over time.
• Credit card debt is bad due to high interest rates, making purchases significantly more expensive.
• Car loans are often categorized as bad debt because vehicles depreciate rapidly.
• Managing debt effectively involves distinguishing between types that add value and those that do not.
What Is Debt Exactly?
It’s a simple four-letter word, yet debt is often not as straightforward as it may appear. Carrying a credit card balance? That’s debt. Have a student loan or a car lease? Also debt.
When individuals owe money, they generally have to pay back more than the amount they borrowed. Most debt is subject to interest, the borrowing cost that is applied based on a percentage of money owed. Interest accrues over time, so the longer consumers take to pay off debt, the more it may cost them.
Across people and households, debts add up. According to the Federal Reserve Bank of New York, by the third quarter of 2024, total household debt climbed to $17.94 trillion. Housing debt — specifically mortgages and mortgage refinancing — accounted for the majority of money owed, $12.59 trillion. Non-housing debt, such as credit card balances and school and car loans, accounted for the rest.
For individuals, average debt amounted to $105,056 in the fall of 2024, according to the credit reporting company Experian. While student loan debt was down, shrinking by 9.2% from the year before — many other debts, including amounts owed on credit cards, car loans, home equity lines of credit (HELOCs), and mortgages, all increased from the year before, according to Experian.
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When you have debt, not only do you have to repay the money borrowed, but you also usually incur ongoing costs — specifically interest — which increase the amount you have to pay back.
While incurring more debt probably isn’t the most attractive proposition, there are occasions when taking on debt can be necessary or even beneficial in the long term. This is where good debt vs. bad debt comes in.
Though the idea of good vs. bad debt might seem complicated (and is often subject to some misconceptions), as a rule of thumb, the difference between good debt and bad debt usually has to do with the long-term results of borrowing.
Good debt is seen as money owed on expenditures that can build an individual’s finances over time, such as taking out student loans in order to increase one’s earning potential, or a mortgage on a house that is expected to appreciate in value.
Bad debt is money owed for expenses that pose no long-term value to a person’s financial standing, or that may even decrease in value by the time the loan is paid off. This can include credit card debt and car loans.
While owing money may not feel great, debt can serve some helpful functions. For starters, your credit score is used by lenders to determine eligibility and risk level when it comes to borrowing money.
Your credit score is based on your history of taking on and paying off debt, and helps to inform a lender about how risky a loan may be to issue. Your credit score can play an important role in determining not only whether a credit card or loan application will be approved but also how much interest you will be charged.
With no credit history at all, it may be harder for a lender to assess a loan application. Meanwhile, a solid track record of paying off good debt on time can help inspire confidence.
While there are no guarantees, good debt can also mean short-term pain for long-term gain. That’s because if paid back responsibly, good debt can be an investment in one’s future financial well-being, with the results ultimately outweighing the cost of borrowing.
Conversely, with bad debt, the costs of borrowing add up and may surpass the value of a loan.
What Is Considered Good Debt?
Mortgages
Like other lending products, mortgages are subject to annual interest on the principal amount owed.
In the United States, the average rate of a 30-year fixed-rate mortgage was averaging 6.95% nationally in January 2025, according to the Federal Reserve Bank of St. Louis. That’s up from January 2024, when the average rate for a 30-year fixed-rate mortgage was 6.69%.
Meanwhile, data from the Federal Housing Finance Agency showed that home prices grew 4.5% from October 2023 to October 2024.
This illustrates how the potential appreciation of a home might outweigh the cost of financing. But it’s best to not assume that taking on a mortgage to buy a house will increase wealth. Things like neighborhood decline, periods of financial uncertainty, and the individual condition of a home could reduce the value of a given property.
Personal loans or home equity loans used to improve the condition of a home may also increase its value, and in such instances may also be considered “good” debt.
Forty-three percent of Americans who attended college incurred some kind of education debt, with the average federal student loan debt in the U.S. coming in around $37,850, according to the office of Federal Student Aid.
Cumulative income gains may eclipse the cost of a student loan over time. But higher education may be linked with greater earnings, and cumulative income gains might eclipse the cost of a student loan over time.
According to the U.S. Bureau of Labor Statistics, the median weekly earnings for a bachelor’s degree holder are $1,541, which is more than $625 greater than the median weekly pay of someone with a high school diploma.
But just as taking out a mortgage is not a sure-fire way to boost net worth, student debt is not always guaranteed to result in greater earnings. The type of degree earned and area of focus, unemployment rates, and other factors will also influence an individual’s earnings.
Credit cards can be useful financial tools if used responsibly. They may even provide cash back or other rewards. And because interest is generally not charged on purchases until the statement becomes due, using a credit card to pay for everyday purchases need not be costly if the balance on the card is paid before the billing cycle ends.
However, credit cards are often subject to high interest rates. According to the Federal Reserve Bank of St. Louis, the average annual interest rate for credit cards is 21.47% — but some charge rates even higher.
Credit card interest adds up, making that takeout dinner or pair of jeans far more costly than the amount shown on its price tag if a balance is carried over. For example, if you were to charge $500 in takeout food to a credit card with a 20% APR but only pay the $10 minimum each month, it would take nine years to pay off the full balance. The total amount paid — including interest — would be $1,084. That’s more than double the cost of those takeout meals!
