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The Importance of Setting Your Long-Term Financial Goals

What are your financial hopes and dreams for your future: to own a second home? Retire by age 50? Send your future kids to college without a single student loan?

Setting those goals for the faraway future is important. Not only can these aspirations help you visualize what you want to achieve, they can set you on the path to take control of your finances and start saving. Typically, these are things you want to achieve that are at least seven years ahead of you or perhaps much further out.

When you establish your goals, you can commit to them, save towards them, and watch your money grow.

The first step involves planning, and here’s where you’ll learn some smart moves to make. You’ll find out how to identify what you want to achieve and then start on the path to making those goals a reality.

Starting by Thinking Big

Setting goals can really fire a person up to achieve big things. Indeed, oft-cited psychological research by Edwin Locke and Gary Latham showed that subjects who were assigned specific, challenging goals were 90% more likely to succeed.

The two researchers went on to publish “A Theory of Goal Setting and Task Performance,” in which they discussed what they’d determined as the five key components of setting achievable goals:

•   Clarity

•   Challenge

•   Commitment

•   Complexity

•   Feedback

What do these mean for your financial goal setting? First, you must have clarity and specificity about exactly what you want to accomplish. It can be helpful to start by making two lists: What’s most financially stressful to you right now, and what you might consider a dream that you’d like to achieve.

While traditional long-term financial goals like saving for retirement or buying a home are worthwhile, they’re so universal that they might seem uninspiring.

Keep in mind that you can and will likely end up working towards those goals as well as some goals that feel personal. Some examples to contemplate:

•   “Start my own bakery business.”

•   “Travel across every continent, writing about it as I go.”

•   “Buy a property in the desert and build a home to rent as an Airbnb.”

•   “Start a scholarship fund for low-income high school students.”

•   “Pay for my parents’ retirement expenses, so they don’t have to worry.”

You probably have general ideas of what your long-term financial goals may be, but getting as specific as possible is what can help you the most. You could take time to do some self-reflection in order to establish your goals. Think, write, and revise.

What about your goals is motivating for you? Can you break your big goals down into smaller benchmarks that also motivate you? Do they feel challenging enough to be aspirational and inspiring? This process will help you set your long-term financial goals so you can then go about achieving them.

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Breaking Your Goals Down

Next comes the harder part — making your commitment to your goals real and tangible. This is where the “complexity” component becomes important. How might you simplify the path you’ll take towards your future?

At this stage, you can take a look at the goals you’ve laid out and prioritize them. Which goals will have the biggest positive impact on your life? Which are most pressing?

Next, you can break down the goal into smaller, shorter-term goals. Any big to-do will likely seem overwhelming without a step-by-step plan in place.

As you prioritize and break down your various long-term goals, you might find it helpful to place dollar amounts on these components.

💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

Examples of Financial Prioritization

Consider the goals “save for retirement” and “start my own bakery business.” Are you ready to tackle them? Begin with retirement:

•   Ask yourself if it might be important to first focus on any outstanding shorter-term debts. For instance, if you’re in credit card debt, develop a plan to get out from under it.

•   If you don’t have an emergency fund that covers at least three to six months’ worth of your expenses, you could commit to contributing towards it until it’s full. How much will you need to put away on a monthly basis?

•   Next, you could research retirement savings options. You might go through your employer or pursue a separate account on your own. What’s your goal amount of money for this fund? Break down what you’ll need to contribute to get there, month-by-month and year-by-year.

Next, think about starting your own business. To prioritize, you might think about and plan the following:

•   What do you need to learn? Can you do online research and consult your local library?

•   Cultivate a mentor. This can be as easy as finding someone who’s currently a small business owner and asking them out to coffee.

•   Research the dollars and cents. Do your research about the costs of opening and sustaining a bakery. What is required to establish this kind of business? You may be able to read up on business plans online. What fees and expenses are involved? What would a business loan vs. personal loan look like?

These steps can help you dig into your financial goal-setting process.

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Take Action and Be Accountable

Next, explore how you will hold yourself accountable to working towards the benchmarks you’ve identified. Once you’ve identified your goals, prioritized them, broken them down, and put dollar amounts on the pieces that require them, you might find it helpful to find an accountability buddy.

•   Buddy up. You could tell someone you trust (a friend or relative perhaps) about your goals, and set monthly or quarterly check-ins to review progress. Schedule those calls or meetings, and put them in your calendar to make sure they don’t get lost in the ether.

•   Talk to your partner. If you have a partner, be sure to discuss your goals with them — they can help you achieve them and support you as you move forward.

•   Automate your savings. This can help you get started by making the whole process seamless. Whether you are saving to get out of credit card debt as a first step or are growing a retirement fund, having money automatically whisked out of checking and into a savings vehicle can accelerate your progress.

