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Saving money allows you to handle unexpected expenses, protects you from relying on high-interest debt, and helps fund future goals like buying a home or retiring. But many people wonder if they are saving enough and how their balances compare with common benchmarks.

Exactly how much you should have in savings depends on factors like your age, income, expenses, and priorities. There is no one-size-fits-all number, but several widely used rules of thumb can help you set realistic savings goals. Understanding how much to save and where to keep those funds can help you make steady progress over time.

Why Is It Important to Build Your Savings?

Savings provide a financial safety net that can help you navigate emergencies and work toward future goals. Having sufficient funds set aside can help reduce financial stress and prevent you from relying on high-interest credit cards or loans when unexpected expenses arise. It can also provide the freedom to make choices on your own terms.

For example, having savings can help you:

•   Cover emergencies like car repairs or medical bills

•   Prepare for large purchases such as a home or car

•   Fund vacations or other planned expenses

•   Build wealth for retirement

•   Increase your financial flexibility and independence

Even modest savings can make a difference. According to the Federal Reserve’s 2025 Report on the Economic Well-Being of U.S. Households, approximately 37% of American adults — nearly four in ten — report that they would struggle to cover an unexpected $400 expense with cash or savings. Building savings gradually can improve your overall financial stability.

How Much Money Should You Have in Savings? General Rules of Thumb

There is no universal amount everyone should have saved. Instead, financial experts often rely on a few guidelines that can help you determine how much to set aside.

The 50/30/20 Budgeting Rule

One popular approach is the 50/30/20 budgeting rule. Under this framework, you divide your take-home income into three categories:

•   50% for needs: These are essential bills and obligations, such as rent or mortgage, utilities, basic groceries, health insurance, minimum debt payments, and transportation.

•   30% for wants: These are the nonessential (discretionary) expenses, such as dining out, vacations, streaming subscriptions, concert tickets, hobbies, and new clothes.

•   20% for goals (savings and debt repayment): This bucket is designed to help secure your financial future and includes emergency savings, retirement contributions, investments, and extra payments on debts.

Not everyone can follow this formula exactly. If you live in an area with a high cost of living, for example, you may not be able to keep “needs” to 50% of your monthly income. However, this framework can provide a helpful starting point for balancing spending and saving.

The 15% to 20% Monthly Savings Target

Another benchmark recommended by financial experts is to save at least 15% to 20% of your gross income (total earnings before taxes and other deductions are taken out). This includes retirement contributions (including employer matches), emergency fund allocations, and saving for goals like a vacation or down payment on a home. For example, someone earning $5,000 per month might aim to save between $750 and $1,000 monthly. If that amount feels out of reach, starting with a smaller percentage and increasing contributions over time can still help build momentum. Consistency often matters more than hitting a perfect number.

Emergency Funds vs. Sinking Funds vs. Retirement Savings

When setting up savings targets, it helps to know what you’re saving for. Common goals include:

•   Emergency funds: Financial experts often recommend having at least three to six months’ worth of essential expenses set aside to cover unexpected expenses and disruptions to income. If your income fluctuates or your work seasonally, you might choose to set aside more.

•   Sinking funds: A sinking fund is a savings strategy where you gradually set aside money over time for a specific, known expense — such as vacations, holiday shopping, home repairs, or replacing appliances. By dividing a large future cost into smaller, manageable contributions, you ensure the cash is available when the bill arrives.

•   Retirement savings: This savings bucket is intended for long-term financial needs. Contributions to workplace retirement plans and individual retirement accounts can help support your lifestyle after you stop working. The earlier you start, generally the easier it will be to reach your goal. This is thanks to the power of compound returns (when returns you earn also returns of their own).

Maintaining separate savings buckets may make it easier to track progress and avoid using emergency savings for planned expenses.

Recommended: Savings Calculator

How Much Money Should You Have Saved by Age?

How much money you should have in savings by a certain age depends on your personal goals, income, and circumstances. However, these savings benchmarks can help provide a framework for evaluating your progress.

In Your 20s: Starter Emergency Fund and 1x Your Salary

Your 20s are often focused on building financial habits. A good initial goal is establishing a starter emergency fund of at least $1,000, then gradually expanding it to cover several months of expenses. Ideally, you’ll also want to start saving for retirement. By age 30, many financial experts suggest aiming to have approximately one times your annual salary set aside for retirement. For example, someone earning $75,000 annually might target $75,000 in retirement savings by age 30.