If you’re paying down credit card debt, consider enlisting the help of a budget app from SoFi. You can use it to get spending breakdowns, credit score monitoring, and more — at no cost.
Car Loans
The dollar value of your car may not be what you think it is. Cars famously start to lose value the second you drive them off the lot. A new vehicle loses 20% or more of its value in the first year of ownership, according to Kelley Blue Book. After five years, a car purchased for $40,000 will be worth $16,000, a decrease in value of 60%.
But a car may also be necessary for getting around. For some individuals, owning a car can also help them earn or boost income, reducing or negating depreciation.
The Takeaway
Both good debt and bad debt can be stressful — and both types of debt can be more costly than they need to be if you don’t keep tabs on what you owe and pay back loans efficiently. A digital tracker could be the remedy.
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 difference between good debt and bad debt?
Debt that allows you to build finances over time or increase your earning potential can be considered good debt. On the other hand, if debt doesn’t increase your net worth, has no long-term value to your financial standing, and you don’t have the money to pay for it, then it qualifies as bad debt.
What are some examples of bad debt?
Credit card debt and car loans are two common types of bad debt.
What is an example of good debt?
Taking out a student loan or a mortgage on a house that’s expected to increase in value are two examples of good debt.
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Opting to buy a used vehicle rather than the newest model on the lot can be a great way to save some money. Used cars often cost significantly less than new cars. In addition, older cars are generally cheaper to insure (since they are worth less than new cars).
The process of shopping for, and financing, a used car, however, can feel intimidating. To demystify the process, we’ve got nine simple strategies that can help you find a reliable used car that fits your lifestyle and budget.
Key Points
• It’s a good idea to establish a budget before you start the used car buying process.
• If you’ll need financing, consider getting preapproved for a car loan before you start shopping.
• Researching the car’s history is essential to avoid potential issues.
• Test driving the car and getting it inspected by a mechanic can also help you assess its condition.
• Don’t be afraid to negotiate the price of a used car, as it can often lead to a better deal.
1. Setting a Budget for a Used Car
Before you start researching used cars, you may want to first think about how much you can afford to spend on a car and how you will pay for it.
If you will be paying cash, you may want to consider how much of your savings you can realistically put towards a car. If you don’t have quite enough, or the purchase would completely gouge your savings, you may want to spend a few more months saving up for a car.
If you will be getting a loan for the car, you’ll want to think about what would be a comfortable monthly payment. One rule of thumb is to put at least 10% down and finance the car for three years. You may also want to try to keep your total monthly auto expenses no higher than 20% of your monthly take home pay.
You can use an online auto loan calculator to get a rough idea of how much you might need to spend each month on financing.
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2. Getting Financing Before You Start Shopping
If you plan to get a loan to buy the car, it can be a good idea to get preapproved for a car loan from a bank, credit union, or another lender before you start shopping.
While you may opt to go with financing offered by a car dealership, having a pre-approved car loan offer in your back pocket can give you a great negotiating tool. Dealers tend to mark up the interest rate to make a profit, but if you already have a deal in place, they will know they need to beat it in order to get your business.
Even if you’re going to buy a car through a private sale, having a pre-approved loan in place will allow you to jump on a great deal as soon as you find it.
Now that you have a car buying budget in mind, you may want to look into what types of cars you can get for that money.
Do you need a truck, SUV, or sedan? You can save money outright by buying a smaller car and also down the line if it’s good on gas mileage. If safety is a top priority, you may want to check out the Insurance Institute for Highway Safety Ratings to see which cars perform the best in crash tests. You can also narrow the field by making a list of must-have features, and then searching for cars that have them using a search tool like Edmunds Car Finder.
Once, you’ve narrowed your list to three target models that you can research in more detail. You may also want to read reviews about the cars you’re interested in on sites like Kelley Blue Book and J.D. Power.
Once you know how much you can spend and what kind of car is going to be a good fit for you, you can actually begin shopping for a used car. There’s no need to start driving to car lots all over town — you can browse through tons of vehicles online.
Good places to look include: used car superstores like Carmax or Carvana, used car dealerships, as well as new car dealerships (which often also sell used cars, though not always at the lowest prices). You may also want to look at listings from local private party sellers, which you can find on Craigslist, eBay Motors, Facebook Marketplace, and Nextdoor.com.
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5. Researching the Car
Once you’ve pinpointed a vehicle you might want to buy, it can be a good idea to find out as much as you can about the vehicle’s history.
You can get a vehicle history report from a company like Carfax or Autocheck , which can tell you if the car has any red flags, such as reported accidents or flood damage, as well as information on the car’s maintenance and service history. To get a report, you’ll need to get the car’s vehicle identification number (VIN) or license plate number from the seller. There is typically a fee for running a report (around $25) but many dealers will provide the report for free.
You may also want to run the VIN number through the United States Department of Transportation Recalls site to check for any safety recalls. If there have been any recalls, it’s a good idea to make sure that the issue has been fixed.
6. Going for a Test Drive
It can often be helpful to try before you buy, especially when it comes to buying a car. A car dealership will typically let you take a few cars for a drive so you can get a sense of how they feel.
You may want to call ahead before visiting a dealership to make sure they have the car on the lot that you’re interested in so you can see it that day. A private seller will also likely allow you to take the car for a brief spin to see how you like it.
