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What are the Average Monthly Expenses for One Person?

Everyone has different needs, responsibilities, and spending and saving habits. Still, you may wonder how your spending lines up with everyone else’s.

Or, if you’re in the process of creating a monthly budget, you may be looking to see roughly how much of your take-home income you should be setting aside for various living expenses.

To help you get a better sense of the cost of living for one person, we’ve assembled a list of the most common average monthly expenses.

Housing

We generally all need a roof over our heads, and housing tends to consume the highest portion of monthly income.

Indeed, according to the U.S Department of Labor , single people living alone (or with others but paying their own) may devote, on average, 35.9 percent of their monthly income to housing.

Government stats also show that the average household (from singles to families) spends about $1,723 per month on housing costs, including rent or mortgage, property taxes, maintenance and insurance fees, where applicable.

Of course, monthly housing costs may be less if you’re single, and can also vary significantly depending on where you live.

A single person living in a studio in New York City, for example, can expect to spend around $1,514 on rent, whereas someone renting a one-bedroom in Roanoke, VI, can expect to pay around $713 on monthly rent.

Transportation

Transportation costs can vary depending on your mode of transport (i.e., car vs. bus vs train), as well as what region of the country you live in.

But one thing that holds true for many of us–transportation often accounts for the second-largest budget item, after housing.

The average household shells out around $813 per month on transportation, including car or public transportation, gas, insurance and other related expenses.

Other transportation expenses to note:

•  Americans spend an average of $550 per month on new car payments.
•  Gas and fuel run around $176 per month on average.
•  Car insurance payments average $119 monthly.

Health Care

Health care expenses can vary depending on each individual’s circumstances, and can also rise and fall from one month to the next.

For example, there may be some months where unexpected medical costs crop up (such as emergency care), and other months where you only need to cover insurance premiums and preventive care appointments.

Cost also varies by location.

For instance, a single adult living in New York City can expect to pay about $425 a month on health care (including insurance premiums for the lowest tier plan, as well as out-of-pocket costs).

A single adult living in Boise, Idaho, on the other hand, can anticipate shelling out roughly $342 per month for those costs.

Food

Everyone’s gotta eat–and the average single person spends about $198 per month in groceries and $172 per month outside the home, for a total average of $370 per month.

This figure can range, however, anywhere from under $200 to over $700, depending on your age, income, gender, eating habits, and where you live.

The wide variability in spending in this category shows that food can be an area where consumers can find savings if they need to reduce monthly spending (such as eating out less, meal planning, and choosing lower cost brands at the supermarket).

Cell Phone

Average monthly wireless fees run between $35 and $140 for a family plan.

The good news? If your budget is particularly tight, you could spend as little as $10 a month for basic service with no data.

Utility Bills

After you’ve saved up and carefully budgeted to buy a home, you probably don’t want to be surprised by a higher-than-expected utility bill.

A number of factors go into utility costs, including home size, where you set the thermostat, type of insulation you have, the climate, as well as what part of the country you live in (since rates vary across the country).

New Mexico residents, for example, pay the least for natural gas (on average, $50 per month) and electricity (an average of $79.16 per month), while Hawaiians pay the most–due to the remote nature of the islands, electricity averages $149.33 per month and natural gas averages $223.07 monthly.

Clothing

The average adult aged 25 to 34 spends about $161 on clothing per month. Adults aged 35 to 44 spend a bit more, averaging $209 per month.

If your budget is tight, this is one category where you can often pare back spending–whether by shopping your closet, hitting the sales racks, or bringing older clothes that need repairs or fit adjustments to the tailor.

Gym Memberships

The average gym membership runs $58 per person, which could be a good deal if you use it regularly.

But weighing in at $696 per year, it’s a hefty price to pay if you rarely see the inside of that gym.

There are some great options for exercising on a budget, such as going outside and hitting the pavement, joining an exercise meetup group, watching YouTube videos, and/or picking up some dumbbells and exercise bands to workout at home.

Getting Your Monthly Expenses in Check

Knowing the average cost of living can be helpful when you’re trying to determine how much of your budget you may need to allocate to different spending categories.