•   Consult with a professional. As you work towards your long-term goals, you may want to meet with a financial professional or business advisor, depending on your needs. They can counsel you on the best way to achieve your long-term financial aspirations.

•   Understand that it’s not always a straight line to success. When you hit speed bumps along the road, you might benefit from reframing negative thoughts like “I’m never going to get there” or “I’m a failure” with less catastrophic ones, like “trial and error is crucial to getting anywhere.”

Setting Yourself Up For Success

No matter what your long-term financial goals are, it’s the planning that helps make them possible.

Creating plans to achieve your long-term goals can help give your life structure and a deeper sense of purpose in all of your actions.

Using tools can help you get where you want to be. Shop around for a financial institution that can be a solid partner for you and offer you helpful ways to better manage your money and grow your wealth.

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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SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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

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Student Loan Information for High School Students

Student loans can help you finance your college education without paying much interest. However, you don’t want to take on more debt than you can comfortably pay back after you graduate. As of June, 2023, student borrowers owe 1.76 trillion in student loan debt, including federal and private student loans, according to the Federal Reserve.

High school can be a great time to start learning about the types of student loans available to you, how interest accrues, and what you can expect when it comes time to repay any student loans you take out. Read on to learn some of the ABCs of student loans, and how to not let them weigh down your financial future.

Student Loan Types

There are two main categories for student loans: federal and private student loans.

Federal Student Loans

Federal student loans are funded by the federal government. Interest rates are fixed (and comparatively fair) and are set annually by Congress every July. Federal student loans also come with protections like income-driven repayment plans and deferment or forbearance options in the case of life changes, such as sudden loss of a job or other roadblocks to repayment.

The following are the federal student loan options offered:

•   Direct Subsidized Loans These are available to eligible undergraduates with a proven financial need. The government subsidizes (meaning it pays for) the interest that accrues on these loans while the student borrower is enrolled in school at least half-time and during the loan’s grace period (more on that below), and other qualifying periods of deferment.

•   Direct Unsubsidized Loans These are available to eligible undergraduates and graduate students regardless of financial need. Student borrowers are responsible for paying all of the accrued interest on unsubsidized student loans.

•   Direct PLUS Loans These are available to eligible parents of undergraduate students and to graduate or professional students. They are not subsidized by the government.

Private Student Loans

Private student loans are issued by non-government institutions, such as banks, credit unions, and online lenders. The requirements for applying for these types of loans may be more stringent.

Lenders will typically look at the student’s or their cosigner’s credit history, income, and other financial information. Some lenders require you to begin making payments while you are in school, while others allow you to wait until six months after you graduate. Either way, interest typically begins to accrue as soon as the funds are disbursed.

How to Apply for a Student Loan

The process for applying for student loans varies based on whether the loan is private or federal.

Applying for a Federal Student Loan

To apply for a federal student loan, you need to fill out and submit the Free Application for Federal Student Aid (FAFSA®) . Even if you don’t think you’ll be approved for financial aid, it can be worth submitting the FAFSA. The application is free and you may qualify despite your circumstances. The FAFSA also gives you access to federal student loans.

Every year, the FAFSA form usually becomes available online as of October 1 for the next school year. (Note that the FAFSA for 2024-25 academic year won’t be available until December 2023 due to the roll out of a new, more simplified form.)

You can easily apply online (see the link above). Completing the FAFSA determines the combination of federal loans, grants, and work-study you’re eligible for. Some colleges and universities also use information from the FAFSA to determine if you qualify for school-specific financial aid.

Applying for a Private Student Loan

It’s important to take the time to do some research and find a lender with a good reputation that offers competitive rates and terms. Ideally, you want a lender that offers flexible repayment options, reasonable (or no) fees, and will provide helpful customer support if you find yourself having any issues with your student loan payments.

If you decide to apply for a private student loan, you will more than likely have to reveal personal financial details, like your credit history. Since students typically don’t have much, or any, credit history, they often need to apply with a cosigner. That’s someone who will share the responsibility with you of paying back the loan.

In many cases, that cosigner would be a parent or an adult with whom you have a close relationship. Getting a cosigner may increase your chances of getting a better interest rate, which could help you spend less in interest over the life of the loan.

Types of Student Loan Interest Rates

The interest rate on your student loans could have a lasting impact on your future finances. The interest charged is a percentage of your unpaid loan principal — that is, the amount you borrowed. Interest is paid to the lender in exchange for the opportunity to borrow money from them.

You can typically choose from between two types of interest rates: fixed-rate and variable rates.

Fixed-rate student loans: These types of loans offer an interest rate that remains the same throughout the life of the loan. This could give you peace of mind, knowing that the rate won’t change, even if the state of the economy does. Interest rates could fluctuate wildly during the course of your loan, but a fixed-rate won’t be affected. As previously mentioned, federal student loans have a fixed interest rate. Some private lenders also offer student loans with a fixed interest rate.