Some things to consider when going for a test drive:
• How well the car accelerates and corners
• If the breaks are responsive
• If there are any unusual noises or vibrations that could indicate a mechanical issue
• How well the car fits you — is there enough leg room? Can you comfortably reach all of the controls?
7. Inspecting a Used Car
Even if you’re far from a car expert, it can be a good idea to do a visual inspection of the car. Is the car’s body and paint in good shape? Are the lights all working? Are there signs of cracks or water inside the lights?
You may also want to turn on the air conditioning and heating, radio, and navigation system and make sure they are all working properly.
When examining the interior, you’ll want to make sure it is in decent condition and there aren’t any unpleasant smells — a moldy smell can indicate flood damage and cigarette smells can be hard to get rid of.
8. Getting a Mechanic to Inspect the Car
Unless you are buying a certified used car with factory warranty coverage from a dealership, you may want to consider getting a car you are close to buying inspected by an independent auto mechanic. While this does involve an investment of some cash (typically $100 to $200), it can potentially save you from dealing with a costly repair soon after you buy the car. The inspection report may also give you some bargaining power when haggling over the price of the car.
9. Negotiating the Price of a Used Car
It’s rare that you’re going to come across a used car price where the seller is unwilling to budge, even a little. Before you negotiate a car deal, however, you’ll want to have all your research ready, including how much the average make and model car for a particular year goes for, and any concerns or issues that came up during your personal and professional inspection.
If you’re negotiating with a dealer, it can be a good idea to keep the focus on total cost of the car, rather than bring a trade-in or financing into the mix. Dealers may want to merge all of the numbers into one deal, which can be confusing — and also make a not-so-good deal look better.
When discussing price at a dealership, you may also want to make sure you are talking about the out-the-door price, including all fees (so there aren’t any surprises).
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The Takeaway
Buying a used car can be a smart buying decision. To make sure you get a car that suits your needs and budget, however, you’ll want to research your options, come up with a target price range, and line up financing before you shop.
When shopping for used cars, it’s a good idea to learn a car’s history, test drive the car, and also have it professionally inspected.
Knowing the value of the car in the open marketplace can help you negotiate a good price. If you don’t like the deal, there’s nothing wrong with walking away.
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There’s no doubt about it, trying to live on minimum wage is no easy feat. This is especially the case with the cost of living consistently increasing while the federal minimum wage ($7.25 per hour) hasn’t budged since 2009. In fact, the federal minimum wage is worth nearly 30% less than it was 15 years ago, and close to 40% percent less than its peak value in 1968.
However, if you are making minimum wage, don’t despair. How to survive on minimum wage can be difficult, but it’s not impossible. The key is to keep track of your spending, cut costs where you can, and create — and stick to —a realistic monthly budget.
If you’re living on minimum wage, learn how you can stretch your dollars and even manage to sock some money away for that rainy day fund.
Key Points
• Living on minimum wage is challenging due to stagnant federal rates and rising living costs.
• Budgeting and tracking expenses are crucial for managing finances on a low income.
• Saving small amounts regularly can build a financial cushion over time.
• Government assistance programs can help cover essential costs like food and healthcare.
• Additional income through side jobs or higher-paying positions can alleviate financial strain.
What is Considered Minimum Wage?
The federal minimum wage, created by Congress in 1938 under the Fair Labor Standards Act (FLSA), establishes a base hourly rate at which employers are required to pay their employees. The current federal minimum wage is $7.25, and as noted earlier, that’s an amount that’s remained the same since 2009.
Many states, cities, and municipalities have realized the federal minimum wage is extremely low. They have therefore passed their own minimum wage laws, offering a higher amount, generally ranging from about $10 to $16 an hour. In addition, many companies (such as Amazon, Costco, Target, and Walgreens) have also enacted their own higher minimum wage, eclipsing the federal minimum wage.
In situations where an employee is subject to both federal and state minimum wage laws, the worker is entitled to the higher of the two minimum wages. For instance, Georgia’s basic minimum wage is $5.15 per hour, but since the federal rate is higher, employers must pay the federal wage of $7.25.
What about tipped employees, such as waitstaff? According to the U.S. Department of Labor, employers may pay the employee no less than $2.13 an hour in direct wages. There is a condition, though. If that amount plus the tips don’t add up to at least the federal minimum wage, the employer must make up the difference. In a number of states, the direct wage for tipped employees is higher than $2.13 per hour to help ensure a livable wage. Worth noting: When an employee is subject to both the federal and state wage laws, they are also entitled to the provisions providing the greater benefit.
Is Minimum Wage Livable?
The term living wage refers to the amount of earnings a person or family needs to cover basic expenses. These can include groceries, utility bills, housing, healthcare, transportation, and childcare. The goal of paying employees a livable wage is to prevent people from falling into poverty and allow them to have a decent, satisfactory standard of living.
Unfortunately, the cost of living in the U.S. has risen over the decades, especially during recent inflationary times, and the minimum wage has failed to keep up with the prices of goods and services. A full-time worker who earns the federal minimum wage has an income of $15,080 a year, which is right around the 2024 federal poverty line for an individual ($15,060), according to the U.S. Department of Health and Human Services. If that worker is a single parent with one child, they’re below the poverty line, which is $20,440 for a family of two. The bottom line: For most people, earning $7.25 an hour doesn’t cut it as providing a living wage. Even if you live in a state with a higher minimum wage, you may still struggle to maintain a modest standard of living.