However these average monthly expenses are just that — averages.

To fine-tune your budget, and make sure your spending is in line with both your income and your goals, it’s a good idea to track your own spending (which means every cash/debit card/credit card payment and every bill you pay) for a month or two.

There are a few options for tracking spending. One easy method is to make all purchases for the month on one debit card or credit card, then, at the end of the month, taking note of all the purchases made.

Another option is to log expenses as you pay them–you can carry around a notebook or keep all your receipts and list them later on paper or in a computer spreadsheet.

At the end of the month, you can then tally up everything you spent, as well as allocate each expense into key categories, such as housing, transportation, food, health care, etc.

You can then see how your spending compares to national averages, as well as where you might want to tweak things.

For instance, if you don’t have enough at the end of the month to put any money away into your retirement fund and/or an emergency fund or other savings goal, you may want to re-examine your nonessential spending (such as restaurants, clothing, gym memberships) and finds some ways to pare back.

The Takeaway

Whether you’re creating a new budget or refreshing an old one, you’ve probably noticed how important–and tricky–it is to get your monthly expenses right.

Knowing the average amount people spend to live can help you figure out how your spending stacks up and, if you’re just starting out, help to ensure you’re budgeting enough for each category.

To see how your actual spending compares to national averages, you may want to track your daily spending for a month (or more), and then put all your expenses into categories.

You may then decide to set up certain spending limits to keep your spending in line with your income, as well as your savings goals.

If you need help with tracking your spending, a SoFi Money® cash management account may be a good option for you.

With SoFi Money, you can easily see your weekly spending on your dashboard, which can help you stay on top of what you are spending and make sure you are on track with your budget.

Learn more about how SoFi Money could jumpstart your financial management today.



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Third Party Brand Mentions: No brands or products 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.
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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Smart Short Term Financial Goals You Can Set for Yourself

Smart Short Term Financial Goals to Set for Yourself

Setting financial goals is an important step toward becoming financially secure.

If there is something you hope to achieve in the not-too distant future, say buy a car or make a downpayment on a home, it may not be enough to simply hope you get there. Making a plan can significantly increase the likelihood of you meeting the goal.

Going day to day without any financial goals in place can cause you to spend too much, then come up short when you need money for unexpected bills and have to rely on high interest credit cards.

Short term financial goals are generally things you want to achieve within roughly one to three years. They can be singular goals, and once reached you are done. Or, they might be incremental steps to much larger financial goals (such as funding your retirement, paying off a mortgage, or paying for a child’s college tuition).

Setting and reaching short term money goals can also give you the confidence boost and foundational knowledge you need to achieve larger goals that will take more time.

While everyone’s goals are different, here are some short term financial goals you may want to start working towards.

Building an Emergency Fund

Often, one of the most important short term financial goals to accomplish is creating an emergency fund.

This is cash savings that can cover three- to six-months (or more in some cases) worth of living expenses just in case something unexpected comes up, such as a medical bill, job loss, or a major car or home repair.

Knowing that you have money in the bank in case of an emergency can bring peace of mind, and also make it easier to work toward your other financial goals.

An emergency fund can also act as a buffer to keep you out of debt, since you’ll be less likely to have to rely on credit cards should something unexpected happen.

You can build an emergency fund by putting some money towards it every month, or you make it happen more quickly by funneling a large payment, such as tax refund or bonus, right into this fund.

Tracking Your Spending

Getting a sense of how much you are actually spending each month is a critical step in working towards both short term and long term financial goals.

You can do this by tracking your expenses for a month or so, then setting up a realistic budget to help you prioritize your spending, rather than spending haphazardly (which can lead to trouble when it comes time to pay bills and/or having any money leftover for savings).

You can track your spending by using a budgeting app. SoFi Relay, for example, allows you to connect all of your accounts on one dashboard and then categorizes your credit card and debit card transactions by budgeting categories.

You can also create a budget the old-fashioned way by going through your bank statements, bills, and receipts from the last few months and categorizing each expense with a spreadsheet or on paper.