Variable-rate loans: These types of loans come with an interest rate that can increase or decrease based on market fluctuations. Some private lenders offer student loans with variable interest rates. These are also sometimes called floating-rate loans, because the interest rate can change during the life of the loan.

A variable-rate school loan might start with a lower rate than a fixed-rate loan but keep in mind that your interest rate — and monthly payment — could rise later on. A variable- rate loan can make sense if you plan to pay off your student loan early before rates have a chance to rise too much, expect rates to fall in the future, or you have some wiggle room in your budget in case of rising interest rates.

Student Loan Mistakes to Avoid.

1. Failing to Research Your Loans

With any type of student loan, it’s key to understand what you are agreeing to. You’ll want to make sure you understand what the interest rate will be, what your monthly payment will be, when you’ll need to start repayment, and how you plan to cover that obligation.

2. Borrowing Too Many Loans

It’s nice to be approved and accepted, but too many loans (borrowing more money than you actually need) can lead to a heavy financial burden after graduation. Generally, you’ll want to use any college savings, financial aid, and federal student loans before looking to private student loans (which tend to come with higher interest rates than federal student loans). If you’ll need to take on significant debt to attend a certain school, you might consider choosing a less expensive institution.

3. Not Having a Plan

Life can be unpredictable. The one thing you could have power over is your school loan repayment plan. It’s important that you know exactly when your student loan repayment plan starts (in some cases, that could be before you graduate), and exactly what your monthly payment will be.

It can also be helpful to set up a budget that accounts for all of your college costs, including tuition, books, room and board, food expenses, and anything else related directly to your education. If you budget for it ahead of time, you can help make it easier to use your student loan money wisely.

4. Not Realizing That Interest Continues Accruing

Understanding how and when interest accrues on your student loans is critical. For many student loans, interest will accrue while you are in school and during your grace periods. (A grace period is the period of time after you graduate or drop down below half-time attendance, during which you are not required to make payments.)

With the exception of subsidized federal student loans, interest will continue to accrue even if you are not making payments on your student loan. It will then typically be capitalized. Capitalization occurs when the accrued interest is added to the principal balance of the loan (the original amount borrowed). This new value becomes the balance on which interest is calculated moving forward.

Recommended: Understanding Capitalized Interest on Student Loans

Repaying Your Student Loan

Another important factor is understanding what repayment plans are available to you based on the type of loan you borrowed.

Repaying Federal Loans

For Direct Subsidized and Unsubsidized Federal Loans, students who are enrolled in school at least half-time aren’t required to make payments on their student loans. On these loans, repayments officially begin after the loan’s grace period.

Federal loans typically have a six-month grace period after graduation, which allows you time before you have to start repaying your loans. It’s important to note that even though you may be granted a grace period, depending on the loan you have, you may still be responsible for paying the interest on the loan during the time you are not making payments.

Note that PLUS Loans, which are available to parents of students and graduate or professional students, require repayments as soon as the loan is disbursed (or paid out).

Borrowers with federal loans are able to choose one of the federal repayment plans . These include:

•   Standard Repayment Plan On this plan, monthly payments are a fixed amount and repayment is set over a 10-year period.

•   Graduated Repayment Plan On this plan, payments start out on the lower end and then gradually increase as repayment continues. Loans are generally paid off over a 10-year period.

•   Extended Repayment Plan Payments may be either fixed or may gradually increase over the loan term. Loans are paid off within 25 years.

•   Income-Driven Repayment Plans There are four income-driven repayment plans. These tie payments to the borrower’s discretionary income. The percentage and repayment term may vary depending on the type of income-driven repayment plan the borrower is enrolled in.

With private student loans, the repayment terms are determined by the lender. That schedule will tell you exactly when your first payment is due and how much you will owe.

Unlike federal loans, many private loans have to be paid back before you graduate, so be sure to review your agreement closely and know exactly what you are going to need to do. Contact the lender directly if you have any questions.

Recommended: How to Pay Off College Loans

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If Repaying Loans Becomes a Problem

Nobody plans on not paying back their student loans, but sometimes life can throw a few financial punches that you weren’t expecting. A smart strategy if this were to happen to you: face the problem head-on.

Options for Federal Student Loans

If a borrower is struggling to make payments on their federal student loans, they may consider changing their repayment plan. Federal loans, as mentioned, offer income-driven repayment options which tie the monthly payments to the borrower’s income. This can help make monthly payments more manageable for borrowers.

In cases when even income-driven repayments are too much, borrowers may be able to apply for deferment or forbearance. These allow borrowers to pause their loan payments. Depending on the loan type, you may or may not accrue interest during periods of deferment or forbearance.

