Whether you are a new investor or a seasoned trader, it’s common to hear the word “volatility” when discussing the movements of a stock price or index. More volatile stocks tend to have larger swings in value, both up and down.
There are two forms of volatility, however. Historical volatility, which measures past price movements, and implied volatility, which estimates future price fluctuations based on options pricing. It’s crucial for participants in these markets to understand the difference between implied vs historical volatility.
Key Points
• Historical volatility measures the range of returns on a market index or security over a given time period.
• Traders use historical volatility to set stop-loss levels and analyze riskiness.
• Historical volatility is different from implied volatility, which is forward-looking.
• Implied volatility measures expected future volatility based on options prices, reflecting market expectations.
• Higher implied volatility tends to lead to higher options premiums since the price is more likely to jump to a trader’s advantage (or disadvantage).
Historical Volatility Definition
As the name suggests, historical volatility measures a stock’s price as compared to its average, or mean. The most popular way to calculate a stock’s historical volatility is by calculating the standard deviation of its price movements during a period of time.
Investors use historical volatility to get an idea of how likely the stock is to make large movements in price. A stock with higher volatility may indicate elevated risk, because there is a higher potential that the stock’s price could rise or drop significantly.
Highly volatile investments purchased with leveraged accounts can create additional risk. On the other hand, a stock with higher historical volatility could also be potentially more rewarding, since there is also a possibility that the stock’s price could make a big jump upward (or downward). Stocks may become more volatile during times of recession or uncertainty.
Investors measure a stock’s historical volatility as a percentage of the stock’s price, and not as an absolute number. That makes it easier to compare historical volatility between stocks — even if they have very different values — while assessing investment opportunities. When comparing the volatility of stocks, it’s important to look at them during the same time period.
Implied Volatility Definition
Implied volatility measures a stock’s expected future price fluctuations, derived from options prices, and is commonly used by traders to assess market uncertainty. While historical volatility is backward-looking, implied volatility attempts to quantify a stock’s volatility going forward.
Implied volatility reflects the prices of the options contracts associated with a particular stock. Options traders often assess implied volatility using metrics like Vega, one of the Greeks in options trading, which measures how sensitive an option’s price is to changes in implied volatility.
A stock with a higher implied volatility generally has options contracts with higher premiums. This is because there is more uncertainty around the direction of the underlying stock.
Although both implied volatility and historical volatility measure the volatility of stocks, they measure it in different ways. Historical volatility reflects the past price movements of a particular stock or index, while implied volatility gauges future expectations of price movements based on the prices of options contracts. Traders use implied volatility when they are determining the extrinsic value of an option.
When to Use Historical vs Implied Volatility
Historical volatility is used for assessing a stock’s past price movements. It demonstrates a stock’s value fluctuation over a specific period, and may provide an idea of the risk associated with it. Investors use historical volatility to gauge the potential for future price swings based on historical data.
Implied volatility may help an investor evaluate options pricing or forecast potential future price movements. This figure reflects the market’s expectations for future volatility, based on the prices of options contracts. Traders often use implied volatility to determine whether options are overpriced or underpriced relative to expected price movements.
For example, a trader could look at options with implied volatility that differs from its historical volatility. If an option’s implied volatility is lower than the historical volatility of the underlying stock, that may be a signal of an undervalued option premium.
Comparing Implied and Historical Volatility
Here is a quick summary of the differences between historical and implied volatility:
Historical Volatility:
Historical volatility is used to analyze a stock’s past price movements, regardless of whether the investor is purchasing the stock itself or trading its options. It can help assess the stock’s risk or potential for large price swings, which is valuable for both stock investors and options traders.
Implied Volatility:
Implied volatility is specific to options because it’s derived from options prices, reflecting the market’s expectations of future volatility. Implied volatility isn’t just for options traders, however. It can also be useful for stock traders as an indicator of market sentiment about the stock’s future price movements.
Historical Volatility
Implied Volatility
Calculated using the historical prices of a stock or index
Determined indirectly based on the prices of options contracts
Used by investors as well as traders to analyze a stock’s movements
Used primarily for options and based on options prices, which are based on market expectations of volatility
Measures past performance based on historical data
Projects future performance, representing an indicator of future volatility
How to Use Implied and Historical Volatility Together
Because implied volatility and historical volatility measure different things, it can be useful to employ them both. The historical volatility of a given stock or index will measure how much the price has historically moved up and down. If you’re interested in investing in options for a stock, you can look at how its historical volatility compares to the implied volatility denoted by the prices of its options contracts.
One way you can incorporate some of these ideas into your trading strategies is through a volatility skew. A volatility skew depends on the difference in implied volatility between options contracts that are in the money, at the money, and out of the money.
Another relevant concept when it comes to implied volatility is a volatility smile, a graphic representation of the strike prices and the implied volatility of options with the same underlying asset and expiration date.
💡 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.
The Takeaway
Options traders often look at both historical and implied volatility when determining their options trading strategy. You may also use these tools while investing, or you might look at other factors to evaluate potential investments.
Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.
How is implied volatility calculated from historical volatility?