Once you see where your money is actually going, you may discover some surprises (such as $200 a month on lunches out), and also find places where you can easily cut back. You might decide to bring lunch from home a few more days per week, for example. Or, you might want to get rid of rarely used subscriptions or streaming services, or ditch the gym membership and work out at home.

This money you free up can then be redirected towards your savings goals, like creating an emergency fund, buying a house, or funding your retirement.

Paying Down Credit Card Debt

If you carry credit card debt, you may want to make paying it off one of your top short term financial goals. The reason is that the interest on credit card debt can be so costly, it can make achieving any other financial goals much more difficult.

One strategy for paying off credit card debt is the avalanche method, which involves paying the minimum on all but your highest-rate debt. You then put extra money toward the card with the highest interest debt. When that one is paid off, you would roll the extra payment to the card with the next-highest interest rate, and so on.

Another option is the snowball method, in which you pay the minimum on all cards, but use extra money to pay off the debt with the smallest balance. When that’s paid off you move to the next smallest debt, and so on. This can give you a sense of accomplishment that helps keep you motivated.

Or, you might consider consolidating your debt by taking out a personal loan to pay off all of your cards. Personal loans usually offer lower interest rates than credit cards, and having only one payment each month can help simplify the payoff process.

Paying Off Student Loans

Student loans can be a drag on your monthly budget. Paying down student loans, and eventually getting rid of these loans, can free up cash that will make it easier to save for retirement and other goals.

One strategy that might help is refinancing into a new loan with a lower interest rate. You can check your balances and interest rates across your federal and private loans, and then plug them into a student loan refinancing calculator to see if refinancing offers an advantage.

It’s important to keep in mind, however, that not all refinancing options are created equal. There are scores of bad actors on the internet who might promise to get rid of all your debt but will only damage your credit score. If you do refinance, you’ll want to make sure you’re working with a reputable lender.

You may also want to keep in mind that refinancing federal student loans with a private lender could mean losing some of the benefits associated with federal student loans, such as income-based repayment or deferment, if you fall on hard times.

If you have multiple student loans and won’t benefit from consolidating, consider using the avalanche or snowball method of repayment (described above) to pay them off faster.

Contributing to Your Retirement Fund

If you’re not yet saving for retirement, a great short-term financial goal may be to start doing so. Or, if you’re putting in very little each month, you may want to work on upping the amount.

If your employer offers a 401(k) and gives matching funds, for example, it’s normally wise to contribute at least up to your employer’s match. You can then start increasing your contributions bit by bit each year.

If you don’t have access to a 401(k), you may be able to up an IRA and start saving for retirement there. (Keep in mind that there are limits to how much you can contribute to a retirement per year that will depend on your age.)

While retirement is a long term, rather than short term, financial goal, taking advantage of this savings vehicle can reduce your taxes starting this year (since money you put into a retirement fund is taken out of your income before taxes are calculated).

Even more importantly, starting early can pay off dramatically down the line. Thanks to the power of compounding interest (when the money you invest earns interest, and that interest then gets reinvested and earns interest as well), monthly contributions to a retirement fund can net significant gains over time.

Saving More Money

If you already have an emergency fund, you may want to start thinking about what you are hoping to buy or achieve within the next several years, and also beyond.

This could be anything, including buying a new high-tech toy, going on a great vacation, making a downpayment on a home, or doing a major renovation.

Saving up for this goal, rather than paying for it with a credit card, helps you avoid paying more for those things in the form of high interest payments.

For financial goals you want to reach in the next few months or years, consider putting this money in an account that earns more than a traditional savings account, but allows you to access when you need it, such as a money market account, an online savings account, or a cash management account.

For a longer-term savings, you may want to look into opening a brokerage account.

This is an investment account that allows you to buy and sell investments like stocks, bonds, and mutual funds. A taxable brokerage account does not offer the same tax incentives as a 401(k) or an IRA, but is much more flexible in terms of when the money can be accessed.