17 Tips for Living on Minimum Wage
So, how to live on minimum wage? Here are 17 ways that can make it easier to survive on a minimum wage salary and even set aside some money for savings:
1. Evaluate Your Overall Spending
A first step to getting a hold on your finances is to know how much you’re bringing in per month versus how much is going out. One way to do this is to record all of your expenses. Begin tracking your spending for 30 days. Include everything, including the change you put in the tip jar at a coffee shop.
Doing so will give you an overview of exactly where your money is going and help you determine where you may need to make some cuts. Seeing a spending pattern may also pinpoint any causes of overspending, like not being able to say no to a restaurant invite when you really can’t afford it.
2. Create and Stick to a Budget
Having a budget provides you with a structure so you can organize your finances and live better within your means. When you’re not bringing home a lot of bacon, it’s vital to make sure you know exactly where your money is being spent each month. A line-item budget can help you track your spending in various categories and make adjustments as needed.
One common budgeting method to consider is the 50/30/20 rule. With this, you allocate 50% of your income to your needs (essentials), 30% for wants (nonessentials), and the remaining 20% towards savings. This guideline can help you manage your money better.
The thought of saving when you’re barely scraping by can seem impossible. But if you’re making minimum wage, even putting $5, $10, or $20 a paycheck towards savings can add up over time. You might even set up an automatic transfer from your checking account into a savings account a day or two after every payday. It’s as effortless as automatic bill payments and can help you build up a nest egg.
Doing so can also get you in the habit of saving and even help improve mental health. One University of Arizona study found people who save money report less psychological distress and have improved financial satisfaction.
4. Look Into Government Benefits
Another “how to survive on minimum wage” tip: Millions of low-wage earners in the U.S. qualify for federal and state government assistance benefits. This aid can help lower costs of food, healthcare, housing, and more for those surviving on minimum wage.
Some of the most popular programs include Medicaid, the Children’s Health Insurance Program (CHIP), Supplemental Nutrition Assistance Program (SNAP), and the Temporary Assistance for Needy Families (TANF). To see what benefits you might qualify for, visit benefits.gov .
5. Save on Food
Obviously, minimizing dining out and ordering takeout will lower your food bill. Some other ideas:
• People and families living on minimum wage can qualify for SNAP (formerly known as food stamps) to help offset grocery costs.
• Consider shopping at less expensive supermarkets, using coupons, buying the store or generic brand, and if applicable, ask if the store has a customer club card so you can get additional discounts.
• Buying in bulk and stocking up on frozen foods and pantry staples such as bread, milk, eggs, peanut butter, pasta, beans, rice, tuna, and canned soups can help when money is particularly tight.
• Food banks or pantries can be another resource. You can search for one in your area at FeedingAmerica.org .
6. Find Additional Ways to Increase Your Income
If you are struggling to make ends meet, you might also think about how you could bring in more income.
• This might be the time to look for a higher-paying job or simply ask your boss for a raise.
• Investigate getting a side hustle on your off hours like driving for Uber, Lyft or delivering food for DoorDash, GrubHub, or Instacart. You could also consider house cleaning, babysitting, dog walking, or pet sitting for extra money.
• Have a marketable craft or hobby? Try selling your creations on Etsy or at a craft fair.
• If you have unwanted stuff that others might want, put it up for sale on Facebook Marketplace, eBay, or your community’s neighborhood group. A garage or yard sale can also bring in some bucks if you’ve got enough to peddle.
7. Lower Your Housing Costs
Housing is where Americans spend the largest share of their paycheck, according to the U.S. Bureau of Labor Statistics. With the prices to rent or own a home consistently rising across the country, this can be a major issue for those living on minimum wage.
According to a 2024 report by the National Low Income Housing Coalition, a full-time worker needs to earn an hourly wage of $26.74 to afford a modest one-bedroom rental home in the U.S.
If you’re paying more than you can afford for housing, there are ways to cut the costs.
• Consider downsizing to a smaller home or apartment, moving to a more affordable area in your town or city, getting a roommate, or living with a friend or family member while you save.
• Look into applying for affordable public housing in your area, specifically established for eligible low-income people. The U.S. Department of Housing and Urban Development (HUD) oversees public housing agencies in your state or city. You can find your local housing authority office at hud.gov or by calling 800-955-2232.
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8. Work Towards Reducing Your Debt
When you’re not bringing in a lot of money, it’s easy to accumulate debt, especially by using credit cards to get by until the next paycheck. This can leave you with high credit card bills due at the end of the month and increase the chance of a minimum payment you can’t afford. You can tackle the problem in a few ways:
• Consider a balance transfer onto one credit card with a zero or low-interest promotional rate. These can provide a period of time during which you can pay down debt before the interest rate rises.
• Seek out help from a reputable nonprofit organization such as the National Foundation for Credit Counseling (nfcc.org ), a professional credit counselor, or a financial planner who can help you create a plan to start tackling your debt.
9. Minimize Healthcare Costs
Healthcare can take a big bite out of a tight budget. These moves may help lower those expenses:
• Medicaid and the Children’s Health Insurance Program (CHIP) are among the government programs providing free or low-cost health care to some low-income families and individuals. To determine if you’re eligible, go to Healthcare.gov where you can also fill out an application.
• Work towards saving on prescription drug costs at participating pharmacies with a discount card or coupons offered by companies such as GoodRx, SingleCare, or America’s Pharmacy.