The historical volatility of a stock or index reflects the changes in historical stock prices. It is often, but not always, calculated as the standard deviation of a stock’s price movements. Implied volatility is not calculated directly from historical data. Rather, it is derived from the market prices of options contracts for the underlying stock.
Is there a difference between implied and realized volatility?
Realized volatility is another name for the historical volatility of a stock. So while implied and realized volatility both measure how volatile a stock is, they have different definitions, and investors use them in different ways.
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Historical volatility (HV) measures the range of returns on a market index or security over a given time period. When an asset’s historical volatility is going up, that means its price is moving further away from its average (in either direction) more quickly than usual.
A stock’s historical volatility is commonly expressed as one standard deviation using daily returns, and it’s one factor that investors often look at to gauge the risk of a potential investment. An asset’s historical volatility is different from its implied volatility. Read on to learn what historical volatility is, how historical volatility works, and how to calculate historical volatility.
Key Points
• Historical volatility measures deviations from a stock’s average price over a period of time.
• The historical volatility of a stock is typically calculated using the standard deviation of daily returns.
• Historical volatility is expressed as a percentage, but differs from forward-looking implied volatility.
• High historical volatility suggests larger price swings, while low volatility indicates smaller movements.
• Traders may use historical volatility alongside implied volatility — which indicates the expected future volatility of an option’s underlying asset — to inform their trading strategy or assess a security’s riskiness.
What Is Historical Volatility?
Historical volatility measures how much the price of a stock or index goes up and down over a certain period. Investors calculate historical volatility by measuring how much an asset’s price deviates from its average price during a certain time period. Historical volatility typically looks at daily returns, but some investors use it to look at intraday price changes.
Analysts can use any number of trading days when calculating historical volatility, but options traders typically focus on a time period between 10 and 180 days to balance capturing short-term fluctuations with longer-term trends. Options traders may use historical volatility and implied volatility when analyzing trading ideas.
Historical volatility is typically expressed as a percentage that reflects the standard deviation from the average price, based on past price behavior. But there are also other methods they can use to determine an asset’s historical volatility. For example, unstable daily price changes often result in high historical volatility readings.
How Historical Volatility Works
Historical volatility, expressed as a percentage, tracks how much a stock’s price fluctuates in relation to its average price during a certain period. This is usually calculated using the standard deviation of past price returns, which is then demonstrated as an annualized figure.
When a stock sees large daily price swings compared to its history, it will typically have a historical volatility reading. Historical volatility does not measure direction; it simply indicates the deviation from an average.
When a stock’s historical volatility is rising or above average, it means daily price changes are larger than normal. When it is lower than average, a stock or index has been relatively calm.
How Historical Volatility is Calculated
The historical volatility formula is typically a standard deviation measurement. It typically takes a stock’s daily price changes and averages them over a period. There are several steps to calculating historical volatility:
1. Collect historical prices.
2. Calculate the average price over the chosen period.
3. Find the difference between each day’s price change and the average price.
4. Square those differences.
5. Find the sum of those squared differences (this finds the squared deviations).
6. Divide the sum by the total number of prices (this finds the variance).
7. Calculate the square root of the variance.
You can then calculate the annualized volatility of a stock in two ways:
• Daily returns: multiply the standard deviation by the square root of 252 (the approximate number of trading days per year)
• Monthly returns: multiply the standard deviation by the square root of 12 (the number of months per year)
Working through the historical volatility formula can be a lengthy process, but most brokerage platforms will automatically calculate it for you. Many brokers even offer historical volatility charts. With a historical volatility chart, you can easily compare changes through time.
For example, if a stock reacted sharply to an earnings release, its historical volatility charts may show a jump right after the earnings date, while implied volatility might drop sharply as the market makes adjustments to its expectations following the earnings results. Implied volatility measures market expectations of price fluctuations for a certain asset in the future, which is reflected in how its options are priced.
How to Use Historical Volatility
Traders may use historical volatility when analyzing a stock, fund, or index to get a sense of its riskiness. High or low historical volatility stocks are not inherently bullish or bearish. Day traders might seek high historical volatility stocks as candidates for high-profit trading opportunities (but they also come with high loss potential).
Traders sometimes use historical volatility to help set stop-loss levels, which are predetermined prices at which a trade will automatically close to limit losses. For example, a day trader might use three times a stock’s daily average range – a measure of historical volatility – to set a stop price. This is known as volatility ratio trading.
You can also use historical volatility to help determine whether a stock’s options are expensive to help determine an options trading strategy. If implied volatility is extremely high when compared to a stock’s historical volatility, traders may decide that options on the stock are undervalued and suitable as an investment.
Historical volatility can help traders understand the potential range of price movements, which may inform their risk management strategies and decisions about position sizing or exit points.
Like historical volatility, implied volatility measures fluctuations in an underlying stock or index over a period of time, but there are key differences between the two indicators. Implied volatility is a forward-looking indicator of a stock’s future volatility.
