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Having a 9-to-5 job is a good way to make your core income, but if you want to earn more money to pay down debt, build up savings, or pay bills, a side hustle could help you supplement your earnings. According to 2025 surveys, 27% to 45% of American adults are working side jobs to bring in more money.

Fortunately, there are quite a few side hustles with a low startup cost, as well as those that require no special skills. Read on to learn what these low-investment side hustles are and how to get started. You could soon be on your way to earning some extra income.

Why Start a Low-Cost Side Hustle?

You may wonder about the requirements and start-up costs for launching a side hustle. Will you need to withdraw money from your online checking account to buy expensive equipment, or head back to school for a certain degree?

Not at all. It is possible to start low-investment — and even no-investment — low-effort side hustles. Whether it’s delivering groceries, narrating audiobooks, or becoming a virtual assistant, many people are able to find a side hustle with a low startup cost and no degree required to supplement their income.

One of the benefits of a side hustle can be introducing you to what might become a steady source of extra money. Or you could discover a new career that you love.

Get good enough at your new gig and who knows — you could even end up with a side hustle to fund your early retirement!

21 Low-Cost Side Hustle Ideas for 2026

So what are some low-cost, low-effort side hustles to try? Here are 21 top side hustles on a budget — some are also small business ideas, should you decide you want to pursue them full-time.

Digital & Online Side Hustles

There are a number of side gigs that require nothing more than a laptop, or even just your phone, to start up. These include:

1. Selling an Online Course

If you know more than the average person about a specific topic that you’re passionate about — be it makeup application, flipping houses, or cooking — you can make educational content with only your smartphone and some screen-recording software. It’s a good example of a side hustle with low startup costs.

You don’t even have to worry about designing a website to host the courses you create. Websites like Skillshare and Udemy may host your content (but they will take a chunk of your sales). However, they already have built-in audiences. That can mean little or no marketing would be necessary on your part.

How much you might earn selling online courses depends largely on how many people buy them and the prices you charge.

2. Narrating Audiobooks

Websites like Fiverr and ACX.com have made it easier for aspiring voice-over artists (or just people looking to pick up some extra cash) to narrate audiobooks. To be successful, it’s a good idea to have a background in acting, an ability to use different voices and accents, and good enunciation.

As with many side gigs, you might have to start by taking unpaid work to establish a portfolio. Volunteering to read for the blind can be a great way to get your foot in the door. It doesn’t hurt to have your own website promoting your skills; just make sure there are demos on the site. Once you start working for pay, rates can vary widely by the project and how much experience you have — starting at about $10 an hour and going up to as much as $350 an hour.

Startup costs may include a high-quality microphone, noise-canceling headphones, and the proper software (Audacity, which is free, and GarageBand, which is free for Apple users, are options).

3. Tutoring

If you have a degree in a specific subject, such as math or science, and experience in and/or a talent for explaining concepts to others, you may be able to find work online or in person as a tutor. This could be a good side hustle for college students, who are steeped in a particular topic. You can try posting about services on social media and running local ads, or you might find work on tutoring platforms like iTutor or Varsity Tutors.

If you are interested in tutoring for standardized test prep, it can be a good idea to seek certification. Though not required, it can make it easier to land clients. Search online for options; SAT tutors can earn more than $20 an hour or much more, depending on experience and location.

4. Selling Digital Products or Crafts on Etsy

If you enjoy making crafts and artwork, you might find a market on Etsy or other online marketplaces to sell your stuff. Custom signs, homemade soaps and candles, knitted scarves and blankets, and handmade jewelry are just a few examples of what artists currently sell. This can be a good opportunity to turn a hobby you love into an income stream.

How much you can earn depends on a variety of factors, including what you make, the prices you charge, and how much you sell. Your costs will include the price of materials and shipping, as well as listing and transaction fees, but you can set your own prices for your items to help offset those. To get started, check Etsy’s selling guide for beginners.

5. No-Code Web Design

Though the number of active websites is always changing, there were about 200 million at the end of December 2025. And someone had to make each one, which highlights another one of the low-investment side hustles you could pursue.

Platforms like WordPress, Squarespace, and Wix make it easier for non-coders to build semi-customized websites. If you’re a fast learner or have some experience in website building, this could be an easy way for you to make some quick cash. Freelance web designers earn almost $35 an hour on average across the U.S.

You can start by making your own website to advertise your offerings. It might be a good idea to connect with friends, family, classmates, colleagues, and even local nonprofits to offer your services for free so that you can build a portfolio. Then, once you have enough examples to showcase, you can start looking for clients for paid work.

6. Get Paid for Your Social Media Posts

Not everyone can be a famous influencer, but if social media and video content are your forte, you might consider building on your social media presence, from TikTok to YouTube. Even micro-influencers, with 10,000 to 100,000 followers on Instagram, can earn between $100 and $500 per post. You could have your earnings direct-deposited into a checking account (and even potentially get a direct deposit bonus offer).

While it takes time, dedication, and some luck to have tens or hundreds of thousands of followers, it can be a path to making some cash from content you probably enjoy creating. Everything from DIY renovation to makeup tutorials to movie reviews could be fair game as your subject matter.

7. Being a Transcriptionist

If you’re a fast typer, you might find side-hustle success as a transcriptionist. Companies like Rev and GoTranscript may be seeking your skills.

This is a job you can do from home (in sweat pants, no less) for as many or as few hours as you would like. Rev says its transcriptionists can make $156 monthly for 15 jobs, and some transcriptionists can make considerably more.

Your startup costs might only include a pair of noise-canceling headphones and audio player software.

8. Social Media Management

If you spend a lot of time on social media, you might be able to turn it into a lucrative side gig. Smaller, local companies might not have the manpower or know the first thing about creating Instagram Reels or going live.

You might start by updating your LinkedIn to show that you are looking for clients in the social media space. A website highlighting your own personal social media stats might be a good idea, too. To kick off your side hustle, you could consider building your portfolio by offering free services to a nonprofit or local business with a limited budget.

A social media manager who is just starting out might earn $15 an hour; those with more experience may earn four times that amount or more.

Keep in mind: Running your own personal Instagram is very different from running social for businesses. Taking a few online courses on Udemy or another platform to learn best practices for social media management could be extremely valuable.

9. Proofreading and Writing

If you have an English degree and you are an avid reader and wordsmith, you might be able to find freelance side gigs as a proofreader or even a writer. Some might be one-off projects, like proofreading someone’s novel; others could be recurring, like working as a contributing writer to a travel website.

As with most side hustles of this nature, having an online portfolio is a good idea. That means you might want to take some low-paying (or free) gigs at first until you’ve proven to potential clients that you’re worth your rate. Clients often post job listings on sites like Indeed, Upwork, FlexJobs, and Fiverr.

You may need to learn or brush up on specific style guides, like AP and Chicago. But it can be worth it: Proofreaders with some experience may pull in $25 to $50 per hour. Writers who are intermediate level currently average about $28 to $35 an hour for freelance work, while those who are experienced may pull in $50 to $100 an hour.

Recommended: High-Paying Jobs That Don’t Require a Degree

10. Being a Virtual Assistant

At large companies, the executives typically have their own assistants. But leaders at small businesses often wear many hats, from scheduling to accounting to sales. These leaders often need help but can’t afford an assistant full-time.