Options for Private Student Loans

Private lenders are not required to offer the same repayment plans or borrower protections (like deferment and forbearance, mentioned above) as federal student loans. Some private lenders may be willing to work with you during times of financial difficulty so that you can continue making payments. Check in directly with your lender to see what payment plans or options they may have available to you.

A Note on Student Loan Default

After a certain number of missed payments (which can vary depending on whether you have borrowed a federal or private student loan), your loan may enter default. That can have serious financial consequences, such as impacting your credit score.

Declaring bankruptcy generally won’t rid you of your federal student loan obligations. It is extremely challenging to get student loans (federal or private) discharged in bankruptcy.

What to Do if You Don’t Get Enough Federal Loans

It’s never too early (or too late) to begin researching methods of additional funding if your federal loans aren’t going to cover your tuition costs. Here are just a few to consider.

Scholarships

Scholarships do not typically have to be paid back. If you’re not sure where to begin your scholarship search, you might ask your high school guidance counselor for recommendations. An online scholarship search tool can also be helpful.

In addition, you may want to try local community and civic organizations, as well as businesses and religious groups. You can also ask about scholarships in your college’s financial aid office.

You can also try scouting scholarships based on a certain skill or talent: music, writing, sports, and even academics. Qualifying for multiple small scholarships could add up and go a long way toward helping ease your financial burden.

Grants

Grants work like scholarships in that you typically don’t have to pay them back. They are often offered by the federal government (and would be part of your federal aid package); in some cases, in exchange for a grant, you agree to work in a certain field for a set period of time after graduation.

Work-Study

Through the federal work-study program, you can earn money to put toward school expenses by working jobs around your college’s campus. If you are approved for the work-study program, it will be included as a part of your financial aid award. Then, you may need to apply for jobs that are part of the program. These jobs may be on- or off-campus.

If you can’t find a work-study job to fit your schedule, there may be other part-time job opportunities available off-campus. You could inquire about part-time work at your on-campus career services office.

Private Student Loans

As mentioned, a private student loan may cover the remaining tuition costs not covered by your federal financial aid package. Qualifying for these loans might require a credit check and your credit history can potentially affect your private loan interest rate. For undergraduates with little-to-no credit applying for private student loans, they may benefit from applying with a cosigner in order to qualify for a more competitive rate.

As another reminder, private loans are not required to offer the same benefits or borrower protections afforded to federal student loans. As a result, most students only consider private student loan options after all other sources of aid and funding have been carefully evaluated.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.


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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.


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.

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.

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7 life events you should financially prepare for

7 Life Events You Should Financially Prepare For

From snagging that first real job to starting a family (congrats all around), life is full of important rites of passage. These events are meaningful, for sure, and they can also impact the path of your personal finances.

As you take control of your money, it can be wise to think about and plan for these key transitions. That way, you can be better prepared for how they may alter your financial health.

In this guide, you’ll learn about seven major milestones plus advice on navigating these life events successfully so you can build wealth today and tomorrow.

1. Your First Job

You’ve finished your education (for now, at least) and are starting your first job. This is where your financial journey really begins. And, since you are likely earning more money than you ever have, it’s important to have a plan for how you will use that money wisely.

If your employer offers a 401(k) for retirement, you may want to consider having at least some money taken out of each paycheck each cycle and put into this fund.

Once you get your first paycheck, you can see exactly how much money you are taking home (after all deductions, including retirement, and taxes are taken out). This can be a perfect moment to make a simple budget. This will help you get the most out of your salary and build some financial stability.

•   This involves listing all of your essential monthly expenses. You can think of these as the “needs” in life, such as housing, food, and minimum payments on debts or loans.

•   Then subtract them from your monthly take-home pay to see how much you have left over to play with (the “wants” in life) and, of course, to save.

•   Saving can be crucial, so it’s wise to determine an amount you can set aside each month into a separate savings account. It’s perfectly fine to start small. Even putting a little bit of money aside each month will start to add up over time.

•   This savings account can help you build an emergency fund (generally three to six months’ worth of living expenses). Having financial back-up can help to ensure that if you should have a large, unexpected expense, you could cover it without having to rely on high interest credit cards.

•   Once you have a comfortable emergency fund, you may then want to start working on other savings for other goals, such as buying a car or other major item you are hoping to buy in the next few months or years.

If you are looking for guidance on how to establish a budget that works for you, consider the 50/30/20 budget rule. This guideline says that, of your take-home pay, you should allocate 50% towards “needs,” 30% towards “wants,” and 20% to savings.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

2. Paying Off Student Loans

Student loan payments can be a drag on your monthly budget, especially if you are trying to save toward other financial goals, like buying a home or paying for your kids’ college education.

One of the best ways to pay off student loans is to pay more than the minimum each month. The more you pay toward your loans, the less interest you’ll owe — and the quicker the balance will disappear.