The higher the historical volatility, the more risk-prone the security has been in the past. Implied volatility, on the other hand, uses option pricing to arrive at a calculation and estimate of future volatility. If implied volatility is significantly less than a stock’s historical volatility, traders typically anticipate a relatively stable period of trading, and vice versa.
Typically, when implied volatility is low, options tend to also be priced lower, which may make them more appealing to buyers who seek to capitalize on potential future price movements. Sometimes investors will use a graph to determine how an option’s implied volatility changes relative to its strike price, using a volatility smile.
Historical Volatility
Implied Volatility
Measures past price data to gauge volatility on a security.
Uses forward-looking option-pricing data to gauge expected future volatility on a security.
Higher historical volatility often leads to higher options pricing and higher implied volatility.
Imminent news, like a company earnings report or a key economic data point, may drive implied volatility higher on a stock or index.
May inform traders’ risk management strategies and decisions about position sizing or exit points.
Traders may use implied volatility to find stocks expected to exhibit the biggest price swings.
The Takeaway
Historical volatility can be a useful indicator for both institutional and retail investors looking to monitor the level and frequency of a stock or index’s price fluctuations. It measures a security’s dispersion of returns over a defined period. Implied volatility is a similar tool, but it is forward-looking and uses option pricing to arrive at its output.
Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.
What is considered a good number for historical volatility?
It depends. Although one stock might have a high historical volatility reading, perhaps above 100%, another steady stock might have a low figure around 20%. The key is to understand the securities you trade. Historical volatility can be an indicator of a stock’s volatility, but unforeseen risks can make future volatility drastically different than the historical trend.
What is a historical volatility ratio?
The historical volatility ratio compares short-term and long-term historical volatility as a percentage of the price of a financial asset. You can interpret the historical volatility ratio by looking at short versus long historical volatility. If short volatility on a stock drops below a threshold percentage of its long volatility, a trader might think there will be a jump in future volatility soon.
This is similar to analyzing volatility skew in options. It is important to remember that the interpretation and technical rules of historical volatility can be subjective by traders.
How is historical volatility calculated?
Historical volatility calculations require finding the average deviation from the average price of an asset over a particular time. An asset’s standard deviation is often used. Historical volatility is usually stated as one standard deviation of historical daily returns.
Many trading platforms automatically calculate historical volatility, so you may not have to do the calculations manually.
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SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. 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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Do you pay all of your bills and then feel as if the amount of money you have left over for your financial goals is a big zero? Unfortunately, many Americans live paycheck to paycheck (78% of us according to a 2023 “Getting Paid In America” survey conducted by PayrollOrg) and economic trends such as inflation can strain even the most financially stable households.
It’s a frustrating feeling not to have cash to put towards longer-term goals like, say, buying a house or retirement. While every person’s financial circumstances differ, your budget should allow room for important goals, such as building an investment account or padding out an emergency fund.
The question is, how much extra money should you have after paying your bills? The answer will depend on your income, expenses, and financial goals. Here’s a closer look.
Key Points
• Ideally, you want to have 20% of your take-home pay left over after paying all of your bills.
• Track spending using an app or spreadsheet to determine why there isn’t more money left over after bills.
• Consider cutting unnecessary bills (like cable, streaming networks, gym memberships) to save money.
• Sell unused possessions to increase available funds.
• Budgeting and managing money can reduce stress and help achieve financial goals.
What Is a Good Amount of Money to Have After Paying Bills?
Everyone’s financial circumstances are different, so it’s hard to pinpoint a good amount of leftover money after bills. For example, you might have a medical bill weighing down your otherwise healthy budget. Or you could have limited income as a student or retiree.
In most cases, it’s vital to prioritize spending on your needs and stay motivated when paying off debt. You’ll also want to start stashing away cash for other goals.
With this perspective in mind, the 50/30/20 rule represents a good way to allocate money. The numbers act as a guide: 50% of your take-home income pays for necessary expenses like food, housing, and debts. Unnecessary expenses, like entertainment or dining out, are considered wants, not needs, and they account for the next 30%. Finally, 20% of your income goes toward investments and savings (as well as debt payments beyond the minimum).
Based on this framework, it’s recommended to have at least 20% of your income left after paying all of your essential and nonessential expenses, which will allow you to save for both short- and long-term goals.
Tips for Managing Your Bills
Sometimes, though, putting aside 20% of your paycheck can be a real challenge. Here are some strategies that can help you pay your bills — and still have some money leftover to put towards your goals.
Getting to the Root Cause
If you often scramble to make it to payday, there’s likely a problem lurking in how your income and expenses are aligning. Fortunately, dozens of apps and banking tools are available to help you see where each dollar goes every month. Of course, you could also keep paper receipts and bill statements the old-fashioned way. Either way, keeping tabs on your cash flow can show you if you’re spending too much at restaurants or if you should up your income through a new job or a low-cost side hustle.
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Organizing Your Bills
Most of us have monthly obligations. One thing that can help you get on top of those living expenses is to take some time to organize your bills. For example, you might make a master list of all of your monthly bills, listing the amounts and when payment is due. It’s also a good idea to set up automatic bill payment — this ensures everything gets paid on time and helps you avoid late fees and interest. Just be sure you have enough funds in your checking account to cover these debits so you don’t wind up overdrafting your account (and triggering bank fees).