That’s where virtual assistants come in. These contracted administrative assistants might handle a wide range of tasks that business decision-makers don’t want to do or don’t have time for. This could include data entry, scheduling, bookkeeping, travel arrangement, email management, or even social media posting.

If you’re organized and have done this kind of work before, it can be a good side hustle with no special equipment or training needed. The median hourly rate is typically $19 but could be closer to $30 or more, depending on your level of expertise and the exact role.

11. Testing Websites and Apps

If you spend a lot of time online and using apps on your phone, you could put your knowledge and experience to good use by becoming a user tester for websites and apps.

Here’s how it works: Companies are looking for honest feedback on their digital products, and they will often partner with testing platforms to recruit testers. For this gig, you’ll review the products and give your opinion on such things as user experience, functionality, ease of navigation, design, layout, and so on.

To become a tester, you can apply on platforms like Userlytics and User Testing. You could earn up to $30 per test. Once you start getting paid, you can deposit the money from your phone right into your bank account.

12. Affiliate Marketing

If you are an online content creator on Instagram, TikTok, or YouTube with a devoted following, this could be an ideal role for you. As an affiliate marketer, you’ll earn money by recommending products you use and like by providing a tracking link to the product that’s unique to you. Every time someone uses the link to purchase the product, you’ll get a percentage of the sale.

To get started in affiliate marketing, decide on your area of interest or expertise like fitness or travel. Next, you can choose an affiliate program that corresponds to your area through an affiliate marketplace or network such as Flex Offers or Amazon Associates, or by reaching out to brands directly. Then you’ll get started by promoting specific products in stories, posts, or videos on your platform.

How much you’ll earn depends on the size of your audience, the amount of traffic your link sends to the brand or company, and the rates you negotiate with the brand. Commissions for products might be anywhere from 1% to 20%. Just be aware that you will need to follow FTC rules and alert your audience whenever you’re earning money with affiliate links.

Service-Based & Offline Side Hustles

Digital side hustles aren’t the only way to go. There are plenty of hands-on side hustle opportunities, such as:

13. Renting Your Clothes Out to Others

If you have a sense of style that’s always garnering compliments, or you’ve invested in luxury label items over the years, you might find that others are willing to pay to borrow your clothes. Sites like Le Ora and Tulerie offer platforms for listing your clothes and earning some cash. Since you already own the clothes and accessories, this could be a low-cost side business.

How much you make will depend on how much clothing you have to rent, how prestigious its label is, and how in demand the styles are.

14. Flipping Furniture

Flipping furniture can be as easy as canvassing neighborhood groups on social media to see people listing furniture for free or a very low price. If a piece seems to have any value, you can claim it and then list it for sale on Craigslist, Facebook Marketplace, or Nextdoor.

You can also shop for cheap used furniture at garage sales, thrift stores, and estate sales.

To make a little more per piece, you could add a fresh coat of paint and maybe install new hardware. This can be a fun, creative way to bring in money. How much you make varies, depending on what and how much you sell.

15. Driving With Rideshare Services

Startup costs for Uber and Lyft are arguably high; you need a car after all. But if you already own a vehicle that meets a rideshare program’s criteria (and you’re already paying for the car insurance), you could start offering rides with nothing more than the cost of a tank of gas.

Plus, this is a side hustle that can really fit your schedule; you could do it on weekends or whenever you have a day off. Nationwide, rideshare drivers make about $21 an hour.

16. Delivering Food and Groceries

If driving people around doesn’t appeal, consider freelance food delivery instead. Today, your options are plenty, including DoorDash and Uber Eats.

This is a good time to get in on the food delivery game; food delivery app usage skyrocketed in 2020 and continued to grow in the following years. In 2025, food delivery in the U.S. grew more than 21%.

Delivering takeout isn’t your only option. You can also deliver groceries with apps like Instacart, as well as through many grocery chains. While the pay will vary, you might make $15 to $20 per hour plus tips, which you can easily transfer into your checking or savings account with mobile banking.

17. Giving Music Lessons

If you play an instrument and you enjoy teaching, you might be able to give music lessons on the side. Having a degree in music may be helpful in lining up potential clients, but it’s not a prerequisite.

You can set your own rates, but finding students initially may require lower prices or even free lessons for family and friends, just to build out a network of students who will offer referrals and testimonials. The good news is that you can offer lessons from your home, and students will generally bring their own instruments, which means you’ll have very low — or no — startup costs.

18. Pet Sitting and Dog Walking

If you love animals and you’re good with them, pet sitting and dog walking could be a natural fit. You may be able to find people in your neighborhood whose dogs you can walk regularly during the week when they’re at work. And/or you can also take care of pets when their owners are away.

To find clients, put up signs in your neighborhood and post your services on social media. Volunteer to take care of your friends’ pets and ask them to offer testimonials and referrals on your behalf.

You can also sign up for gigs through a platform like Rover or Wag, though they will take a cut of the money you earn. Speaking of earnings, pet sitters make about $16 an hour in the U.S.

19. House Sitting

As a house sitter, you’ll take care of someone’s home while they’re away — and earn money and get free accommodations while you’re at it. The duties you’ll perform as a house sitter typically depend on the particular job and what the homeowner wants. You may need to clean, water plants, bring in mail, and take care of any emergencies that might occur, like a leaking pipe. If the owner has a pet you may be asked to take care of them as well.

To get gigs as a house sitter, you typically need experience, as well as good references. After all, you’ll be caring for and living in someone’s home and they’ll want a house sitter they can trust. Start out by house sitting for friends or neighbors, and ask them to be references for you.

You can find house sitting jobs on websites like House Sitters America or through word of mouth. You can post your house sitting services on social media and even create a website that details your experience and offers testimonials. House sitters typically make just over $16 an hour nationwide.

20. Local Tour Guide

If you live in an area that draws travelers, becoming a local tour guide could be a fun side hustle. For example, if you live in a town with a rich heritage or interesting sights, or in an area that’s historic or has unique landmarks, you may be able to offer your services by giving tours to visitors.

Be sure to bring your particular expertise into the equation as well. If you are a history buff, food lover, or nature enthusiast, you could share your passion with others by introducing them to remarkable spots in your area and giving them insider information about each one.

Whatever your interest or specialty is, you’ll need to create a website to promote your services and develop tour itineraries to help draw customers. You could also join a platform such as ToursByLocals! that can connect you with clients. Local tour guides across the country earn, on average, $23 an hour.

21. Reselling Thrifting Finds

This side hustle involves finding items at thrift stores that you can turn around and quickly and easily resell or “flip” on an online platform. The trick is to locate items that other people want so you can earn a profit, and choosing one specialty can help give you direction and a niche.

To get started, think about what you’re interested in. For instance, if you’re a cook, you might decide to specialize in kitchen equipment or coveted vintage dishes and bakeware. Once you’ve decided on the items you plan to focus on, do some research to see what sells on eBay and Facebook Marketplace. Get a sense of what you should be able to buy them for at thrift stores, and how much you can mark them up and resell them for. What you can earn varies widely depending on what and how much you sell.

How to Manage Your Side Hustle Income

A very important factor in a successful side hustle is how you manage your money. Taking the time to plan for this in the beginning can help you keep your finances organized.