The Takeaway

While day-to-day spending tends to grab most of our most attention, it is important to also focus on bigger goals
Short-term financial goals are the things you want to do with your money within the next few months or years. Some key short-term goals include setting a budget, starting an emergency fund, and paying off debt.

From there, you may want to start saving for things you want to buy or do in the relatively near future, and also start thinking about investing your money to help you build wealth over time.

If you’re new to investing, SoFi’s automated investing platform can be a great place to start. There are no management fees and you’ll have access to financial advisors who can offer personalized tips based on your goals, time horizon, and risk tolerance.

If you prefer to be more hands-on, SoFi also offers active investing where you can buy and sell stocks at no cost

Get started and grow as an investor with SoFi.


SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .
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What is Disposable Income?

Disposable income is the amount of money that an individual or household has to spend or save after income taxes have been deducted.

Sometimes referred to as disposable personal income (or DPI) or disposable earnings, disposable income is closely monitored by government economists because it is a key indicator of the overall health of the economy.

Disposable income is also the foundation of your personal budget, as it is the starting point for how you decide to spend your money.

Understanding what disposable income is (and how it differs from discretionary income) is key to creating and living comfortably within your budget.

Read on to learn how to quickly calculate your disposable income, and then use this number to work towards your financial goals.

Why Disposable Income Is Important

Disposable income is usually defined as the amount of money you keep after federal, state, and local taxes and other mandatory deductions are subtracted from gross earnings.

Mandatory deductions include Social Security, state income tax, federal income tax, and state disability insurance.

It’s important to keep in mind, however, that disposable income is not the same as your net pay.

Voluntary deductions, such as health benefit deductions, 401(k) contributions, deductions for other employer-sponsored benefits, as well as any assignments of support (such as child support) are excluded from the calculation. These costs are considered part of your disposable earnings.

Disposable income is an important number not just for consumers, but also the nation as a whole.

The average disposable income of the country is used by analysts to measure consumer spending, payment ability, probable future savings, and the overall health of a nation’s economy.

International economists use national measures of disposable income to compare economies of different countries.

On an individual level, your disposable income is also a key economic indicator because this is the actual amount of money you have to spend or save.

For example, if your salary is $60,000, you don’t actually have $60,000 to spend over the course of the year.

If you live in Connecticut, for example, you would pay $6,187.50 in federal income tax, $2,100 in state tax, $3,720 in social security tax, and $870 for medicare. Your disposable income could land at $47,317. This is what you would have to spend on everything else in your life, such as housing, transportation, food, health insurance and other necessities.

Of course, that doesn’t mean you should spend all of your disposable income. Another thing to consider is disposable vs. discretionary income. This will tell you actually how much money you have to play with.

Disposable Income vs. Discretionary Income

Although they’re often confused with one another, disposable income is completely different from discretionary income.

While disposable income is your income minus only taxes, discretionary income takes into account the costs of both taxes and other essential expenses. Essential expenses include rent or mortgage payments, utilities, groceries, insurance, clothing, and more.

Discretionary income is what you can have leftover after the essentials are subtracted. This is what you can spend on nonessential or discretionary items.

Some costs that fall under the discretionary category are dining out, vacations, recreation, and luxury items, like jewelry. Although internet service and your cell phone may seem like necessities, these expenses are considered discretionary expenses.

As you might expect, discretionary income is always less than disposable income. When you subtract discretionary income from disposable income, the amount you come up is how much you can put towards savings.

Calculating Disposable Income

Disposable earnings refers to the amount of earnings left over after mandatory federal, state and local deductions. But disposable income is not necessarily the same as your take-home pay.

Deductions from your paycheck may include additional items such as health insurance, retirement plan contributions, and health savings accounts. These deductions are voluntary, not mandatory.

To calculate your disposable earnings, you can simply subtract federal, state and local taxes, Medicare, and Social Security from your gross earnings. The resulting amount is your disposable income.

You may want to keep in mind, however, that taxes deducted from your paycheck are an estimate.

If you have a history of getting a large refund or having a large amount of taxes due, it may be worth reviewing your withholdings through your employer.