• Try a variety of free things you can do to stay healthier. Take a walk, ride your bike, pick up a basketball game, or do free workout videos on YouTube.
10. Look to Save on Transportation
Owning a car and maintaining it can be costly. Here, some ways to lower expenses:
• Consider the alternatives to car ownership, such as public transportation, carpooling, walking, or riding a bike.
• When you drive, try to limit extraneous trips to reduce mileage and wear and tear on your car.
• Save money on gas by comparison shopping at your local fuel stations.
• See if you can lower your car insurance payment with good driver discounts or by skipping extras that you don’t really need, like car rental coverage or emergency roadside assistance.
11. Make the Most of Tax Breaks
When it comes time to file your taxes, make sure you’re taking advantage of whatever tax credits and deductions are offered for low- to moderate-wage employees, such as the Earned Income Tax Credit, Child Tax Credit, or Child and Dependent Care Credit. If you qualify, you can use the credits to help reduce the amount of taxes you owe and possibly increase your refund.
When you start a new job as a regular employee, your employer will have you fill out a W-4 form to determine how much tax money should be withheld from your pay and sent to the IRS for you. This is determined by what your tax filing status is (single or married, for example) and whether you have any dependents.
If you choose to have too much money taken from each paycheck, yes, you’ll get it back in the form of a tax refund, but it might be more useful to have that extra money during the year. You can change or update the withholding information on your W-4 form with your employer at any time. What’s more, you should do so if you experience any type of personal life change, such as marriage, divorce, or having a child.
13. Mind Your Utility Usage
Americans pay, on average, $583 a month for utility costs, according to a study from Move.org. This can add up to half a minimum wage-earner’s monthly paycheck.
Fortunately, there are many ways to lower your utility bills that can help with the challenge of how to live on minimum wage.
• Switch to using more energy-efficient light bulbs and you can save on average $225 a year, recommends the U.S. Department of Energy.
• Avoid phantom energy usage: Turn off or unplug any appliances not in use; even those sitting idle still drain some energy from the outlet.
• Save up to 10% on heat and cooling costs by setting your thermostat seven to 10 degrees back from its normal setting for eight hours a day (such as when you are out at work).
• Switching to doing cold water washes can save on gas and electricity needed to heat water.
• If you need new appliances, opt for ENERGY STAR labeled machines that use less water and energy than standard ones.
• Get rid of any streaming channels you don’t watch and/or downsize to a more basic cable plan.
• If you’re having trouble making payments, call your utility companies and see if you can negotiate rates or be put on a financial assistance payment plan.
14. Take advantage of any Employer-Sponsored Benefits
Make sure you use any plans your employer offers, such as health insurance, retirement accounts like a 401(k), daycare services, or paid time off. These things can be priceless to any employee but especially if you’re surviving on minimum wage.
15. Look for Cheap or No Cost Things to do
Living on a low-income salary doesn’t mean you have to sit home and give up on fun. But instead of pricey entertainment and eating out, consider these ideas:
• Check to see if any museums have a day where admission is free.
• Grab a slice of pizza with a friend for a cheapie lunch.
• Take a walk or bike ride; visit the library to check out free books and DVDs.
• Host a potluck gathering with friends.
16. Check Out Your Local “Buy Nothing” Groups
Neighborhood “buy nothing” groups, where people post things they want to give away, have become popular. These community networks can be a great way to get clothing, food, toys, appliances, and furniture absolutely free.
Not sure where to start? Visit BuyNothingProject.org or search Facebook to see if there’s a buy nothing group near you.
Living on a minimum wage income can be a constant source of anxiety and stress. But think about thriving rather than just surviving on minimum wage. Be sure to practice self-care. There are lots of low-cost or free ways to reward yourself, from camping out to treating yourself to a fancy coffee to finding free live music in your area.
The Importance of Having a Savings Account
When you’re living paycheck to paycheck, saving money can feel like an impossibility. But opening a high-yield savings account can be a wise move. It’s a place where your money can securely grow over time, thanks to the interest it earns. It’s also a place that may be less tempting to tap into than your checking account, and it’s less risky than, say, investing in the stock market.
You can save for a specific financial goal, such as moving to a bigger apartment, or let it build as a nest egg for the future. Another reason it’s important to have some savings? You need an emergency fund for life’s unexpected and expensive moments, such as having a sick pet, needing a car repair, or suddenly losing your job.
Financial experts generally advise having at least three to six months’ worth of living expenses socked away. This cash can help prevent your using credit cards or money in your checking account slated for bills when an urgent need crops up.
Can You Open a Bank Account While Earning Minimum Wage?
Yes. You don’t have to have a high-paying job in order to open a bank account. Anyone in the U.S. who is 18 years old or older can open a bank account on their own, and that includes people who are unemployed or have no income at all.
It’s important to know that many traditional banks require you to make a minimum deposit when opening a bank account, which can be anywhere between $25 and $100. However, some banks, especially online banks, will allow you to open an account with no minimum balance required.
What to Look for in a Bank on a Minimum Wage Salary
If you earn a minimum wage, you’ll likely want a bank that doesn’t have a lot of hurdles to opening an account or charge a lot of fees. Look for these features:
• No extra fees: Some banks tack on extra fees for different reasons, such as using an ATM not in their network, overdraft fees for having to cover for insufficient funds, or a monthly maintenance or service fee. Look for a bank that doesn’t charge these fees.