Tracking Expenses and Revenue

Track the money you make from your side hustle (aka your revenue) separately from your other income and your personal funds so you know exactly how much you’re making. You could set up a separate bank account for your side business to help with money management by shopping around for the best high yield savings account or whatever type of account suits your needs.

Another option is a bank account that lets you put your different types of savings into different “buckets.” You could do this by starting a high-yield savings vault. One vault or bucket could be for your side hustle, another could be for the vacation you’re saving up for, and so on.

It’s also crucial to track the expenses you incur from your side hustle. Keep them separate from your personal expenses and it will be easier to manage them come tax time.

Understanding Self-Employment Taxes

As an individual with a side hustle, you are generally considered self-employed, and the income you make from your side hustle is considered self-employment income by the IRS. That means you will need to report the income on a Schedule C (Profit or Loss From Business) with your tax return. Any self-employment earnings over $400 are taxable, and you’ll also need to file a Schedule SE (Self-Employment Tax) to cover Medicare and Social Security requirements.

The good news is that you may be able to deduct expenses for your side hustle from your taxable income. You can typically deduct such things as the cost of materials, tools or equipment, mileage, home office expenses, and even a portion of your internet and cell phone bills if you do your work online. Keep records and receipts of all your business expenses so that you can accurately report them.

Finally, as a self-employed person, you will need to pay quarterly taxes since taxes aren’t taken out of your paycheck the way they are with a traditional job.

You may want to consult a tax professional about all this since it can be complex and it’s important to get it right.

The Takeaway

A side hustle can help you earn extra money in your free time for relatively low startup costs and without requiring a degree. From virtual assistant to social media manager to house sitter, there are a variety of options an aspiring part-time entrepreneur can choose from.

How much you can earn generally depends on the type of job you choose and how many hours you devote to it, among other factors. To track your earnings and any expenses, you can put the money from a side hustle in a separate bank account, which makes it easier to manage.

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

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

FAQ

Which low-cost side hustles pay the most?

Generally speaking, side hustles that involve digital skills, such as web designer and social media manager, may pay more than some others. But many side hustles allow you to set your own rates and hours, so the gig may be as lucrative as you make it, depending on the hours invested.

Do I need an LLC for a side hustle?

You are not required to have an LLC (limited liability company) for a side hustle. However, you might choose to set up an LLC if and when: You start making a significant amount of money; you’re worried about liability (without an LLC you may be personally responsible for accidents and injuries), and if you are planning to turn your side hustle into a bigger business. Essentially, an LLC is a business structure that protects you and your personal assets from liability; it also has certain tax advantages.

Can you start a side hustle with $0?

Yes, it’s possible to start a side hustle without paying a dime. Some side hustles typically have no startup costs at all, such as a dog walker or pet sitter, virtual assistant, writer or proofreader, and tutor.

What are the best low-effort side hustles?

Some of the best low-effort side hustles use items you already have, such as renting out your clothes or a room in your home. Others involve using your skills, such as making social media posts if you’re a big social media user, or teaching music if you’re a musician. One low-effort side hustle almost anyone can do is user testing of websites and apps.

How do I find time for a side hustle with a full-time job?

If you have a full-time job, you can choose a flexible side hustle that allows you to set your own hours and that you can do in your free time, such evenings and weekends. Also, look for a side hustle that allows you to devote as much — or as few — hours as you want. Some possibilities include pet sitting and house sitting, tutoring, giving music lessons, and driving with a ride share service.

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Photo credit: iStock/Yana Iskayeva

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It’s time to file your taxes again. But before you do, it’s a good idea to consider whether there are any last-minute tax moves you can make to lower your tax liability and/or simplify the tax filing process.

Read on to learn some tax tips before April 15th arrives.

Why End-of-Year Tax Prep Is Important

The end of the year and start of the new year can be an ideal time to get your affairs in order for the upcoming tax season, especially when it comes to reducing your tax burden. One way to do that is through what’s known as tax-loss harvesting (you’ll learn more details below).

This and other financial moves can be complicated and may require additional preparation or the assistance of a tax preparer or financial planner, which is why an early start can be important.

It’s also a key moment to make sure that you have all the information you need to file properly. If you are missing tax forms, now’s the time to work on getting them before you get too close to the April 15th filing deadline.

Smart Tax Prep Moves to Make

Ready to learn the details? Here are eight moves to make by the end of the year that could save you time and money when Tax Day rolls around.

1. Look at Tax Code Changes

The Internal Revenue Service’s tax code can and does change regularly. Tax brackets can shift (say, in response to inflation’s impact). In addition, the standard deduction often rises, which can help lower your taxable income. For example, for tax year 2025 (filing in April 2026), the standard deduction for married couples filing jointly is $31,500; in tax year 2026, it goes up to $32,200. For single filers, the standard deduction is $15,750 for tax year 2025 and $16,100 for tax year 2026.

2. Grab All Available Itemized Deductions

It’s also a great time to review what itemized deductions you may have. Beyond state and local packages, you’ll also want to consider any medical expenses, charitable donations, home mortgage interest, or any losses you may have incurred as the result of a natural disaster or theft.

Keep in mind you can still make charitable donations, schedule doctor’s visits, and pay for certain expenses before the end of the year to potentially offset your taxes.

3. Review Your Contribution Limits

Some of the contributions you can make include putting money in your (health savings account (HSA)), 529 college savings account, and your Individual Retirement Account (IRA). For HSAs and IRAs you generally have until April 15 to make these contributions.

Contributions to a traditional IRA or HSA often can reduce your taxable income, as long as you are eligible to contribute and to take a deduction. While contributions to a Roth IRA can help you save on taxes in the future, they won’t reduce your current tax liability.

Here are contribution limits for tax year 2025 as well as what to expect for 2026:

•   IRAs: The annual contribution limit for a traditional and Roth IRA is $7,000 for 2025 and $7,500 for 2026. Those 50 and older can contribute an additional $1,000 per individual in 2025 for a total of $8,000 per year, and an additional $1,100 per individual in 2026 for a total of $8,600.

•   HSAs: In 2025, you can contribute up to $4,300 if you are covered by a high-deductible health plan (HDHP) just for yourself, or $8,550 if you have coverage for your family. In 2026, you can contribute up to $4,400 if you are covered by a HDHP for yourself, or $8,750 if you have family coverage. Those age 55 and older can contribute an additional $1,000 in both years.

•   529s: Individual states sponsor 529 plans and set varying total account maximums. You’ll also want to keep in mind that the IRS counts contributions to 529 plans as gifts. Individuals can gift up to $19,000 to a 529 plan in 2025 and in 2026, without those funds counting against the lifetime gift tax exemption amount.

4. Consider Tax-Loss Harvesting

Tax-loss harvesting can be a tool to offset losses in non-retirement accounts. Simply put, tax-loss harvesting allows you to use realized losses to offset any gains. So, if you have investments that are below cost basis, you may want to discuss your situation with your financial planner or tax advisor to see if tax-loss harvesting is a good option.

Recommended: Tax Season Help Center 2025

5. Review Your Savings

Were you able to save some money over the last year but haven’t invested it yet? If it’s just sitting in your savings account, now may be the time to consider some tax-efficient investing.

When deploying a tax-efficient investment strategy, it’s crucial to know how an investment is going to be taxed. Ideally, you’d want more tax-efficient investments in a taxable account.