This could help you adjust the withholdings so it is closer to the actual expected tax that will be calculated when you file. You can then plan accordingly.

Even if you’re a contractor or freelancer, or if you made additional income from side gigs along with your salary, you can still calculate your disposable income.

This requires subtracting your quarterly tax payments and any additional taxes you will owe from your overall income. You can then determine your monthly after-tax income.

Setting aside money to pay taxes can also help you budget with your disposable income.

Disposable Income Budgeting

Calculating your disposable income is a key first step in preparing a budget. You need to know how much you have to spend in order to plan your monthly spending and saving.

A personal budget puts you in control of your disposable income and helps you make financial decisions. It forces you to take a closer look at how you’re spending your money.

Here are a few ideas that could be helpful when developing a budget based on disposable income.

Tracking Spending

Disposable income is what’s coming into your account every month. It’s a good idea to also determine what is going out each month.

To do this, you can gather up bank and credit card statements, as well as receipts, from the past three months or so, and then list all of your monthly spending (both essential and discretionary/nonessential).

To make this list more accurate, you may want to actually track your spending for a month. You can do this with a phone app, by carrying a small notebook and jotting down everything you buy, or by saving all of your receipts and logging it later.

This can be an eye-opening exercise. Many of us have no idea how much we’re spending on the little things, like morning coffees, and how much they can add up to at the end of the month.

Once you see your spending laid out in black and white, you may find some easy ways to cut back, such as getting rid of subscriptions and streaming services that you rarely use, brewing coffee at home, cooking more and getting less take-out, or getting rid of a pricy gym membership and working out at home.

Setting Goals And Spending Targets

Tracking income and spending can provide a great starting point for setting financial goals and spending targets.

Goals are things that a person aims for in the short- or long-term—like paying off student loans or buying a new car.
Spending targets are how much you want to spend each month in general categories in order to have money left over to put towards your savings goals.

Since essential spending often can’t be adjusted, spending targets are typically for discretionary income.

One option for budgeting disposable income is the 50/30/20 plan. This suggests spending about 50% on necessities, 30% on discretionary items, and then putting aside 20% for savings and other long-term goals.

These percentages are general guidelines, however, and can be adjusted as needed based on individual circumstances.
For example, if you live in a competitive housing area, rent may take up a larger portion of your expenses, and you may have to bump up necessity spending to 55% or 60% and decrease fun money to 25% or 20% instead.

Or, if you are saving for something in the near term, like a car or a wedding, you may want to temporarily bump up the savings category, and pull back unnecessary spending for a few months.

The Takeaway

Disposable income is a key concept in budgeting, as it refers to the income that’s leftover after you pay taxes.
Disposable income is distinctly different from discretionary income, which is what remains after you subtract other necessary costs from your disposable income. You might think of discretionary income as your “fun money.”

Knowing how much disposable income you have is the foundation for putting together a simple budget that allows for necessary expenses, having fun, while also saving for the future.

Want to get started budgeting, but not sure where to begin? Consider signing up for a SoFi Money® cash management account.

With SoFi Money, you can easily track your weekly spending right in your dashboard in the app.

SoFi Money also offers savings features like “vaults” that make it easy to put money aside for your short- and long-term financial goals.

Save, spend, and earn all in one place with SoFi Money.



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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What to Do With Extra Money

Whether you got a nice bonus at work, an unexpected inheritance, or sold something of value, coming into some extra cash can be an awesome thing.

However, it also means you have a decision to make–what to do with that money?

Before you start spending it, you might want to take a moment to come up with a plan for how to use this lump sum of cash. Otherwise, it might just get frittered away here and there without making much impact.

There are lots of options for making the most of an influx of money–from beefing up your emergency or retirement fund to putting it towards something big that you’re saving up for.

What’s best for you will depend on your current situation, as well as your short- and long-term financial goals.

Here are a few ideas for making the most of a small (or large) windfall.

Padding Your Emergency Fund

If your emergency fund is low (or nonexistent), you might use your new windfall to build it up.