There’s typically no penalty for paying student loans early or paying more than the minimum. However, there is a caveat with prepayment: Student loan servicers, which collect your bill, may apply the extra amount to the next month’s payment.

The problem with that is that it advances your due date, but it won’t help you pay off student loans faster. That’s why it can be a good idea to tell your servicer (whether online, by phone or by mail) to apply overpayments to your current balance, and to keep next month’s due date as planned.

Another option you may want to look into refinancing your student loans. This could help you pay off student loans sooner without making extra payments.

Refinancing replaces multiple student loans with a single private loan, ideally at a lower interest rate. To speed up repayment, it can be a good idea to choose a new loan term that’s less than what’s left on your current loans.

Keep in mind, however, when you refinance a federal student loan into a private loan, however, you may lose the benefits and protections that come with a federal loan, like deferment and public service-based loan forgiveness.

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3. Buying a Car

Buying your first car can be an exciting experience. And, you might want to rush to the nearest dealer and purchase a shiny, new model right away.

However, saving up for a vehicle before you buy minimizes the amount you have to borrow to buy a car and can save you a substantial amount in interest.

To get a sense of how much you need to save for a down payment, you can research some car makes and models that might suit you and get a sense of prices for both new and used cars.

You can then zero in on a price range you can afford and calculate the down payment. Deciding between a new vs. used car? A good rule of thumb is to put 20% down on a new vehicle and 10% down on a used one.

Making a higher down payment helps you qualify for a loan, and it can earn you a lower interest rate and result in more affordable monthly payments.

Once you know how much to save, the next step is to find a good place to start saving. Good options include: a money market account, online savings account, or checking and savings account.

These accounts can enable you to earn more interest than a standard checking account but allow you to access the money when you are ready to buy that car.

💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!

4. Buying a Home

For many people, buying a home is the biggest purchase they will ever make. So, it’s important to prepare for it.

A great first step is to figure out how much house you can afford to buy. You can come up with a target price range based on the area you want to live in, details about the type of home you want, and how much you’re comfortable spending on a monthly mortgage payment.

This exercise will help you understand how much you need to save and roughly how long it will take you to save enough.

Mortgage lenders and online mortgage calculators can also help you decide the absolute maximum you can afford to spend on your house.

One common rule of thumb is that your home payment (including loan payment, property taxes and homeowners insurance) should take up no more than a third of gross pay (your monthly paycheck amount before taxes and deductions are taken out). However, this can vary depending on the cost of housing in your area.

Once you have a target home price, you can start saving for a down payment. Many mortgage lenders prefer you to make an upfront deposit of up to 20% of your home’s cost. However, there are mortgages available for those who put down significantly less (even zero).

If you are saving for a down payment, you can think about when you want to buy a home and then work backwards to determine how much you need to save each month to reach this goal.

As with car savings, a good place to save for a home is a high-interest savings account, such as a money market account, online savings account, or checking and savings account.

5. Changing Jobs

At some point during your career, you may change jobs. Generally, this can be a smart financial and professional move, but changing jobs is still something you’ll want to plan for financially. Some tips to help your money work harder for you:

•   You’ll likely be eligible for a new set of employee benefits, including health insurance. However, it will probably be up to you to ensure that you have health coverage during the transition. To avoid any gaps, it’s a good idea to ask your new employer how soon you will be able to qualify for healthcare.

•   You may also want to create a plan for transferring your 401(k) and health savings account (HSA) to your new accounts. Rolling them over is generally a simple process, but you may want to contact your previous employer for guidance.

•   An FSA vs. an HSA can require a different approach. If you have a flexible spending account (FSA), you may need to submit all eligible expenses for reimbursement under your old program before you leave your current job. It can be a good idea to check with your company’s HR department to find out whether or not you have a grace period for submission.

Since you may be earning a higher salary, you may also want to re-examine your budget, and perhaps do some tweaking, such as funneling a bit more money into your retirement fund and/or savings account each month.

6. Saving For Your Kids’ College

Next to buying a home, child education expenses are among the biggest you may have in your lifetime. Just like retirement: it’s never too early to start saving for college. But even if you put it off, you can still help cover most or all of those college costs with wise saving and investing.

While predicting how much college will be for a kindergartener may be difficult, it gets a little easier the older your kids get. However, you can find current college costs and predictors for future college tuition costs online and use that as a benchmark for your savings.

One great place to start building education savings is in a 529 college savings plan. These are savings plans, usually sponsored by state governments, that encourage saving for future education costs.

They are often tax-friendly, in that many states will let you deduct your contribution from your state income tax. Even better, when you withdraw the money for college, the money will not be federally taxed.

That means, any growth (or money in the account that you didn’t put in) is not taxed, which can be a significant advantage over traditional investment accounts.

You can put money into your own state’s 529, or any other state’s plan. Whatever you choose, consider making monthly contributions automatic, so that your bank transfers the money right into the 529 on the same day each month.