Conversely, you may want to hold investments that can have a greater tax impact in tax-deferred and tax-exempt accounts, where investments can grow tax-free.

Next, it is helpful to know that some investment types are inherently more tax-efficient than others. That insight can aid you in making the best investment choices for the type of investment account that you have. For example, ETFs’ tax efficiency is considered superior to that of mutual funds because they don’t trigger as many taxable events. Investors can trade ETFs shares directly, while mutual fund trades require the fund sponsor to act as a middle man, activating a tax liability.

6. Consider a Roth Conversion

You might have a traditional IRA and wonder if you should convert it into a Roth IRA instead for tax purposes. Deciding to convert a traditional IRA to a Roth IRA comes down to a few factors, all of which are personal to each individual investor. This may make it important to weigh the pros and cons carefully. You may want to discuss this kind of year-end tax move with a financial advisor before making a decision.

An IRA rollover can happen a few ways:

•   Via an indirect rollover, where the owner of the account receives a distribution from a traditional IRA and can then contribute it to a Roth IRA within 60 days.

•   Via a trustee-to-trustee, or direct rollover, where an account owner tells the financial institution currently holding the traditional IRA assets to transfer an amount directly to the trustee of a new Roth IRA account at a different financial institution.

•   Via a same trustee transfer, used when a traditional IRA is housed in the same financial institution of the new Roth IRA. The owner of the account alerts the institution to transfer an amount from the traditional IRA to the Roth IRA.

7. Perform a Financial Checkup

It’s common for life circumstances to change from one year to the next. Maybe you got a new job, had a baby, or bought a new home.

If you’ve experienced changes in your life, consider taking some time now to reevaluate your financial goals, as well as your estate planning. For example, owning a home and being responsible for a mortgage can impact your discretionary spending. Similarly, if you recently became a parent or pet owner, you may think about adjusting your finances to prepare for the added 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.

8. Top up Your 401(k)

The more you contribute to your 401(k) account, generally the lower your taxable income is in that year. So if you haven’t yet reached your maximum contribution, now may be the perfect time to do so. Here’s some food for thought:

•   If you contribute 15% of your income to your 401(k), for instance, you’ll only owe taxes on 85% of income.

•   Say your annual income is $50,000. If you contribute 15% of your salary annually, $7,500 will be deposited into your 401(k) account, and you will be taxed on $42,500. That could save you thousands on your taxes.

However, here’s one important change to be aware of regarding 401(k) catch-up contributions: Under a new law that went into effect on January 1, 2026 as part of SECURE 2.0, individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account. With Roths, individuals pay taxes on contributions upfront (meaning their taxable income for the year would not be reduced), but can make qualified withdrawals tax-free in retirement.

To max out a 401(k) for tax year 2025, an employee would need to contribute $23,500 in salary deferrals; $31,000 if they’re over age 50, and $34,750 if they’re aged 60 to 63, thanks to SECURE 2.0. In 2026, the max for employee salary deferrals is $24,500; those over age 50 can contribute up to $32,500, and those aged 60 to 63 may contribute up to $35,750, thanks to SECURE 2.0.

Some investors might think about maxing out their 401(k) as a way of getting the most out of this retirement savings option. Others may want to put the money elsewhere. Again, talking with a financial professional can help you weigh the implications of these end-of-year money moves.

The Takeaway

The end of the year and then the start of tax season are ideal times to get ready to file your return by April 15th. Specifically, it may be in your best interests to find ways to mitigate your tax bill. You might rethink your retirement savings vehicles or try tax-loss harvesting (selling securities at a loss in order to reduce your tax bill), for instance.

As you are thinking about your finances, you might also take a minute to look at your banking partner and make sure it’s a good fit for your finances.

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

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

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Photo credit: iStock/Passakorn Prothien

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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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Buy now, pay later (BNPL) programs offer a kind of installment payment plan that is essentially a short-term loan. BNLP can give consumers the option of making a big purchase today and spreading out payments over subsequent weeks or months, often interest-free. You’ll find these services offered under such names as Affirm, Afterpay, and Klarna.

Many of the country’s largest retailers — including Target, Walmart, Macy’s, and Amazon — offer buy now, pay later services. This kind of short-term financing can be helpful for shoppers hoping to buy an item over time, but there are pros and cons to purchasing this way.

Read on to learn more about BNPL and how it works, its benefits and drawbacks, and whether it’s a good option for you.

What Is Buy Now, Pay Later (BNPL)?

Buy now, pay later is a way of purchasing an item in which you pay it off over time. It’s similar to layaway, but you get to take possession of the item right away rather than wait until it’s fully paid off.

For instance, if you are buying a new refrigerator with all the bells and whistles, using BNPL means you can get the fridge delivered ASAP and pay it off over time. With layaway, you’d have to wait until your series of payments were made and only then would you get the appliance.

A couple of other important points to note:

•   BNPL can sometimes come with fees and interest, especially if it’s a longer- term repayment plan. In this way, it may be similar to using a credit card and not paying the full balance off at the end of the month.

•   Most buy now, pay later services run a soft credit check (which won’t affect your score). Since they don’t require strong credit, these plans can be an appealing option for consumers with a poor credit rating or no credit history.

•   Buy now, pay later services make money by charging interest and fees on delinquent payments. These lenders also typically charge the merchants fees. Retailers are often okay with this because these financing programs allow customers to spend more at their store, either in person or online.

As noted earlier, some of the leading buy now, pay later providers include Affirm, Afterpay, Klarna, PayPal, and Zip. Some financial groups, like banks and credit cards, also offer BNLP features.

How Does Buy Now, Pay Later Work?

If you are wondering how BNPL works, here’s an example. Say you want to buy a $300 Vitamix Blender, but you hesitate to fork over the entire purchase price upfront. You just don’t have that much spare cash sitting in your bank account. But if you click on a buy now, pay later app or sign up at checkout, you can purchase and receive the item right away.

1. The Checkout Process

When opting for BNPL at checkout, you’ll likely be asked for some credentials, such as name, address, phone number, birthdate, and Social Security number. A soft credit check, which does not impact your credit, is typically conducted to approve or reject your request to use these installment payments.

2. Making the Down Payment

If you are approved for BNPL, payments are typically deducted via your credit card, debit card, or bank account. You are usually able to break up the cost of the item into several (often four) equal, interest-free payments. In the case of the $300 Vitamix, that would come out to four payments of $75 each. Typically, the first payment is due at checkout.

3. Paying Off Installments

The remaining three payments are each due approximately two to four weeks apart. In most cases, the BNLP provider will deduct them directly from your credit card, debit card, or bank account.

Interest and Fees to Watch Out For

Short-term BNPL programs of several often don’t involve the consumer paying any interest or fees over, say, four payments. However, with longer-term BNPLs that last months or even a year or more, interest may be charged, potentially at a high rate — sometimes as high as 35% or so. In addition, if you don’t make payments on time for short-term, or longer-term BNPL programs, you can be hit with fees.

Does Buy Now, Pay Later Affect Your Credit Score?

Buy now, pay later typically doesn’t affect your credit score. However, there are certain instances where your score might be impacted.