Having an emergency fund gives you a financial cushion, along with the sense of security that comes with knowing you can handle a financial set-back (such as a job loss, medical expenses, or costly car or home repair) without hardship.

Having this buffer can also help you avoid having to rely on credit cards for an unexpected expense, and then falling into a negative spiral of high interest debt.

A general rule of thumb is to keep three to six month of fixed expenses in cash as an emergency fund. Two-income households may be able to protect themselves with three months of savings. If you’re single, however, you may want to aim closer to having six months of living expenses saved up.

Consider keeping your emergency fund in a separate high-yield savings account, such as a money market account, online saving account, or a cash management account.

These options typically offer higher interest rates than a standard savings account, yet allow you to access the money when you need it.

Increase Contributions to Your 401(k)

Does your employer offer a 401(k) with matching contributions? If so, this can be a powerful tool to help you save for retirement.

Not only does a 401(k) help lower your taxes (since this money comes out of your salary before taxes are deducted), your employer’s matching contributions are essentially free money, and can provide a nice boost to your retirement savings.

If you’re not currently taking full advantage of matching funds, you may want to adjust your contributions to help ensure you’re making the most of this benefit.

Starting a Retirement Account

What do you do if you don’t have a company plan, or you’ve hit your contribution limit there? You might consider using your new influx of cash to open up (or add to) an Individual Retirement Fund (IRA).

While retirement may feel a long way off, starting early can be a smart idea, thanks to the magic of compound earnings (that’s when the money you invest earns interest, that interest then gets reinvested and also earns interest).

There is also a possible immediate financial benefit to investing in an IRA: Just as with a 401(k), your IRA contributions can possibly reduce your taxable income, which means that any money you put in this year can lower your tax bill for this year.

You’ll want to keep in mind, however, that the federal government places limitations on how much you can contribute each year to retirement funds.

Paying Down High Interest Debt

While mortgage loans and car loans tend to offer lower interest rates since they’re secured by collateral, the same can’t be said of unsecured debts, such as credit card balances, student loans, and personal loans.

If you carry any credit card or other high interest debt, you might want to use your windfall to jump-start a strategic debt payoff plan, such as the debt snowball or the debt avalanche method, in order to pay it off as quickly as possible.

With the snowball method, you pay off your smallest debt (while paying the minimum on your other debts). Once that balance is paid off, you take the funds you had previously allocated to your smallest debt and put them toward the next-smallest balance. This cycle repeats until all of your debt is repaid.

The avalanche method involves ranking your debts by interest rate. You then put any extra money you have towards paying off the debt with the highest interest rate (while continuing to pay the minimum on other debts). After the balance with the highest interest rate has been completely paid off, you move on to the next-highest-interest-rate balance (again, putting as much money as you can toward it), and then move down the list until your debt is repaid.

Using your extra cash to pay off debt has added benefits. You may see your credit score increase as your credit utilization ratio (the amount of available credit you’ve used) goes down.

In addition, once you clear your debt, you won’t have to budget for debt payments anymore, which is essentially getting extra cash all over again!

Saving for Personal Goals

If you already have a solid emergency fund, you may want to think about what large purchases you are hoping to make in the next few years. That could be a new car, a down payment on a home, doing a renovation project, or going on a family vacation.

A lump sum of cash can be a great way to jump-start saving for your goal or, if you’re already saving, to quickly beef up this fund.

For things you want to buy or do in the next few months or years, consider setting up a separate savings account that is safe, earns competitive interest, and will allow you to access the money when you’ve reached your goal.

Some good options include a high-yield savings account at a bank, an online savings account, a cash management account, or a certificate of deposit (CD).

Keep in mind, though, that with a CD, you typically need to leave the money untouched for a certain period of time.

Have extra money? Add it to your SoFi Money®
cash management account
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Investing The Money

A little windfall can offer a nice opportunity to buy investments that can possibly help you create additional wealth over time.

For long-term financial goals (outside of retirement), you might consider opening up a brokerage account.

This is an investment account that allows you to buy and sell investments like stocks, bonds, and funds like mutual funds and exchange-traded funds (ETFs).