One way to ease saving for college is to use smaller life transitions to help fund your education savings plan. When your child no longer needs daycare or preschool, for example, you could funnel what you were paying for that into your account.

7. Retirement

Retirement may seem far away, but it can come up faster than you expect and, if you’re unprepared, you may struggle financially. Saving for retirement early can provide peace of mind later.

And, the earlier you start saving for retirement, the less you’ll actually have to put away, thanks to the magic compounding interest (which means the interest you earn on your investments also earns interest).

While it can seem impossible to predict how much money you’ll need once you retire, some financial experts recommend this rule of thumb: Aim to save at least 15% of your pretax income each year from age 25 onward. If you start later, you would want to up those percentages.

Fortunately you can get Uncle Sam to help. By contributing to tax-advantaged savings accounts like traditional 401(k)s and individual retirement accounts (IRAs), your contributions are made before tax, reducing your current taxable income.

That means you get a tax break the year you contribute. Plus, that money can grow tax-free until you withdraw it in retirement, when it will be taxed as ordinary income (and at retirement time, you may be in a lower tax bracket).

With Roth 401(k)s and IRAs, your contributions are after tax, but you can withdraw the money tax-free in retirement (assuming certain conditions are met).

If you are contributing to 401(k) at work and your employer offers matching funds, you may want to increase your automatic contributions at least to that level. This is effectively “free” money.

The Takeaway

Throughout your life you will likely experience some significant events and milestones that can have a major impact on your financial well-being.

The better prepared you are for these transitions, the less stressful and more enjoyable they can be.

If you’re looking for a simple way to start saving for your financial goals, like buying a car or a home, you may want to consider opening an account that charges low or no fees and pays higher than average interest.

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 4.20% APY on SoFi Checking and Savings.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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car key on green background

How Much Should I Spend on a Car?

If you’re thinking of buying a car, you are probably wondering how to budget for it. Figuring out how much to spend can be a challenge: Do you go for a cheaper used car or splash out on a fully loaded new vehicle? And how do you balance a car loan with other debt you may have?

Read on for guidelines to determine a car-buying budget so you can make the best decision for your needs. You’ll learn valuable options as well as helpful tips for when you are ready to start shopping.

Determining How Much to Spend on a Car

There are a few guidelines to consider when you’re trying to figure out how much money you should spend on a car. Before you dig into the details, perhaps start by taking a minute to balance your budget so you have an accurate idea of how much money you’re able to spend on a car.

Tally up your monthly income and all of your monthly expenses so you have a keen understanding of where you are spending your money. Once you have a solid grasp on your monthly expenses, you may be better able to determine how much to spend on a car.

Here are some common recommendations for determining how much to spend on a car. Think of these more as guidelines than hard and fast rules. They may give you an idea of how much you should spend on a car, but of course it all depends on your specific circumstances.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

The 10% Rule

The 10% rule is pretty straightforward. The general idea is to not spend more than 10% of your gross annual income on a car. But the low limit can make it difficult to stick to this rule. If you just need a car that will get you from point A to point B, you may be able to find a vehicle that will fall under 10% of your income. But if you need a car with more features or more space, you may want to consider one of the following rules.

The 36% Rule

This rule takes into consideration your total debt-to-income ratio. This guideline suggests you keep all of your debt, including your car payments, to less than 36% of your income. If you, like many Americans, have debt from credit cards, student loans, or a mortgage, you may want to calculate how a car payment would factor in.

•   Another related guideline is the 15% rule, which can be useful if the only debt you have is a mortgage. If that’s the case, the guideline suggests that you don’t spend more than 15% of your net monthly take-home pay on car expenses.

💡 Quick Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our high-yield savings account can help you make meaningful progress towards your financial goals.

The 20/4/10 Rule

This is a multi-part rule.

•   First, it suggests that when you buy a car, you make a down payment of 20%.

•   Secondly, it recommends that when you take out a loan to finance the car, you plan to pay it off in no more than four years.

•   Finally, the total monthly vehicle expenses shouldn’t be more than 10% of your monthly income. Having your dream car is great, but it may not be worth it if you can’t afford to save for retirement or focus on other goals because your disposable income is primarily going toward your car payments.

The 50/30/20 Rule

If you find the above rules unrealistic, you could also consider using the general 50/30/20 budget rule. This rule says that you should spend 50% of your income on needs, 30% of your income on wants, and 20% of your income should go toward saving.

Your auto loan would fall into the needs category, but if you opt for a more expensive vehicle, you could consider a portion of the payment as part of your wants. This way, you can get the car you need with the features you want, while still keeping your budget balanced by allocating some of your discretionary spending money to your car payment.