Soft vs. Hard Credit Inquiries

BNLP involves a soft credit check which does not impact your credit. A soft credit check is typically used during preapprovals for credit cards and loans.

With a soft check, the provider would review your credit report and credit score to get an idea of how well you are handling your credit. A hard credit check, on the other hand, happens when you officially apply for a credit card or a loan, typically by filling out an application. A hard check may temporarily impact your credit score, causing it to drop a few points for a few months. But again, BNPL does not involve hard credit checks.

Reporting to Credit Bureaus

Buy now, pay later payments are generally not reported to the credit bureaus. That means by using BNLP, you could miss out on the positive value of on-time payments and lose an opportunity to build your credit score.

However, if you are late with your payments or miss payments, the BNLP provider may report those payments to the credit bureaus and even send your account to collections. This could negatively impact your credit score.

Recommended: Guide to Credit Score Ranges

When to Use Buy Now, Pay Later (and When to Wait)

So why would someone use buy now, pay later? In some situations, and for some items, it may make sense. But in other scenarios, it may not be the wisest option. Here’s how to tell the difference.

Best Scenarios for BNPL

Some of the situations when BNLP could make sense include:

•   When you urgently need an item. Say your oven breaks suddenly and can’t be repaired. BNLP could help you get a new one and take it home right away without you having to shell out for the entire cost at once.

•   If the BNLP offer is interest-free. In this case, it could help you afford an expensive purchase by splitting it into separate payments without interest.

•   When you need to manage your cash flow in the short term. By paying for just one-quarter of an item’s cost at the time of purchase, you can hang onto your remaining money for now, so as not to be left short, and budget ahead for the remaining BNLP payments (a 50/30/20 budget calculator might help with this).

When to Avoid BNPL

But BNLP is not always the best choice. These are some of the times to steer clear of it:

•   When it encourages you to make impulse buys. BNLP could make you want to purchase something you really don’t need and can’t afford.

•   If you’re not sure you can make the payments. Delayed and missed payments will cost you in fees and possibly interest. Plus, they will likely be reported to the credit bureaus and negatively impact your credit. And if the payments are being taken from your bank account and you don’t have enough funds in the account, your account could end up overdrawn (if you use your bank account for BNPL, you may want to check to see if you have overdraft protection).

•   If the BNLP offer comes with a high interest rate. Longer-term BNLP offers may have interest rates that are sometimes as high as 35% or so, which means you’ll end up paying significantly more the item overall.

Pros of Using BNPL

If you’re considering using BNLP, there are some advantages of these programs to be aware of. The following are some possible benefits to factor into your decision.

Enhancing Purchasing Power

Buy now, pay later can allow you to buy something pricey without paying for it upfront. You get to take the item home and have the subsequent payments paid via credit card, debit card, or bank account. Unlike layaway plans, you don’t have to wait until the item is fully paid for before taking possession of it.

Saving Money on Interest

Some BNPL programs may offer consumers the opportunity to save in interest payments on a major purchase. For instance, if you were to buy a new couch with BNPL and pay it off over four months, drawing funds directly from your bank account, you might fare better financially than if you bought it with your credit card and didn’t pay your balance in full. In this scenario, BNPL could help you avoid paying interest on your credit card.

You could use that money to build an emergency fund or add it to your fund if you already have one.

Recommended: Emergency Fund Calculator

Quick Approval

If you apply for BNPL, you typically don’t need to wait more than a few seconds to be approved. This can be considerably quicker than seeking a line of credit via other means.

Potential to Build Credit Score

Some, but not all, lenders are reporting activity on BNPL programs to the credit bureaus. If this is the case and you pay on time, a BNPL purchase could positively impact your score.

Cons and Risks of BNPL

Now that you know about the upsides of BNPL services, it’s important to dig into the potential drawbacks.

Potential for Overspending

This type of payment plan can be so appealing, it may entice people who are already struggling to pay their bills to splurge. It can be quick to apply and be approved, and consumers may overlook the possibility of being charged interest and fees (or even being put in for collection) if payments are late.

Paying Interest and Fees

If a BNPL plan is paid off as planned, the shopper may not incur any interest or fees. But if funds aren’t paid on time or a longer-term plan is chosen, an interest rate of up to 36% may be assessed. Late fees can run anywhere from one dollar to a double-digit percentage of the purchase price. As you see, it can wind up being a very expensive proposition if you cannot stick to the original schedule of paying for your item.

Missing Out on Credit Card Rewards

You can earn credit card rewards and cash back if you use your plastic to pay for a purchase. When you pay via a BNPL service, you miss out on that opportunity.

BNPL vs. Credit Cards vs. Personal Loans

If you’re contemplating using BNPL on a major purchase, take a moment to compare options.

Credit Cards vs BNPL

As noted above, BNPL plans may be able to help you avoid credit card interest fees if you pay the amount due on time and don’t wind up adding it to the balance on your plastic.

However, these plans could encourage you to overspend and possibly add to your credit card debt. In addition, if you pay your BNPL bills on time but this isn’t reported to the credit bureaus, you may be missing out on the opportunity to build your credit score. You may also not receive the cash back or other rewards that could be coming your way when you use your credit card.

Personal Loans vs BNPL

If you are making a single big purchase and feel confident you can stick with the terms of paying off a buy now, pay later plan, that may be a fine alternative to personal loans.

However, if you are, say, redoing a kitchen and need to replace every major appliance, you may not want to wade into that many BNPL payments. If you can’t wait to save the money from your salary either, you might want to look into a personal loan, which can offer a more affordable interest rate vs. credit cards, and help you pay for what you need.

It’s worth noting that you will likely have a hard credit check vs. a soft pull if you go the personal loan route.

The Takeaway

Buy now, pay later plans can allow people to make purchases that they might not be able to easily afford otherwise. If you purchase an item this way, you will be spreading your payments out over a number of weeks or even months. Most of the time, there will be no interest. However, if you miss payments, you’ll likely be hit with fees and your credit score may be negatively impacted.

Another way to afford a major purchase is to simply set money aside each month in your bank account until you have enough to pay in full.

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

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

FAQ

What is the difference between layaway and buy now, pay later?

The main difference between buy now, pay later and layaway is that with BNPL, you can take the item home right away and use it even as you continue to make your installment payments. With layaway, you need to pay for the item in full before you can take it home.

Can I use BNPL for everyday purchases like groceries?

Yes, you can typically use BNPL for everyday purchases like groceries. However, if you miss payments, you can incur fees, and possibly interest, and it could impact your credit. Also, because groceries are an essential, recurring item, continuing to use BNPL to pay for them means that you could end up with a number of different repayment plans to juggle and pay off, which may be difficult.

What happens if I miss a BNPL payment?

If you miss a payment, late fees and possibly interest are incurred. If you are late with payments or miss them entirely and those actions are reported to the credit bureaus, it could negatively impact your credit score.

Do BNPL apps charge interest?

BNLP apps typically don’t charge interest on short-term BNLP plans. But they may offer longer-terms BNPL plans that usually do charge interest, and the interest can be as high as 36%.

How do I return an item bought with BNPL?

Returning an item bought with BNLP can be complicated. Because the BNLP provider has paid for the item in full on your behalf, when you return it, the refund is issued to the BNLP provider. It’s then up to them to apply the refund to your account. To help make the return process easier, find out the provider’s return policy beforehand so you know what to expect, and keep copies of all transactions.