What Are the Bills That Are Necessary to Pay?
The following bills are essential for the average American household:
• Rent or mortgage for housing
• Food and toiletries
• Utilities such as gas, water, and electricity, as well as WiFi
• Transportation expenses, such as a car, vehicle upkeep, or bus pass
• Minimum debt payments on student loans or credit cards
• Premiums for health coverage, car insurance, and renters/homeowners insurance
Identifying these bills as top priority and knowing how much of your paycheck they account for can help you budget better. It can help you answer the question “How much extra money should I have after bills?” and hopefully tweak your spending to make sure you can save.
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Which Bills Are Expenses That Can Potentially Be Canceled?
Cutting back on luxuries and treats can be painful, but there’s no feeling quite as rewarding as ending the month with your bills paid and a substantial deposit to your retirement account with money to spare. If you need to make room in your budget, consider canceling the following expenses:
• Cable television or streaming subscriptions you rarely watch
• Smartphone upgrades and high data plans
• Gym or workout memberships
• Shopping memberships
• Digital cloud services
• Overly expensive gifts for holidays and birthdays
• Dining out and takeout
• Cigarettes, vapes, and alcohol
• Items that you can buy used instead of new, such as clothing, books, and more
Budgeting All Expenses
One of the best ways to ensure that you can cover your bills and still have money leftover is to set up a simple budget. A budget will act as a spending and saving plan to help you stay on track.
To do this, you’ll need to comb through your bank and credit card statements from the last several months and list all of your monthly expenses, including both necessary and unnecessary spending. Next, you’ll want to tally up your average monthly income. Once you see how your cash inflows and outflows line up, you may find that you need to make some adjustments in your spending.
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Getting Another Job or Side Hustle
If you reduce your bills to a minimum but still experience financial challenges, picking up a side hustle can help you make ends meet. Whether you find a part-time job with an employer or work independently for a company like a ride-sharing or food delivery app, an extra 10 to 15 hours weekly can make a substantial difference in your budget. On the other hand, if your day job meets all your expenses, a second job can help you beef up your retirement account or pay for an expensive hobby.
Tracking Your Spending
Coffees and checkout impulse purchases at the grocery store can stealthily ding your budget. Luckily, there are more apps and tools than ever for tracking every expense. You can ditch pens, paper, and envelopes for a spending tracker on your phone or an Excel budget spreadsheet. Your bank might provide a free financial management app to help as well. Use these tools to help maximize how much money you should have leftover after bills.
Being Frugal for a Temporary Time
If you have lingering debts or want to save up a specific amount of money, being thrifty for several months can propel you into financial wellness. For example, you could make grocery shopping lists based on the coupons you clip each week. Or, if online shopping is your Achilles’ heel, you may want to unsubscribe from sales email lists for a while.
Some people enjoy monthly spending challenges. One month, you might say you are not going to spend any money on movies or music and put the savings towards your emergency fund. The next month, you might order takeout only twice and deposit the money you saved versus your usual habits into your travel fund.
Downsizing Your Possessions
Just as some monthly payments are unnecessary, you may have toys, gadgets, unused appliances, and more lying around that you don’t use regularly. You can pad your wallet by selling your stuff through Facebook Marketplace, eBay, or ThredUp. If selling online doesn’t appeal to you, a garage sale could be an option. These moves can help you have more money after bills.
Why Money Management Is Important
Life gets expensive, and making the most of your hard-earned dollars is crucial. Here are some principles to consider:
• Failing to manage your money could cost you hundreds or thousands of dollars annually. Solid financial management can transform your spending habits, quality of life, and retirement income.
• Money management can help you become more financially disciplined, which can be a key characteristic of successful people. The fortitude you build from sticking to a budget can help increase your overall stability in life.
• Budgeting can help you achieve your future goals. For example, managing your money is vital for saving for your child’s education, affording a down payment for a house, or creating an emergency fund.
• Actively managing your money can help you make more intelligent financial decisions. For example, you might have two main goals — building an emergency fund and repaying debts. However, you might only have enough income for one of the two. You can analyze your finances to understand whether it’s wiser to save or pay off debt.
• Having your finances under control can reduce stress. Constantly worrying about money can present mental and physical health challenges. Getting a grip on your money is an excellent way to improve your life circumstances and create a bright future for you and your family.
The Takeaway
So, how much money should you have after paying bills?
Your financial situation will help determine the right amount of leftover money after bills. If you’re struggling to find leftover money at the end of the month, organizing your bills, setting up a budget, cutting back on nonessential spending, and picking up some extra income can help ensure you have money left after covering all of your bills. You can then use these funds to grow your savings, achieve your goals, and build wealth over time.
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FAQ
How do I avoid living paycheck to paycheck?
You can avoid living paycheck to paycheck by tracking your spending, following a budget, and cutting back on unnecessary expenses such as entertainment and dining out.
How do I get a second job when I do not have the time?