• Interest-bearing account: A bank account that allows you to earn money on your deposits can only help your money grow. Many banks don’t pay interest on checking accounts and may only pay a sliver of a percentage on savings. Shop around for a better annual percentage yield (APY).
• No monthly minimum balance requirements: Many banks charge a monthly fee if you don’t keep a minimum balance in your account. Search for one without any rules on how much money you’re required to have in there.
• Low-to-no minimum deposit requirements: You may find some banks have a minimum amount of money you have to deposit in order to open an account. It could be as low as $10. However, you can also find banks that don’t require any deposit at all to start an account.
The Takeaway
People who live on a minimum-wage salary can benefit from creating and sticking to a budget, finding ways to cut costs, knowing about financial assistance programs, and finding a trusted banking partner that charges low or no fees and pays an above-average APY on your deposits.
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
Is minimum wage a liveable salary?
It can be, depending on where you live, your expenses, and how much of a minimum wage you’re earning. Many states, cities, and even companies offer a higher minimum wage than the federal wage of $7.25, making it easier for people to survive. That said, in some parts of the country, you would need to earn more than triple the federal minimum wage to afford a one-bedroom rental.
What are some tips for lowering expenses when earning minimum wage?
Housing, transportation, and food are the biggest expenses for the average American household. Some ways you can lower these costs include downsizing your housing situation or getting a roommate, limiting restaurant meals, cutting grocery costs, and opting for public transportation. In addition, it can be worthwhile to research local and federal programs that can help you lower expenses and get more for your money, from Supplemental Nutrition Assistance Program (SNAP) to Medicaid.
Can you open a bank account when earning minimum wage?
Yes, you can, but it’s wise to shop around for a bank that doesn’t charge any excess fees or require a monthly minimum balance requirement. Also look for ones that pay a competitive annual percentage yield (APY) on your savings and possibly your checking balance as well.
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Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet
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When it comes to maintaining a strong financial plan and healthy financial behaviors, our brains can sometimes work against us. Behavioral biases, mental traps, and neural wirings can all get in the way of setting and meeting financial goals.
Consider recency bias, which is the tendency for people to look to recent events to make decisions about the future. Just because a stock has skyrocketed recently, that doesn’t mean its upward trajectory will last forever. In fact, jumping into the market during a rally could mean you end up buying when prices are high, right before investors bail and prices fall.
Another mental tendency to consider: ego depletion. It’s the idea that people can only exert their willpower for a limited time, and after that, it’s harder to practice self-control. If you have an important financial decision to make, it may make sense to wait until you are no longer feeling depleted.
Here’s a closer look into the ego depletion theory, what it could mean for your finances, and how to overcome it.
What Is Ego Depletion?
The concept of ego depletion hinges on the idea that our willpower reserves are finite, and when we exert self-control for too long, we use up those reserves. Once those are depleted, it is harder to exert self-control, and we’re more likely to make poor decisions.
The term was coined by American social psychologist Roy Baumeister in the late 1990s, though the idea of ego depletion has become popular in recent years. This may be in part because it makes sense intuitively. For example, the experience of eating a healthy breakfast and lunch only to get home from work and eat a bag of chips for dinner is pretty easy to relate to.
However, not everyone agrees with the concept of ego depletion. Some scientists report a lack of consistent data to support the idea. Instead, they have found that motivation is not finite. Rather, it can be subjective, and there are ways to increase it. That can be a good thing as you begin to set long-term financial goals.
If you’re looking to build your long-term financial plan, a money tracker app can help. The SoFi app connects all of your accounts in one convenient dashboard. From there, you can see all of your balances, spending breakdowns, and credit score monitoring. Plus, you can get other valuable financial insights.
Causes of Ego Depletion
There are a variety of factors that may play a role in ego depletion.
• Low blood sugar. If you haven’t eaten and your blood sugar has dropped, it may be more difficult to exert willpower.
• Emotional distress. Temptations may be harder to resist if you’re experiencing a state of mental anguish.
• Unfamiliar tasks. If you are doing something for the first time, you may need to exert more mental energy, which can lead to ego depletion.
• Lack of choice. If you are forced to do a task not of your choosing, you may be more likely to become depleted.
• Illusory fatigue. If you think that a task will be mentally tiring, you may experience ego depletion faster. In other words, ego depletion happens more often when you expect it to. If you think a task won’t tax you too much, you may be able to exert more self-control.
• Cognitive dissonance. Situations in which you do or say something that contradicts your beliefs can tire you out and diminish your self-control.
• Variable heart rate. Those who experience variable heart rate have been found to have less self-control.
The Effect of Ego Depletion on Your Finances
If tasks that require self-control weaken your willpower, you may be less likely to make good decisions when you experience ego fatigue. When it comes to your finances, for instance, you may be more likely to spend money on things that you can’t afford.
Ego depletion could also mean you’re less equipped to make important decisions, such as how to invest your money. For example, if the market is experiencing a downturn, you may find yourself more prone to panicking and potentially pulling out your money. But in doing so, you’ll lock in losses and potentially miss out on a subsequent upswing.
Ego depletion could also mean you miss important deadlines, such as deadlines for funding your 401(k) or IRAs, or tax deadlines.