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Photo credit: iStock/Mikolette

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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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There are plenty of budgets that promise to help you manage your money more efficiently, and some of them can be complicated. That’s why many people opt for the 70-20-10 budget rule. It’s a simple, percentage-based formula for getting and keeping your personal finances in good order.

This system can help you get a good sense of exactly what you earn and where it goes, while tracking your daily spending (that’s the 70%), plus saving and investing (20%), and debt and donations (10%). These aspects of the 70-20-10 budget are part of its appeal, and it may guide you to better money habits.

Read on to learn how the 70-20-10 rule works and the ways it can be adapted for your particular needs.

How Does the 70-20-10 Rule Work?

The 70-20-10 rule is a way to allocate your monthly after-tax income into three categories:

•   Living expenses

•   Saving and investing

•   Debt and donations.

Using these categories can help organize the way you think about your income — how it comes in, and importantly, how it goes out. It’s a simple way to put a personal budget in place.

Now, take a closer look at each of the three components of the 70-20-10 budget template.

70% for Spending and Living Expenses

Living expenses are exactly what they sound like — expenditures you need or want to make each month. To see how much of your post-tax dollars go toward these costs, just add up the monthly payments that cover essentials such as housing, utilities, food, childcare, and medical expenses.

This category also includes expenditures made only once or twice a year, such as auto or home insurance premiums or yearly car tune-ups. In those cases, you simply figure the total paid for the year, divide by 12, and add that number to the monthly figure.

For the purposes of the 70-20-10 rule budget, living expenses also include discretionary spending on things like shopping, entertainment, travel, gym memberships, and other non-essential items.

To get started, scan through a couple of months of your bank statements, credit card, utility, medical, housing, insurance, and internet bills to see how you’re tracking. Use the common living expenses listed below as a guide.

•   Housing: rent or mortgage and property tax, utilities, maintenance, and insurance

•   Transportation: car payments, car maintenance, gas and tolls, parking, public transportation costs, and taxis and ride shares

•   Childcare: day care, after-school programs, tuition, baby sitting, and clothes, personal care and related expenses for children

•   Insurance: health insurance premiums (if not deducted from your paycheck), auto and home insurance premiums, life insurance premiums, and disability income insurance premiums

•   Food: groceries, takeout and restaurant meals

•   Health: deductibles, copays, and coinsurance; medical and dental appointment costs not covered by insurance; prescriptions and over-the-counter drugs; glasses and contacts

•   Entertainment: travel; movie, concert, and theater tickets; paid streaming services and podcasts; books; magazine and/or newsletter subscriptions

•   Pets: food, equipment, accessories, and toys; flea and tick prevention/other medications; vet bills; pet insurance

•   Personal: clothing/shoes/accessories, hair care and other grooming, toiletries/cosmetics, gym membership

If your monthly number hits the 70% mark or less, congratulations. You’re living within your means. For many people, however, this first calculation may exceed 70%. Find out what to do when that happens below.

20% for Saving and Investing

Next, you want to calculate how much it will take to hit the 20% goal of saving for the shorter term and investing in your future.

For retirement, contributions to an IRA, 401(k) or 403(b), or other long-term, tax advantaged savings plan are typically best for working to build wealth over time.

For more immediate goals, make sure you have an emergency fund in place for any unforeseen expenses that crop up (aim for at least three to six months’ worth of expenses). You can also save for near-term objectives such as a vacation or down payment for a home.

Depending on what and why you are saving, different kinds of savings accounts may make sense. Consider these options:

•   High-yield savings accounts make sense if you need your money liquid (accessible) but want to earn more interest than the current rate on traditional savings accounts.

•   A certificate of deposit (CD) is another option. These accounts lock in your money at a specific interest rate for a period of time, usually from six months to a few years. With a CD, you’ll know how much money your money will earn, but keep in mind, if you pull your money out early, you’ll typically face penalty fees.

•   Money market accounts (MMAs) combine some aspects of a savings account with features of a checking account. You’ll earn interest (often a competitive amount) on your savings, and you may be able to access funds via debit card or checks.

10% for Debt and Donations

The remaining 10% can be allocated to paying off debt, especially high-interest debt. If you have credit card debt, you’ll likely want to focus all or part of this 10% on paying it down so you can avoid the high interest payments. If you have student loan debt, that monthly repayment amount should be included as well.

Once you’ve worked your way through some of your debt, part of the 10% allocation can go to charitable donations if you wish. Perhaps there’s a cause you want to support, from animal rescue to medical research, or you like to donate to your college; it’s your call.

Once you’ve taken a look at your full debt/donation picture, you can determine how best to handle the 10% rule. Depending on the size of your debts and your living expenses, you may need to temporarily allocate more or less funds to this category.

How to Use the 70-20-10 Budget in 4 Steps

The 70-20-10 budget is a streamlined approach to budgeting, and it requires just a few steps to get started.

1. Calculate Your Monthly Net Income

Determine your monthly income after taxes (also known as your net income). This includes your salary, as well as any steady side hustles or other regular earnings you have. Calculating net income from all those income sources will give you a total monthly amount.

While you’re at it, consider using a monthly budget calculator, which can help you keep tabs on what you’re bringing in and what you’re shelling out.

2. Review Your Last 3 Months of Spending

Pull out your bills, credit card statements, and bank statements for the last three months to track your expenses. Review how much you spend and what you spend it on. Looking at three months’ worth of expenses, instead of just one month’s worth, will give you a clearer sense of how much you spend monthly.

3. Categorize Your Expenses

Next, put your expenses into categories. Note which expenses are fixed — in other words, the costs you need to pay each month. This includes rent, utilities, groceries, and so on. Then determine which expenses are discretionary — meaning the things you choose to spend on, like clothes, entertainment, and dining out. Look at where you could cut back. For example, the cost of subscriptions can really add up. Between streaming services, meal delivery, music platforms, and gym memberships, you may have more of them than you realize, and you may be able to eliminate a few.

Trimming discretionary expenses is a way to avoid overspending. It can free up more money for you to devote to things you really need — or to put in savings.

4. Automate Your Transfers

Automating your finances can help keep your budget on track, ensure that your bills are paid consistently and on time each month, and help your savings grow. You can set up direct deposit for your paychecks, which may even allow you to get your paycheck early.

You can also establish automatic transfers from your checking account to your savings account to help hit your 10% savings goal. And you can automate bill paying so that you don’t have to remember to pay your bills, which could save you from late fees or penalties.

70-20-10 vs. 50-30-20: Which is Right for You?

The 70-20-10 rule may not be the best fit for everyone. Another popular budget method is the 50-30-20 rule. With 50-30-20, you allocate different percentages of your monthly income to three main categories: 50% to needs (like your rent), 30% to wants (like going to the movies), and 20% to saving money and paying off debt. A 50-30-20 budget calculator can help you divide your income into these categories.

Here’s how to determine which budget is best for you.

When Should You Choose the 70-20-10 Rule?

Because of its simplicity, those who are new to budgeting may find that the 70-20-10 budget works well for them. The budget’s framework provides structure without being overly complicated by combining wants and needs in one (70%) spending category. It allows a user to get organized without having to devote time and effort to tracking every expense.