You might find a second job that fits into your off-hours, like walking dogs when you have free time on the weekend. Also if you can find a gig that pays well enough, you may be able to reduce how much you’ll have to work. It’s a good idea to map out a schedule to help divide work from leisure and maintain a healthy work-life balance.
Is the 50/30/20 budget the only good rule of thumb?
The 50/30/20 budget rule can be a helpful guideline. It states that you should spend up to 50% of your after-tax income on needs; 30% on wants; and 20% on saving and debt payments beyond the minimum. However, it’s fine to play with the percentages. If you live in an area with a high cost of living, for example, you may be better off with a 70/20/10 budget. The idea is that you include saving as part of your monthly spending plan.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/. 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.
Being a mystery shopper (or secret shopper) can sound like a dream come true: A company pays you, as an independent contractor, to hit the stores and buy things. You earn money by posing as a patron at a place of business and help evaluate the quality of the products and services.
However, not all mystery shopping jobs are legit (there are plenty of scams out there) and even the real jobs generally don’t pay enough to allow you to leave your day job. Still, working as a secret shopper can be a fun way to earn some extra cash. Read on to learn more about this type of marketing work and how to become a mystery shopper.
Key Points
• Mystery shopping involves evaluating businesses by posing as a customer, providing feedback to improve services.
• Payment for mystery shopping tasks can take 30 to 90 days to process.
• Earnings from mystery shopping are variable and often modest, averaging $12.23 per hour.
• Scams are prevalent in mystery shopping; legitimate opportunities don’t require upfront fees or promise unrealistic earnings.
• Taxes apply if mystery shopping earnings exceed $400 annually, making detailed record-keeping essential for deductions.
What Is Mystery Shopping?
Mystery shopping means a company hires you to use its services covertly. For example, you might bring your car into a shop for an oil change, buy a new pair of jeans at the mall, or eat at a new restaurant. The crucial factor is that the company’s employees don’t know by whom you are employed or that you are evaluating them, so you’ll gain insight into what typical operations are like. The purpose is for the company to gather your feedback to improve their business.
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What Happens During Mystery Shopping?
During mystery shopping, you’ll head to the assigned business location and act like an average customer. You might have the job of returning something or noting the tidiness of the workspace.
After you complete your task, you’ll likely submit a write-up or complete a survey describing your experience, including what went well or how the company could sharpen their services. Generally, once the company receives your feedback, they will pay you.
How Much Do Mystery Shoppers Make?
According to Indeed, mystery shoppers across America earn $12.23 per hour on average, which would equal $28,597 if employed full time. Typically, you receive compensation per task instead of per hour. However, mystery shopping can be time-consuming, which is why the hourly pay is relatively low. Additionally, some mystery shopping opportunities don’t offer compensation.
While some side jobs, such as renting out a portion of your home, help you build passive income streams, mystery shopping pays by the gig. Therefore, to make continuous money, you’ll have to repeatedly take on mystery shopping jobs.
Can Mystery Shopping Be a Full-Time Job?
Companies pay mystery shoppers for their help, usually in the form of a flat fee. They may also repay all or part of the expenses you incurred performing the work. In either case, mystery shopping isn’t typically profitable enough to be a full-time job, though it can be a fun, low-cost side hustle. Remember, the time that mystery shopping takes and the hidden expenses such as unreimbursed travel expenses can reduce the value of your reimbursements.
Additionally, as independent contractors, mystery shoppers don’t receive benefits, such as health insurance and paid time off. Also, if you are self-employed, saving for retirement is on you.
As a result, you’ll need to subtract those costs from what you think you could earn as a full-time mystery shopper. With an average salary of $28,597 a year, it may be challenging to make ends meet.
Would Mystery Shopping Be Considered Variable or Fixed Income?
Fixed income is a set sum of money that you can expect on a regular basis. For example, when you earn a salary, you will usually get paid the same amount weekly or bi-weekly.
On the other hand, variable income fluctuates weekly or bi-weekly. Since the income earned from mystery shopping can vary by company and project, your mystery shopping income is usually variable.
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Do Mystery Shoppers Pay Taxes?
The IRS requires you to file an income tax return if your net earnings from mystery shopping (or any side hustle) were $400 or more for the year. If you netted less than $400 from mystery shopping, the IRS stipulates that you still have to file an income tax return if you meet any other filing requirements listed in the Form 1040 and 1040-SR instructions. Remember to keep records of your expenses so you can maximize your deductions.
Becoming a Secret Shopper
If you strategically acquire legitimate mystery shopping jobs, you can make quick cash to pad your budget every month. Here are steps to becoming a secret shopper:
• Search online for mystery shopping opportunities from businesses.
• Vet the advertisement and company to ensure the opportunity isn’t a scam.
• Apply to the mystery shopping job.
• If necessary, submit a background check and sign any related disclosures or professional agreements.
• After the company grants you access, check their website for jobs and select one you’d like to complete.
The Mystery Shopping Providers Association (MSPA) has an online database to help you find honest, authentic mystery shopping jobs. In addition, the organization offers two certifications that make you a more desirable mystery shopper for companies. You can earn the MSPA’s silver certificate online and participate in a day-long workshop for the gold certification.