Lack of sleep makes self-control difficult. Sleep counteracts fatigue and helps reset your willpower reserves, so practice good sleep hygiene. Go to bed at a consistent time. Make sure your bedroom is quiet, relaxing, and dark. Avoid large meals, caffeine, and alcohol before bed.
Manage Stress
Managing stress can help you address the causes of ego depletion as well as its effects. Consider strategies such as deep breathing, mindfulness exercises, eating healthy, and consistent exercise.
Set Goals
Clear financial objectives and the steps you need to reach them can help overcome ego depletion. Consider using SMART goals, or goals that are specific, measurable, achievable, relevant, and time-bound. With these in place, you’ll know what you need to do to accomplish your objectives, and you’ll also be less likely to make moves that stray from your plan.
Plan for the Long Term
Long-term financial plans take your goals, risk tolerance and time horizon into consideration. They are built to account for the natural cycles of volatility. With a long-term plan to refer to, you may be less likely to make rash decisions in the short term, such as panic selling when markets are down or buying when market prices are peaking and may be nearing a fall.
There are a variety of tools out there that can help you set and meet your goals and make financial freedom a reality. It’s worth shopping around to find the ones that work best for you and you’re more likely to stick with.
One to consider: a spending app, which can help you set up a budget, categorize and track spending, make bill payments on time, and track your credit score.
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The Takeaway
The idea of ego depletion centers around the idea that when we exert self-control for too long, we use up our willpower reserves and are more likely to make poor decisions. Learning the causes of ego depletion is a first step in helping you head off rash financial decisions that may work against you. If you recognize that your willpower is fading, take a breather. And when in doubt, refer back to your long-term financial goals and plan.
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 cause of ego depletion?
Ego depletion can be caused by a number of factors, such as emotional distress, fatigue, low blood sugar, or unfamiliar tasks.
What is an example of ego depletion?
An example of ego depletion might be spending the day hard at work and then coming home, sitting on the couch, and turning on the television instead of pursuing other healthier activities, such as going to the gym.
How do you deal with ego depletion?
There are a number of strategies to combat ego depletion, such as getting enough rest, managing stress, and setting and sticking to long-term goals.
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If you’re considering buying a fixer-upper, you’re likely doing so, at least in part, because purchasing a home continues to be expensive. Post-pandemic, prices are still climbing, with a 4.7% uptick in November 2024 versus a year earlier. Adding to the high cost of homeownership is the fact that mortgage rates went from historic lows a few years ago to an average of 7.08% for a 30-year loan as of January 2025.
These economic factors are among the reasons why many people are drawn to fixer-uppers. They hope to find a lower-priced house that can be rehabbed, giving them a piece of the American Dream for less. Are you among their ranks? Here, learn more so you can make an informed buying decision.
Key Points
• Renovating a fixer-upper isn’t necessarily a bargain. A thorough home inspection is crucial to identify what issues are present and budget for them.
• The initial purchase price of the home is typically lower, but renovation costs can be unpredictable and vary by location.
• It’s wise to budget for overages, typically 10% to 25%, to cover unexpected expenses and delays.
• Common renovation projects include kitchen and bathroom remodels, and roof replacements, with costs varying widely but extending into the five-figure range.
• Financing options include larger mortgages to reserve cash, home improvement loans, and HELOCs, depending on your financial situation.
Defining a Fixer-Upper
What exactly is a fixer-upper? It’s a home that’s in need of significant work. In many cases, these are older houses with much deferred maintenance or simply a lot of dated, well-worn features.
A fixer-upper might be a home from 100 years ago with an insufficient electrical and heating system, as well as a roof in need of replacement. Or it could be an apartment with a very old kitchen and bathrooms needing an overhaul. These residences might be livable, but they require an infusion of cash and work to make them comfortable by today’s standards.
Initial Purchase Price vs. Renovation Costs
If you’re thinking about buying a fixer-upper, it’s important to look carefully at the initial purchase price versus renovation costs. Granted, the price of the home is likely to be cheaper than that of a brand new home. The Federal Reserve Bank of St. Louis, for instance, found that the median price for an existing home was $388,000 vs. $420,800 for a new home in the most recent year reviewed, so buying an older home can already save you cash.
However, pricing renovation costs can be tricky. Among your considerations:
• You will have to finance both the purchase of the property and the renovations. You may need to get a home loan and then access additional funds for the renovation.
• Whether you are planning on doing the work yourself or hiring professionals, issues can often be uncovered as you go. Perhaps a bathroom you thought was fine as-is actually has deteriorating plumbing. Or maybe in the kitchen, the parts you need to repair the aging refrigerator are no longer available. These kinds of discoveries can blow your budget.
• The location of your home will likely impact prices. Those in a small town, for instance, will probably pay less to get the work done than someone who lives in a pricey suburb of, say, San Francisco or New York.
• You are likely aware that supply-chain issues can impact your renovation. As the saying goes, time is money. These kinds of delays can throw a wrench in your plans and lead you to spend more as you find ways to finish the job.
• Don’t forget to think about whether you can stay on-premises during the remodeling process or if you will need to find temporary housing as your property is renovated.
As you contemplate these factors, it’s wise to do a full home inspection of a fixer-upper property, walk through with a contractor or two if you are planning on delegating the work, and draw up a budget to see how renovation costs will add to the initial purchase price.