The 70-20-10 budget can also be helpful to those who live in an area where the cost of living is high. In other words, if your expenses add up to 70% of your income, this budget may be a good fit for you.

When Should You Choose the 50-30-20 Rule?

The 50-30-20 budget may be a good choice for those whose needs or essential expenses are no more than 50% of their income, and who have discretionary spending that adds up to 30% each month. By dividing necessary and discretionary spending into two different categories, this budget adds an additional layer of structure, which some individuals may find helpful. For those interested in trying the method, these tips for using the 50-30-20 rule could come in handy.

Also, with its emphasis on savings and reducing debt, the 50-30-20 method could work well for those who prioritize saving money and who are looking to use strategies for paying off debt to reach their financial goals.

Real-World Example of a 70-20-10 Budget Rule

To see how the 70-20-10 rule might work (hypothetically speaking), let’s say your monthly income is $6,000. Here’s how that money would be allocated on the 70-20-10 budget plan.

•  For living expenses, you would multiply 6,000 x 0.70 (for 70%), and end up with $4,200 of after-tax dollars for housing, utilities, food, entertainment, and all the other items listed above.

•  For saving and investing, you would multiply 6,000 x 0.20 (for 20%), to get $1,200 to put toward savings and investments.

•  Lastly, you would multiply 6,000 x 0.10 (for (10%). That’s $600 to put toward debt and/or donations.

Here’s how it all divides up: $4,200 (for expenses) + $1,200 (for savings and investment) + $600 (for debt and donations) = $6,000.

Common Challenges When Applying Budgeting Frameworks

Like other budgeting plans, the 70-20-10 budget plan is pretty straightforward, but still, there are hurdles and challenges you may face as you work to follow it. These are a few of the possible pitfalls to watch out for.

•  Fluctuating income. The 70-20-20 budget technique works best for those with a steady income. If you are freelance, a gig worker, or a seasonal employee and your income is variable, this may be a tough budget for you to follow since sticking to fixed percentages may be difficult. To try to make it work, look at your income over a period of time like six months or more, figure out your average monthly take-home pay (if possible), and base your budget on that.

•  Lack of distinction between needs and wants. Unlike the 50-30-20 budget, the 70-20-10 rule groups all your expenses together. This could sometimes make it challenging to distinguish between essential spending and discretionary spending. For example, do you really need that new jacket for work, or do you want it because you like it?

•  Dealing with debt. Some people with a higher amount of debt, such as credit cards, car payments, and mortgage payments, may need to allocate more than 10% of their budget to paying it off.

Tips for Sticking to Your Budget

One of the benefits of the 70-20-10 plan is its simplicity — and flexibility. You can customize the allocations within reason to meet your own needs and financial goals over time. Making a budget can help give you peace of mind, because you’ll know you are taking care of your financial health. Here are a few tips for increasing your likelihood of success in following the 70-20-10 budget template:

Include Side Hustle Earnings and Windfalls

If your side hustle brings in income regularly and steadily, include it as part of your base income. But if it doesn’t, group it with other irregular income sources, such as bonuses, tax refunds, and any other windfalls, and factor them in later, as they happen.

The bulk of this extra income can be designated toward the area most in need of attention, such as paying off credit card debt or saving for your goals. You may also want to set aside a small percentage of those earnings as a reward for your hard work.

Recommended: Net Worth Calculator

Adjust the Percentages When Needed

After tracking your spending and making possible cuts, you may find you still can’t fit living expenses into the 70% category. Maybe you are just starting your post-grad life or earn a lower income, for example.

If you have limited funds and lots of bills, you may have to allocate a bit more to that category and put less in short-term savings until that next raise or other income comes through.

Protect the 20%

Whenever you find the need to adjust percentages, try to avoid lowering the 20% category of saving and investing for the future, if possible. The sooner you start saving for retirement, the more that money may grow over time. Older adults who may need to catch up on retirement savings may even want to increase this 10% allocation. One of the reasons the 70-20-10 plan can be successful is that it helps you balance both short-term needs with long-term financial planning.

If you do make percentage adjustments, be sure to continue to track expenses so you can see when you can readjust allocations back to the original 70-20-10 plan.

Prioritize High-Interest Debt

Individuals with high-interest debt such as credit card debt may do better with the 70-20-10 budget if they increase the debt repayment percentage to higher than 10% until their debt is lower. To help pay off their debt, they can reduce discretionary spending, cutting back wherever they can.

In addition, they might need to make more drastic cost-cutting moves too, such as finding an apartment with cheaper rent or ditching the expensive car and switching to mass transit for a while. The goal is to get costly debt under control so you can start saving for your priorities and peace of mind.

The Takeaway

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for saving and investing, and 10% for debt and donations. By allocating your available income into these three distinct categories, you may be able to better manage your money on a daily basis. The 70-20-10 budget could also help you take steps toward achieving your financial goals in both the short- and long-term.

Ideally, as you establish a budget that works for you, you can cover your expenses, pay down your debt, and put — and keep — more money in the bank.

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

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

FAQ

Is the 70-20-10 rule calculated on gross or net income?

The 70-20-10 rule is calculated on net income, meaning your after-tax income or take-home pay. Net income is used for this budget since that’s the actual amount you have available for expenses, paying down debt, and saving.

What if my living expenses are more than 70%?

If your living expenses are more than 70%, you’ll need to adjust the percentages of the 70-20-10 budget. You could take some money out of the 10% for debt and donations, and direct it to your living expenses, for example. But also try to reduce your expenses. Look at your discretionary spending first to see where you can cut back. Then, consider ways to lower your essential costs.

How does the 70-20-10 rule compare to the 50-30-20 rule?

The 70-20-10 rule allocates 70% of your monthly take-home pay to living expenses, 20% to saving and investing, and 10% to debt and donations. The 50-30-10 budget allocates 50% of your take-home pay to needs (essential expenses), 30% to wants (discretionary spending), and 10% to saving. The 70-20-10 plan is considered simpler because it combines wants and needs into one category, while the 50-30-20 plan distinguishes between the two, which some people may find helpful.

Can I use the 10% bucket for debt instead of donating?

Yes, you can absolutely use the 10% bucket for paying off debt instead of donating. The allocations and categories for this budget are flexible and not strict rules. Allocating the 10% bucket to debt repayment could help you eliminate high-interest debt, which could, in turn, free up more money to help you reach your saving and investing goals.

Is there a template for the 70-20-10 budget?

There are a number of digital templates that you can find online and download for the 70-20-10 budget. There are also monthly budget templates you can customize specifically for the 70-20-10 plan, including a free monthly budget template from SoFi.

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If you’re repaying a variety of debts to different lenders, keeping track of them all and making payments on time each month can be time-consuming. And it isn’t just tough to keep track of — it’s also difficult to know which debts to prioritize to fast-track your debt repayment. After all, each of your cards or loans likely has a different interest rate, minimum payment, payment due date, and terms.

Consolidating, or combining, your debts into a single new loan or credit line could give your brain and your budget some breathing room. We’ll take a look at what it means to consolidate debt and how it works.

What Is Debt Consolidation?

Debt consolidation involves taking out one loan or line of credit — ideally with a lower interest rate — and using it to pay down other debts, whether that means car loans, credit cards, or another type of debt. After combining those existing loans into one, you have just one monthly payment and one interest rate.