A taxable brokerage account does not offer the same tax incentives as a 401(k) or an IRA, but is much more flexible in terms of when the money can be accessed.

Though all investments come with some risk, generally the longer you keep your money invested, the better your odds of overcoming any down markets. Your investment gains can also grow exponentially over time as your earnings are compounded.

While investing can seem intimidating, a financial planner can be a helpful resource to help you create an investment strategy that takes into consideration your goals and risk tolerance.

SoFi members can schedule a complimentary appointment with a SoFi Financial Planner to discuss an investment strategy that is uniquely tailored to their situation and goals.

The Takeaway

Wondering what to do with a lump sum of extra money is a good problem to have.

Some options you might want to consider include: setting up an emergency fund, paying down high interest debt, starting a savings account earmarked for a large purchase, or putting the money into your retirement fund or another type of long-term investment.

You can mix and match smart spending and smart saving to fit your financial situation.

One easy way to do this is to sign up for SoFi Money®. SoFi Money is a cash management account that allows you to earn competitive interest, spend, and save—all in one account.

Whether you’re saving for something specific or storing cash until you’re ready to invest, SoFi money can help you put your extra money (as well as money you already have) to good use.

Check out everything SoFi Money has to offer today.


SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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.
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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Determining The Right Budget Categories

Creating a budget may sound like a hassle, but taking a moment to track, categorize, and plan your spending can really pay off, both now and years from now.

A well-planned budget helps you take control of your finances and use your money thoughtfully, rather than spending randomly—a habit that can cause trouble when it’s time to pay the bills each month.

And, budgeting doesn’t have to be complicated. The key is to break down your expenses into three main buckets (“needs,” “wants,” and “savings”), then further divide those piles into smaller spending categories. This can give you a clear picture of your spending habits, including areas where you may overspend.

Once you’ve identified all your spending categories, you can start allocating your budget percentages based on some general guidelines, as well as your unique financial situation.

Whether you’re just starting out or you’re looking retool an existing budget, read on for some simple ways to create budget categories and spending goals.

Getting Started With the 50/20/30 Rule of Budgeting

The 50/20/30 rule for budgeting (made popular by Sen. Elizabeth Warren in her 2006 book, All Your Worth: The Ultimate Lifetime Money Plan) can be a helpful guideline to use when you are first setting up your budget.

This book, their second, was written to help readers put their “money in balance” by focusing on needs, savings, and wants.

These guidelines recommend breaking your after-tax (or take-home) income into needs, wants and savings, and then allocating 50 percent of your earnings to needs, 20 percent to savings, and 30 percent to wants.

To see how your spending lines up with these guidelines, you’ll want to get out the past three or more months of bank and credit card statements and saved receipts, and simply start listing all of your expenses for each month, and then grouping them into categories.

Budget Categories for Needs

This category–the largest chunk–includes expenses that you must pay in order to live and work. You might think of these as things you actually need to survive—they’re sort of like the air, water, and food of your budget.

So, for instance, a fancy dinner out or a caramel latte are definitely food, but they wouldn’t necessarily go in this category. Groceries would though.

A good rule of thumb is to have this category take up about 50 percent of your after tax income. Housing and utilities are likely to take up the biggest chunk, but ideally no more than 30 percent of income.

The percentages, however, are just guidelines. Because the cost of living varies across the country, you may need to adjust your budget according to where you live. A two-bedroom apartment in San Francisco, for example, has a median cost of $3,146 , nearly three and a half times the median rent of two-bedroom in Boise, which is $929.

Minimum payments on outstanding debts like credit cards, student loans, auto loans, or personal loans would also go into the 50% needs portion.