Evaluating Renovation Expenses
Here’s a closer look at three common fixer-upper remodeling projects, with current costs.
Kitchen Remodel Costs
According to Angi, the home improvement site, the average cost of a kitchen remodel in 2025 is almost $27,000, but there’s a huge range of prices possible, including up to twice that amount or more.
The three elements that contribute most to the cost are the countertops, cabinets, and flooring. The more you lean into custom and luxury options, the higher the price will go. Also, the size of the kitchen will count as well, with bigger being more expensive, and the degree of dilapidation can matter, too.
Bathroom Renovation Costs
The average bathroom renovation ranges from $6,000 for smaller-scale fixes, such as primarily cosmetic updates, to $30,000 for a complete gut do-over, with the average price tag coming in at $12,115 in 2025, according to Angi. A big expense can be moving the plumbing lines. If you can keep the layout as-is, you could save up to 50%.
Roof Replacement Costs
A roof should typically last two to three decades on a home — or longer, if you choose the right material. The average cost for replacing a roof is about $9,511, but that will vary with the size of the home and the material you choose.
For instance, if you opt for a premium product, like natural slate, you’ll find that the average costs for a 1,500-square-foot roof can be $45,000 in 2025.
It’s crucial to add up all the costs of potential renovations before you buy a fixer-upper house. You don’t want the dream of owning your own home to cloud your judgment about the work that’s needed. If you don’t do a deep dive on pricing before you buy, you may end up in your own version of The Money Pit movie.
Consider the following:
• Assess the upfront cost of the home, and add up all potential material and labor needs — think both big and small, like plumbers, electricians, carpenters, all the way down to any new doorknobs you’ll buy along the way. Then, subtract that from the home’s renovated market value. Would this still be a profitable venture and a wise investment?
• Keep in mind that the impact of inflation can push prices higher than what you believe they will cost during the time you are renovating.
• It’s important to allow room in your budget and your timeline for overages. It’s not uncommon for home renovations to cost more and take longer than anticipated. It’s wise to have a cushion in your budget, at least 10% but preferably 20% to 25% to cover additional costs. Add wiggle room in your timing, too.
• Lastly, as noted above, think about whether you will be able to occupy the home as it’s renovated. If you’ll be without heat or air conditioning, bathrooms, and/or a functional kitchen, you may have to pay to live elsewhere for a period of time.
These considerations can seem overwhelming, but remember, your goal is to bring out your home’s maximum potential, whether for you to enjoy or to capitalize on via a future sale.
You have a few options for how to finance the renovation of a fixer-upper:
• You could put less money down and take out a larger mortgage. This would allow you to have some cash on hand to pay for the remodeling.
• You can buy the house and then take out a home improvement loan, which is a kind of personal loan used to finance your home projects. You get a lump sum and pay it back over time with interest,
• An alternative to a personal loan would be to purchase the fixer-upper and then apply for a home equity line of credit, or HELOC. These are revolving lines of credit that may offer attractive terms (low interest, long repayment). However, keep in mind you are using your home’s equity as collateral. You typically need 15% to 20% equity in your home to qualify.
• Another option is a home equity loan vs. a HELOC. The difference is that a home equity loan typically distributes a lump sum of money, which is repaid in installments over a period of time.
If you are considering buying a fixer-upper, a key decision is whether to do the work yourself or hire professionals to complete the job. Making that decision involves keeping the following in mind:
• Timing: It’s important to look at the timeline of your project. Would you have the bandwidth to get the work done yourself? Or, thinking about the other option, can you find a qualified professional who is available to start when needed?
• Skill level: Be honest. Are you confident that you have the skills needed to get the job completed and in a way that you’ll be happy with? Can you tackle retiling a bathroom or adding a home addition? Renovations aren’t for novices, and errors can be costly and possibly dangerous.
• Budget: As you budget after buying a house, do you have money to hire professionals? If you don’t have deep pockets, you may feel your only option is to DIY the project. But, as noted above, there are ways to access funding to get the job done right, such as different types of home improvement loans, if hiring out winds up being the best decision.
As home prices continue to rise, a fixer-upper can offer good value for some home shoppers, whether they want to renovate the home themselves or hire professionals to complete the work. However, it’s important to evaluate your costs upfront to make sure you can handle both the purchase of the property and then financing the updates to make your renovation dreams come true.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
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FAQ
What should I avoid when buying a fixer-upper?
When buying a fixer-upper, don’t be blinded by the property’s potential or guesstimate costs. It’s important to have a full inspection and be aware of such big-ticket expenses as structural damage, outdated plumbing and electrical systems, and any environmental issues (such as mold).
Is it cheaper to build or to buy a fixer-upper?
While a fixer-upper is typically cheaper than a home that’s ready for move-in, it’s hard to generalize whether it’s cheaper to build or buy a fixer-upper. Constructing a simple house in an area where land and labor are affordable could be a wise move, while building in a pricier area on, say, a challenging sloped lot could ratchet up expenses. Similarly, some fixer-uppers require little investment to make them livable, while others require a long and in-depth overhaul. Doing your research and running the numbers can usually provide guidance.
What is the most expensive part of remodeling a house?
Typically, the most expensive part of remodeling a house is renovating the kitchen and bathrooms. These rooms often require pricey appliances and fixtures, custom cabinetry, and the work of plumbers and electricians.
Photo credit: Stocksy/Karina Sharpe
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