💡 Quick Tip: Credit card interest rates average 20%-25%, compared to 12% for a personal loan. And with loan repayment terms of two to seven years, a loan could let you pay down your debt faster. With a SoFi personal loan to consolidate credit card debt, who needs credit card rate caps?

Common Ways to Consolidate Debt

Your options to consolidate debt depend on your overall financial situation and which types of debts you want to consolidate. Here are some common approaches.

Balance Transfer

If you’re able to qualify for a credit card that has a lower annual percentage rate (APR) than your current cards, a balance transfer credit card can be a smart financial strategy to consolidate debt as long as you use it responsibly.

Some credit cards have zero- or low-interest promotional rates specifically for balance transfers. Promotional rates typically apply for a limited time only, but if you pay off the transferred balance in full before that period ends, you’ll reap the benefit of paying less — or even zero — interest.

However, there are caveats to keep in mind. Credit card issuers generally charge a balance transfer fee, often 2% to 5% of the amount transferred. And if you use the credit card for new purchases, in many cases the card’s purchase APR, not the promotional rate, will apply to those purchases.

At the end of the promotional period, the card’s APR will revert to its regular rate. If a balance remains at that time, it’ll be subject to the new, regular rate. Making late payments or missing payments entirely will typically trigger a penalty rate, which will apply to both the balance transfer amount and regular purchases made with the credit card.

Home Equity Loan

If you own a home and have equity in it, you might consider a home equity loan for consolidating debt. Home equity is the home’s current market value minus the amount remaining on your mortgage. For example, if your home is worth $300,000 and you owe $125,000 on the mortgage, you have $175,000 worth of equity in your home.

Another key term lenders use in home equity loan determinations is loan-to-value (LTV) ratio. Typically expressed as a percentage, the LTV represents the other side of the scale to equity: Instead of how much you own, it’s how much you owe. That percentage is calculated by dividing the home’s appraised value by your remaining mortgage balance.

Lenders typically like to see applicants whose LTV is no higher than 80%. In the above example, the LTV would be 42%.

$125,000 / $300,000 = 0.42
(To express this as a percentage, multiply 0.42 by 100 to get 42%.)

If you qualify for a home equity loan, you’ll typically be able to tap into up to 85% of your equity. After the home equity loan closes, you’ll receive the loan proceeds in one lump sum, which you can use to pay down your other debts.

A home equity loan is considered a second mortgage, a secured loan using your home as collateral. Since there’s a risk of losing your home if you default on the loan, this option should be considered carefully.

Personal Loan

If you don’t have home equity to tap into, or you prefer not to put your home up as collateral, a personal loan is another option to consider.

There are many types of personal loans, but most are unsecured loans, which means no collateral is required to secure the loan. They can have fixed or variable interest rates, but the vast majority have fixed rates.

Generally, personal loans offer lower interest rates than credit cards, so consolidating credit card debt into a fixed-rate personal loan may result in savings over the life of the loan. Also, since personal loans are installment loans, there’s a payment end date, unlike the revolving nature of credit cards.

There are many personal loan lenders, and the application process tends to be fairly simple. A loan comparison site can help you see what types of interest rates and loan terms you may be able to qualify for.

When you apply for a personal loan, the lender will do a hard inquiry into your credit report, which may temporarily lower your credit score by a few points. If you’re approved, the lender will send you the loan proceeds in one lump sum, which you can use to pay down your other debts. You’ll then be responsible for paying the monthly personal loan payment.

One drawback to using a personal loan for debt consolidation is that some lenders charge an origination fee, which reduces the amount you receive without affecting the amount you’ll have to repay. There may also be other fees, such as late fees or prepayment penalties. It’s important to make sure you’re aware of any fees and penalties before signing the loan agreement.

💡 Quick Tip: Swap high-interest debt for a lower-interest loan and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

Is Debt Consolidation Right for You?

Your financial situation is unique to you, but there are several things you’ll want to keep in mind when trying to decide if debt consolidation is right for you.

Debt Consolidation Might Be a Good Idea if…

•   You want to have only one monthly debt payment. It can be a challenge to manage multiple lenders, interest rates, and due dates.

•   You want to have a payment end date. A home equity loan or a personal loan could be useful for this reason because both are forms of installment debt.

•   You can qualify for a low- or zero-interest credit card. This could allow you to consolidate multiple debts on one new credit card and save on interest by paying down the balance before the promotional rate ends.

Debt Consolidation Might Not Be for You if…

•   You think you’ll be tempted to continue using the credit cards you paid down in the debt consolidation process. This can leave you further in debt.

•   You’ll incur fees (e.g., balance transfer fees or origination fees). If those fees are high, it might not make sense financially to consolidate the debts.

•   Consolidating your debts may actually cost you more in the long run. If your goal is to have smaller monthly payments, that generally means you’ll be making payments for a longer period and incurring more interest over the life of the loan.

Recommended: Getting Out of Debt With No Money Saved

Credit Card Debt Relief: How to Get It

Some people seek assistance with getting relief from debt burdens. Reputable credit counselors do exist, but there are also many programs that scam people who may already be overwhelmed and vulnerable.

Disreputable debt settlement companies may charge substantial fees upfront and often make bogus claims, such as guaranteeing that they’ll be able to make your debt go away or saying that there’s a government program to bail out those in credit card debt.

Even if a debt settlement company can eventually settle your debt, there may be negative consequences for your credit. A debt settlement program may require that you stop making payments to your creditors. But your debts may continue to accrue interest and fees, putting you further in debt. The lack of payments may also take a negative toll on your payment history, which is an important factor in the calculation of your credit score.

Recommended: Debt Settlement vs Credit Counseling: What’s the Difference?

Debt Relief: Is It a Good Idea?

What’s a good idea for some people may be a bad idea for others. Whether debt relief is a good idea for you and your financial situation will depend on factors that are unique to you. Working with a reputable credit counselor may be a good way to get assistance that will help you pay down your debt and create a solid financial plan for the future.

The Takeaway

Debt consolidation allows borrowers to combine a variety of debts, such as credit card debt, into a new loan. Ideally, this new loan will have a lower interest rate or more favorable terms to help streamline the repayment process.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What is debt consolidation?

Debt consolidation is the process of combining multiple debts into a single loan or line of credit. This may help you simplify your financial situation. Ideally, the new loan or line of credit should have a lower interest rate than those you’re paying on your existing debts, so you also save money on interest.

What options exist for consolidating debt?

Common options for debt consolidation include balance transfers to a credit card with a low or zero interest rate (sometimes offered specifically for balance transfers), home equity loans, and personal loans. The most practical choice will depend on your financial situation, including what kinds of debts you have and how much equity you hold in your home.

What are the pros and cons of debt consolidation?

Consolidating multiple debts into one line of credit or loan may help you keep your finances organized and could save you money through a lower interest rate, as well as offering an end date for your debt payoff. However, fees may cancel out the potential savings, and spreading payments over a longer period could lead to your paying more interest overall.

Who qualifies for debt consolidation?

Whether you qualify for debt consolidation depends on how you plan to consolidate your debts. To secure a home equity loan, for example, you’ll probably need to have at least 20% equity in your home. To apply for a personal loan, you won’t need that collateral, but the lender will check your credit score.

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

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