• You can supplement income from your day job with mystery shopping or even try going full time.
• You’ll have variety and excitement from new experiences every day.
• You can help companies you like improve their products and services.
Drawbacks of Becoming a Mystery Shopper
If you’re considering becoming a mystery shopper, it’s a good idea to be mindful of potential downsides:
• You likely won’t have steady earnings like a typical job, meaning some weeks will be more lucrative than others. In addition, each job may pay differently.
• Frequent travel can put extra miles on your car and possibly cause damage. Even if you’re reimbursed for miles, you may still lose more money through oil and tire changes.
• You’ll probably have to sift through countless scams while looking for jobs. If you fall prey to one, you’ll likely lose money or waste time.
• Payment could take up to 90 days to receive.
• Starting out, you usually won’t be able to access some of the better assignments available only to seasoned shoppers.
If you’re planning on becoming a secret shopper, consider this advice on staying organized and achieving success.
Keeping Receipts
You’ll likely submit receipts for many mystery shopping jobs. Therefore, you may spend time mailing, faxing, or scanning receipts. It’s recommended to make copies for your own records to ensure you retain proof of completed jobs.
Signing Up for Multiple Sites and Companies
To make substantial income, you’ll probably work with numerous companies. As a result, you’ll typically have to become well-versed in the methods and preferences of a plethora of businesses. It can be a good idea to organize your work into files for each company to keep you from getting mixed up.
Watching Your Income and Taxes
You’ll likely owe taxes on the income if you earn more than $400 as a mystery shopper. Therefore, it’s recommended to meticulously track your earnings to ensure your income level is accurate on your tax return.
Watching for Scams
Unfortunately, not all mystery shopping jobs are legitimate. Scammers devise websites and advertisements to look authentic. Here, some signs to watch out for:
• A dead giveaway of a scam is typically the requirement that you must pay to access a job. Companies with legitimate mystery shopping opportunities won’t charge you or demand that you transfer money from your bank account. Additionally, since MSPA lists mystery shopping jobs at no charge, you should not have to pay to view opportunities.
• Any mystery shopping job that promises you’ll make thousands of dollars during your first month is also likely to be fraudulent. While it is possible to generate significant income by mystery shopping, it takes time and certifications to access better-paying work. Even then, you would have to work at least 40 hours per week to earn enough to live on.
• Beware scammers who use the MSPA name to con you into their fraud. MSPA is an excellent resource, but scammers posing as the organization try to lure mystery shoppers. The MSPA posts jobs but does not directly employ mystery shoppers. It can be wise to avoid advertisements for jobs with the MSPA, as they tend to be fake.
Knowing What You Signed Up For
It’s easy to get carried away when perusing mystery shopping opportunities. So before you click away, it’s a good idea to read the details about the opportunity first. For example, although you might see a job at your favorite store, the location might be an hour away instead of the one that’s a five-minute drive from home. Therefore, it’s wise to study jobs carefully before committing to something you may not enjoy or receive enough compensation for it to be worthwhile.
The Takeaway
Mystery shopping can be a fun way to earn extra money. Just keep in mind that it may not be the most profitable side hustle out there, and finding legitimate opportunities can be challenging. Still, the added perks of trying new products and having new experiences can make mystery shopping an enjoyable hobby that also puts a little extra padding in your bank account.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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FAQ
Is mystery shopping too good to be true?
Mystery shopping is a viable side gig that can increase your income by completing jobs for businesses that are looking to improve. However, scammers try to lure in would-be mystery shoppers by promising huge paychecks for quick jobs. Any mystery shopping job that sounds too good to be true probably is. That said, a wide array of mystery shopping jobs pay modest rewards that can pad your wallet.
Do mystery shoppers get to keep what they buy?
Mystery shoppers sometimes get to keep what they buy. It depends on the company’s policies for the specific job. The business might allow you to keep purchases in some cases and ask for you to return them in others.
Do mystery shoppers get paid upfront?
In most cases, mystery shoppers do not get paid upfront. It usually takes 30 to 90 days to receive payment for a mystery shopping job.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/. 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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Making a budget is often the first step in building a solid financial foundation. It helps you get better acquainted with how much money you earn, spend, and save. What’s more, it provides guidance and guardrails to help you hit the financial goals you’re focused on, whether that means saving for a vacation in Tuscany or the down payment for your dream house.
But budgets are not “set it and forget it” tools. The process can involve plenty of trial and error, and you may benefit from refining your plans along the way. In fact, it’s a good idea to check in on your budget every month, quarter, and/or year to make sure it’s still serving you well.
That’s where budgeting questions come in. Whether you’re just starting to budget or have been doing it for years, the following list of budget-specific questions can help you fine-tune your financial plan and stay on track. When asked regularly, these questions can yield surprising insights and adjustments to enhance how you manage your money.
Key Points
• Reviewing your budget every month, quarter, and/or year can help ensure your spending is on track and you’re making progress towards your goals.
• Having a list of budgeting questions can help simplify the budget review process.