Some categories you may want to list in this bucket:

•   Mortgage/rent
•   Homeowners or renters insurance
•   Property tax (if not already included in the mortgage payment)
•   Auto insurance
•   Health insurance
•   Out-of-pocket medical costs
•   Life insurance
•   Electricity/natural gas/heating oil
•   Water
•   Sanitation/garbage
•   Groceries, toiletries and other essentials
•   Car payment
•   Gasoline/Public transportation.
•   Internet
•   Cell phone and/or landline.
•   Student loan payments
•   Minimum credit card and other loan payments
•   Child care
•   Child support or alimony payments

Budget Categories for Wants

These are expenses that don’t qualify as needs and don’t include your savings and payments towards debt. Though it can sometimes be tricky to separate needs from wants, if you can live and earn your income without it, then it’s probably a want.

If you can live and earn your income without it, then it’s probably a want.

This is where you could put spending on clothing outside of what you need on a day-to-day basis, dinner and drinks out with friends, going to the movies, gym memberships, personal care, and miscellaneous spending.

As a general guideline, this category shouldn’t take up more than 30 percent of your spending. While you may need to give and take depending on your situation, seeing how much you are spending on wants in black and white may cause you to start thinking more carefully about these expenditures.

Could you have an expensive coffee every day? Sure, but budgeting may help you question whether you really want to—after all you only have 30 percent to spend and you might want to get some new clothes or a nice meal out instead.

Below are some categories you may want to list in your wants bucket:

•   Clothing, shoes, accessories, etc
•   Dining out
•   Take-out/special meals eaten in
•   Alcohol
•   Movie, concert and event tickets
•   Gym/club memberships
•   Travel expenses (e.g., airline tickets, hotels, rental cars)
•   Cable or streaming services
•   Self-care and personal grooming
•   Home decor

Budget Categories for Savings

Under the 50/20/30 rule, it’s suggested that savings take up 20 percent of your post-tax income. This is the money you’re putting toward your retirement, emergency fund, and other savings. You can also put payments against debt above minimums here–since this can ultimately save money on interest, it’s considered savings.

If you aren’t offered a 401(k) or something similar at work, you can still contribute to retirement savings. You might be able to find a low-fee, or no-fee, individual retirement account (IRA).

To fund nonretirement savings goals, it can be a good idea to open a separate savings account, ideally where you can earn higher interest than a standard savings account, such as a money market fund, online savings account, or a cash management account.

To make sure saving happens each month, you may also want to set up an automatic transfer from your checking account into this account on the same day every month, perhaps after your paycheck gets deposited.

Categories you might include in your “savings” bucket are:

•   Emergency fund
•   Savings account
•   401(k)
•   Individual retirement account
•   Other investments
•   Credit card payments above minimums
•   Extra payments on mortgage
•   Extra payments on student loans

Finalizing Your Budget Categories and Getting Started

Now that you have an idea of how to allocate your income based on standard budgeting categories, you may want to start building out your budgeting plan.

If you find that your monthly expenses (including savings) are higher than your monthly take-home income, you’ll likely want to make some adjustments. One of the easiest places to do this is within the wants bucket.

Here, you can scout for unnecessary expenses you may be able to do without. For instance, maybe you would be fine with one or two rather than four streaming services, cooking at home a few more times per week, or cutting back on clothing purchases.

It can help to keep in mind that the 50/30/20 guideline is just that, a guideline. Everyone’s situation is different and your numbers may vary depending on many different factors, including where you live, your income, how much debt you have, and your savings and investment goals.

The Takeaway

Regardless of where you are in the process, tracking your spending, putting expenses into categories, and coming up with a spending plan can bring significant benefits. These include being able to pay off debt, saving up for short-term goals (such as an emergency fund, a vacation, or a downpayment on a home), and funding your retirement.

The 50/20/30 rule can give you an general idea of how to allocate your income based on standard budgeting categories, and help you start building out your budgeting plan.

If you find your new budget isn’t quite working, however, it’s perfectly ok to play around with these percentages, make adjustments, and find the best formula for you.

You may also want to remember that it can take a few months before a new spending plan becomes a habit–and to start seeing results.

Need some help keeping track of spending? A SoFi Money® cash management account may be a great option for you. With SoFi Money, you are able to see your weekly spending right in the dashboard of the SoFi Money app.

Ready to track your spending and stay on top of your budget? Get started with SoFi Money.


SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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.
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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