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

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Finding a Car You Can Afford

Buying a car can be an intimidating process. Thankfully, there are plenty of options, so you can find a car that works for your lifestyle and budget. Here are some things to consider as you embark on your search for a car that fits into your budget technique.

What Are You Going to Use the Car for?

Will you use the car mostly for quick trips to and from work? Do you have a large family that you’ll be driving to and from baseball games, soccer practices, and play dates? How you plan to use the car may influence the type of car you choose to get.

It’s also worth considering the weather. Do you live in an area with harsh winters where a larger vehicle with all-wheel drive may be helpful? There are a wide variety of vehicles on the market that fill different needs so take the time to determine which features are most important to you.

Doing Your Research

Once you decide on the type of car you want to buy, you’ll want to dig into the research phase of the process, so you are familiar with the models available, the features, and their average price.

When you’ve decided on a few models, there are a variety of resources that can help you track down details on each car. Sites like Edmunds, Kelley Blue Book, and Consumer Reports have reliable information to help consumers. And hopefully being an informed shopper will take some of the intimidation out of buying a car.

Will You Buy Used or New?

You’ll also need to decide if you plan to buy a new or used car new. If you are on a tight budget, a used car may be a more affordable option. Something to remember is that a car is a depreciating asset — it typically loses around 20% of its value within the first year.

Test Driving a Few Options

Before you consider buying, consider test driving a few options. Buying a car is a big purchase, so take your time if you’re able to. It can be worth trying the car out on a few different types of roads so you can see how it drives in different settings.

It can be easy to feel pressure to make a purchase after a test-drive, but it is a standard part of the car buying process. The salesperson will likely be interested in making the sale, but there’s no reason you need to decide on the car immediately after the test-drive. One option is to let the salesperson know at the beginning of the drive that you’re still researching options and don’t plan to buy during this visit.

Being Prepared to Walk Away

When buying a car, you may have to negotiate. Haggling can be an acquired skill, but if you’ve done the research and know exactly how much the car is worth, you can dust off your negotiating skills and try using them to work out a deal you’d be happy to accept. If negotiations aren’t going well, being prepared to walk away may help.

Recommended: Budgeting for Beginners

Saving For Your New Car

As you are saving for the purchase, consider which kind of bank account can help you get to your goal ASAP.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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

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Understanding the different personal finance ratios

Guide to Understanding Different Personal Finance Ratios

Understanding your personal finances is the first step in taking control of your money and making it work harder for you.

One valuable tool for determining your financial status involves using personal finance ratios. These are akin to formulas that show the relationship between numbers and how your cash is tracking.

For instance, you might look at how your debt is versus your income or how your budget categories are stacking against versus your take-home pay. Calculating and considering these figures can help you manage your money better as well as achieve your short- and long-term goals.

To help you put these important ratios to use, this guide shares eight formulas to help you optimize your money.

Emergency Fund Ratio

An emergency fund is the cash you keep on hand to pay for unexpected expenses, such as a job loss, a large medical bill, or a roof repair.

This fund acts as a safety net so you don’t have to go into debt or raid your long-term savings accounts to take care of the situation.

Formula: Monthly Expenses X 6 = Emergency Fund Ratio

To calculate your target emergency fund, you’ll want to add up your essential monthly expenses, or the minimum amount of money you need to live for one month. That includes your mortgage or rent, insurance, utilities, and groceries.

One common rule of thumb is to then multiply this by three months (as a bare minimum); while others may aim for six months. This gives you a good number to shoot for keeping in your emergency fund.

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No account or overdraft fees. No minimum balance.

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Liquid Net Worth Ratio

This formula is essentially an extension of your emergency fund. If you were to need funds as a result of an unplanned event or emergency, this metric looks at how many months of expenses would be covered by your liquid assets — funds that can be easily and quickly converted into cash.

Formula: Liquid Assets/Monthly Expenses = Liquidity Ratio

Liquid assets include your checking and savings accounts, as well as cash-like equivalents. For this number, you do not want to include other assets that are not liquid, such as your home, car, or tax-advantaged retirement savings accounts.

Monthly expenses include essential expenses that you accounted for above to determine your emergency fund ratio.

A common goal: maintaining a liquidity ratio of between three and six months.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

Personal Cash Flow Ratio

Cash flow is a term often associated with companies. But this can also be a simple yet powerful personal finance ratio because it tells you how much is flowing in vs. flowing out of your accounts each month.

Knowing how much cash flow you have is useful because it tells you exactly how much money you have available to pay down debt or save or invest for your future.

Formula: Monthly (After Tax) Income – Monthly Expenses = Personal Cash Flow Ratio

To calculate this, you’ll want to add up all of your average monthly take-home income, including your paycheck, any side hustles, and income from any investments or savings accounts that are available to you for spending.