• It’s a good idea to save 10% to 15% of income for retirement, adjusting based on retirement timing.
• Aim to build and maintain an emergency fund that can cover three to six months of living expenses.
• Apply debt repayment strategies, like the 50/30/20 rule, to balance debt reduction with savings.
How Questions Can Help You Budget Better
Asking questions about budgeting can be a wise move because everyone’s financial situation is different. The way that your parents or best friends budget may be entirely different from the way you approach managing your money. By checking in and assessing where you stand, you can help improve your financial outlook.
The right budget questions can give you insight into things like:
• Why you should budget in the first place
• What you hope to achieve from keeping a budget
• Where your biggest budget pitfalls are
• How you can improve your budget
To put it another way, asking budgeting questions can help you better understand where you are financially, where you’d like to be, and how a budget can help you to get there.
In terms of how often you should be asking questions about budgeting, there’s no set rule of thumb. You might check in monthly if you’re just getting started, then ease back to every few months. At the very least, it’s a good idea to do an annual budget review to see how your spending has evolved over the year. It’s also a good time to see what adjustments you might need to make as you set new financial goals for the year ahead.
14 Budgeting Questions That Can Help You
Not sure which budget questions to ask? The following checklist covers some of the most important things to consider as you make your monthly spending plan and keep tabs on it.
1. Am I Prepared for Unexpected Expenses?
Saving for financial emergencies is an important part of budgeting. When you don’t have money to cover an unexpected expense, you run the risk of having to use a high-interest credit card or loan to cover, say, a car repair or a major dental bill.
One of the first budget questions to consider is how much you have saved toward emergencies. If the answer is “0” in liquid funds you could quickly tap, you may want to think about how much you need to save for emergencies and how to fit that savings goal into your budget each month.
2. What is a Good Amount for an Emergency Fund?
A general rule of thumb is to keep three to six months’ worth of expenses in a separate savings account earmarked for emergencies. However, a good amount for an emergency fund for you can depend on your income, expenses, and how much money you need to have in the bank to feel comfortable.
If you’re single and have side-hustle income on top of your regular paychecks from a job, for instance, you might be okay with one to two months’ worth of expenses saved. On the other hand, if you’re married with two kids and are the primary breadwinner, it’s a much different situation. You might be more at ease with nine to 12 months’ worth of expenses saved instead.
When you’re starting from zero, aiming for $500 or $1,000 can be a good way to ease into a savings habit. You can then review your budget monthly to see where you might be able to find additional money. Every little bit counts ($20 here, $35 there) until your emergency savings hits a level that allows you to breathe a sigh of relief.
Debt can make it difficult to reach your financial goals, especially if a big chunk of your income is going to credit cards, student loans, or other debts. With high-interest debt (like credit cards), it’s generally a good idea to pay as much as you can in excess of the minimum payment each month. This will help speed up repayment and save you a significant amount of money on interest. With other types of debt, however, you may want to strike a balance between debt repayment and saving. With the 50/30/20 rule of budgeting, 50% of your income goes to needs; 30% goes to wants; and 20% goes to debt payments beyond the minimum and savings.
4. Did I Overspend? If So, Where?
This is another great budgeting question to ask when reviewing your budget monthly if you’re trying to stop overspending. Going through each budget category and analyzing how much you spent can help you pinpoint the money leaks in your financial plan.
Once you find the leaks, you can take steps to plug them. For example, if you noticed that you’re spending more money on dining out, then planning meals at home and committing to that plan is a relatively simple fix. Or you might decide to audit your subscription services and cut out anything you’re paying for but not using. Those are simple ways to cut back on spending.
5. Do I Need to Adjust Spending Limits?
Reviewing your spending each month can help you figure out where you might be overdoing it. But it’s also an opportunity to see how inflation and rising prices might be affecting your expenses. If you notice that you’re spending more on groceries or gas, for instance, then you may need to adjust your budget and trim other areas of spending to compensate for those higher costs. You might also decide to adjust spending limits down if you want to dedicate more of your budget to saving or debt repayment. So again, instead of eating out you might stick to having meals at home which can be more cost-effective. If that saves you $100 a month, you could add that sum to your emergency fund or make an extra payment to your student loans.
Knowing your money priorities is important as they can influence the financial decisions you make. You could ask this budgeting question monthly. But if that feels like too much, aim to consider it at least once a year to see how life changes might affect your answers.
For example, your money priorities might include spending on travel or recreation in your 20s. But once you hit your 30s, your focus may shift to saving, paying down debt, and taking other steps to work toward financial stability and security.
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7. Am I Tracking Toward My Financial Goals?
Tracking your financial goals can give you motivation to stick with your money plan. It’s also an easy way to see how you’re progressing toward them.
Whether your goals include paying down debt, building an emergency fund, or saving for a vacation, you can ask this budget question monthly to gauge how you’re doing.
If you see that you’ve made little progress over the past few months, for instance, you can then ask yourself what you can do to change that and get closer to your goals.
8. Am I Happy About the Purchases I’ve Made?
Some things you have to spend money on, but others you buy because you want to. That’s the difference between needs vs. wants, and understanding that is an important part of budgeting.
If you find yourself spending money more often than you’d like on things that aren’t necessities, ask yourself what you’re getting from those purchases. Dropping $5,000 on a once-in-a-lifetime vacation might be justified if you get a chance to create lasting memories. Spending that same $5K on new clothes, on the other hand, might give you a temporary boost, but you may end up regretting that purchase later.
Considering what you’re getting from spending money can give you clarity on your financial priorities. It can also help you to identify bad money habits that might be hurting your financial situation.
9. What Would My Budget Look Like Without Debt?
Living debt-free might seem like a dream but it’s possible to make it a reality with the right plan. If you have debt that you’re paying down monthly, ask yourself what your budget might look like if you didn’t have to make those payments. That could give you a push to dedicate more money toward debt repayment so you can eliminate those obligations faster.
There are lots of debt reduction strategies you can use, including the debt snowball and debt avalanche techniques. If you’re tracking your debt repayment progress and aren’t getting ahead as fast as you’d like, you might review your budget to see if another method might be more effective.
When it comes to credit card debt, you might investigate balance transfer credit card offers, which give you, say, 18 months during which you pay no interest. This can help some people pay down the amount they own. You might also seek advice from a nonprofit credit counselor.
10. Is There a Way to Increase My Income?
Making more money can give your budget a boost. When income goes up, paying bills becomes less stressful. It may also be easier to knock out debt or grow your savings.
How often you ask yourself this budget question can depend on your situation, but it’s worth pondering it at least once a year. Some of the ways you might be able to increase income include getting a part-time job, taking on more hours at your current job, negotiating a raise, or starting a low-cost side hustle.
11. How Much Should I Budget for Investments?
Investing money and saving it are two different things. When you invest money, you’re putting it into the market where it has more opportunity to grow. There’s greater risk involved vs. saving, but the rewards can be greater as well.
The amount you should budget monthly for investing can depend on how much you have left after covering basic expenses, how much you’re saving for emergencies or other short-term goals, and how much you’re paying towards debts. (You also want to spend a little on those “wants” mentioned above; otherwise, you’ll end up feeling deprived.)
Depending on the details of your situation, aiming to invest 10% might be a good place to start and you can build on that amount year over year as you pay down debt or increase your income.
12. How Much Should I Save Each Month for Retirement?
Paying yourself first is a fundamental rule of personal finance and it’s a good way to build the wealth you need to retire. When reevaluating your budget each year, it’s a good idea to look at how much you’re saving for retirement.
The exact amount you’ll need to save monthly will depend on your retirement goals and age. Financial experts often recommend saving at least 10% to 15% of your annual take-home income for retirement (including any company match). However, you might need to double or even triple that if you’d like to retire early or you’re getting a late start.
Look at what you’re putting into your 401(k) at work if you have one. If you’re not contributing enough to get the full company match, then consider bumping up your contribution rate to max out this benefit (which is essentially free money).
13. What Are My Goals This Month?
Financial goal-setting often involves looking well into the future. For instance, you might want to save $50,000 for a down payment on a home or $1 million for retirement. But you can also set goals that you hope to achieve month to month.
For example, you might set a goal of getting three car insurance quotes from different companies if you’re hoping to get a better rate. Or you might have a goal of not spending money for 15 days out of the month. These kinds of short-term goals can help you move ahead financially without losing sight of your bigger money picture.
What’s more, succeeding at small financial goals can build your confidence to tackle larger ones.
14. How Can I Stay Consistent In Keeping My Budget?
Making a budget is important, but sticking to it matters even more. Examining your income and expenses monthly is helpful, but asking the key question, “How can I stay consistent with my budget?” can also be vital. Doing so can help you figure out what might be tripping you up and what you can do to be more consistent with your spending plan.
You might decide to do weekly or biweekly budget check-ins versus reviewing your budget once a month. Or you might start using a budgeting app that tracks your daily and weekly spending. These tools often link to your checking account and credit cards and will automatically download transactions. This can help you catch — and correct — small cash flow problems before they become bigger and completely derail your budget.
The Takeaway
The great thing about making a budget is that there’s always room to tweak and improve things. Asking the right budget questions is a good way to figure out what’s working (and what’s not) so you can make the most of your money each month.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
How many budget categories should I have?
There’s no single right answer to how many budget categories someone should have. It’s possible to have 100 budget categories or more, depending on how much detail you go into when dividing up your income and expenses. At a minimum, you may want to have budget categories for fixed expenses, discretionary expenses, variable expenses, saving, and debt.
What does a realistic budget look like?
A realistic budget takes into account all of your income and divides it up to pay for your needs (including debt repayment) and some wants, as well as allowing room for saving. It should allow you to manage your money without feeling stressed or anxious.
How do you plan a budget?
Planning a budget starts with understanding your income and then diving into your expenses. As you make your budget, you can assign income to each expense you have, starting with the most important ones first. That usually means housing, utilities, food, transportation, and insurance. Paying down debt is also often a priority. From there, you can continue dividing up income to cover discretionary spending and savings.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