Next, you can look at credit card and bank statements, as well as receipts, for the past several months to come up with the average amount you are spending each month. This includes necessities like mortgage or rent and utilities, and also discretionary spending such as eating out and entertainment.

You can then subtract your spending number from your income number and you’ll have your net cash flow. If that number isn’t where you want it to be, you can use these calculations as a starting point to make adjustments.

Generally, the higher your cash flow, the better off you are.

Housing-to-Income Ratio

This ratio is vital to helping you understand how much you can afford to spend on your home, whether you buy or rent. It is also an important metric that mortgage lenders use when they decide whether or not to approve your loan.

Formula: Monthly Housing Costs/Gross Monthly Income = Housing Ratio

It’s important to use total housing costs when you calculate this ratio. This includes: your monthly mortgage payments (or rent payments), property taxes, insurance, and utilities.

You can then compare that total cost to your gross monthly income (income before taxes are deducted). Financial experts often recommend keeping this number to 28% or less. In some high cost-of-living areas, closer to 40% can be common.

The lower this number, the more affordable your housing costs are and the more income you have for other financial goals.

Debt-to-Income Ratio

The debt-to-income ratio is often used to determine a company’s ability to pay its debts. It works for individuals as well. It tells you what percentage of your income is being used to repay debts.

Formula: Monthly Debt Payments/Monthly Gross Income = Debt-to-Income Ratio

To calculate your debt payments, you’ll want to include credit card, student loan, and other consumer debt, as well as your mortgage payments. Your gross income is how much you earn each month before any deductions or taxes are taken out.

The common wisdom is to keep your debt at or below 36% of your gross income, but the lower your debt-to-income ratio, the financially healthier you likely will be.

Many people are surprised when they calculate this number to find just how much of their income is going to repay debt, often at high interest rates. This ratio can help you rethink that situation.

💡 Quick Tip: Your money deserves a higher rate. You earned it! Consider opening a high-yield checking account online and earn 0.50% APY.

Net Worth Ratio

Personal net worth is a measurement of an individuals’ total wealth. Your net worth ratio gives a little bit broader perspective than your debt-to-income ratio because it takes your total assets into account.

It is calculated as the total value of all your assets minus the total value of all your liabilities.

Formula: Total assets – Total Liabilities = Net Worth Ratio

To find this ratio, you’ll want to add up the current market values of all of your assets including your home, stock and bond holdings, checking and savings accounts, and any other financial accounts.

Next you’ll want to calculate your total liabilities. This includes any debt such as mortgages, credit card balances, car loans, personal loans and 401(k) loans.

You can then subtract your liabilities from your assets. The resulting number is, hopefully, positive, and the higher that positive number, the better for your financial health.

This is a snapshot of your net worth at this moment. You may want to calculate this metric periodically, perhaps quarterly or annually, to track your wealth. Ideally, you should see increases over time.

Savings Ratio

Since saving for the future is such a key part of personal finances, it makes sense there would be a personal finance ratio to help you gauge how you’re doing.

Your savings rate is expressed as what percent of your gross income you are putting away for the future, including retirement and other shorter-term financial goals.

Formula: Savings/Gross Income = Savings Ratio

To calculate this, you’ll want to add up your annual savings in any retirement accounts, including employer-sponsored retirement plans such as 401(k)s, traditional and Roth IRAs and taxable accounts earmarked for retirement. Do not include your emergency fund or college savings accounts.

Compare that savings to your annual gross income (your earnings before taxes and deductions are taken out).

Generally speaking, you want to aim for a saving rate of 10% to 20%. Younger people may want to aim for a 10 percent savings ratio, and then gradually increase their savings rate as their income increases.

50/30/20 Budget Ratio

The 50/30/20 formula can help you manage your budget no matter what your income. It proves a simple guideline as to how to apportion your income so you can afford to pay your bills, have some fun, and also put money into savings.

Formula: 50% Essential Spending + 30% Discretionary Spending + 20% Savings = Budget Ratio

Essential needs are the largest allocation at 50% of monthly take-home income. These are bills you must pay including mortgage or rent, utilities, health insurance, and groceries. Housing will likely take up a big chunk of this category.

With this formula, you’ll want to keep discretionary spending at no more than 30% of your monthly take-home income. These are most likely the things you do for fun, like dining out, travel, clothing beyond what you need for work, and entertainment.

Saving for future financial goals accounts for the remaining 20% of monthly take-home income. This includes retirement savings, saving for a house, tuition savings, saving to repay debt, etc.

The Takeaway

Personal finance ratios can give you a clear snapshot of your financial health in a variety of areas and help you make better decisions about money management and future planning.

Rather than making a best guess, personal financial ratios give you an edge in your analysis by using simple math. Once you’ve done some of these calculations, you may discover that you want to make some changes, such as watching your spending more closely and/or putting more money into savings 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 4.20% APY on SoFi Checking and Savings.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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