In Your 30s: 3 to 6 Months of Expenses and 2x to 3x Your Salary

Your 30s may bring larger financial responsibilities, such as buying a home or raising children. Maintaining an emergency fund equal to three to six months of expenses becomes increasingly important.

Retirement benchmarks often suggest accumulating two times your annual salary by age 35. At this stage, increasing retirement contributions and maintaining consistent saving habits can help support long-term goals.

In Your 40s: 6+ Months of Expenses and 3x to 6x Your Salary

By your 40s, many people prioritize strengthening both short- and long-term savings. A larger emergency fund — potentially six months or more of expenses — can provide additional security.

Retirement savings benchmarks often recommend having four times your annual income set aside for retirement by age 45. Because retirement is closer than it was in earlier decades, increasing contributions and reviewing your investment strategy periodically may become more important.

In Your 50s: 6 to 9 Months of Expenses and 6x to 8x Your Salary

Your 50s are often considered peak earning years. Many people focus on maximizing retirement contributions and reducing debt.

An emergency fund covering six to nine months of expenses can provide added protection, particularly if changing jobs may be more difficult later in your career.

Retirement savings goals might be seven times your income by age 55 and eight times your income by age 60. Taking advantage of catch-up contributions available in certain retirement accounts may also help boost savings.

In Your 60s and Beyond: Nearing 8x to 10x Your Salary

As retirement approaches, preserving and growing savings becomes increasingly important. Many experts suggest accumulating ten times your annual salary by age 67. The exact amount you’ll need depends on factors including:

•   Desired retirement lifestyle

•   Expected Social Security benefits

•   Healthcare expenses

•   Life expectancy

•   Other income sources

Having multiple sources of retirement income and sufficient emergency reserves may help provide greater flexibility during retirement.

Where Are the Best Places to Keep Your Saved Money?

The best place for your money depends on how soon you’ll need it and what goals you’re saving for.

High-Yield Savings Accounts

High-yield savings accounts, commonly offered by online banks and credit unions, offer significantly higher interest rates than traditional savings accounts while providing easy access to your money. These accounts can be well-suited for emergency funds, sinking funds, and other short-term goals.

Because deposits are protected (up to certain limits) by FDIC insurance at banks or NCUA insurance at credit unions, high-yield savings accounts can provide both accessibility and security.

Retirement Accounts

Tax-advantaged retirement accounts can help you save for the future while potentially reducing taxes. Common options include:

•   401(k) plans

•   Traditional IRAs

•   Roth IRAs

•   SEP IRAs for self-employed individuals

Employer matching contributions, if available, can provide an additional benefit and help accelerate retirement savings.

Investments

Money intended for medium- to long-term goals may benefit from investment accounts that offer greater growth potential. Examples include:

•   Brokerage accounts

•   Mutual funds

•   Exchange-traded funds (ETFs)

•   Stocks

•   Bonds

Investments carry risk and can fluctuate in value, but they can potentially help combat inflation and build wealth over time. Money needed within the next few years is generally better suited for savings accounts rather than investments.

How Much Does the Average American Actually Have Saved?

Savings balances vary widely among Americans based on age, income, and household circumstances.

According to the Federal Reserve’s Survey of Consumer Finances for 2022 (the most recently released study), the median bank account balance, including checking and savings accounts, in the U.S. is $8,000. The median shows the middle point in the data, or the point at which half the accounts surveyed are larger and half are smaller. The median can give a clearer picture of how much most households have saved than the average, which can be skewed by a small number of outliers with very high account balances.

Looking at savings by age, the Federal Reserve’s survey shows:

Keep in mind that Federal Reserve survey, as well as others, consistently shows that a significant share of adults would struggle to cover an unexpected expense without borrowing or using credit. These findings highlight an important point: Comparing yourself to national averages may be less useful than focusing on your own financial goals and steadily improving your savings habits.

What Are the Best Strategies to Build Your Savings Quickly?

Building savings doesn’t necessarily require dramatic lifestyle changes. Small adjustments can add up to a significant sum over time. Here are some strategies that help grow your savings account.

Selling Your Stuff

Unused items around your home can provide a quick source of extra cash. You might consider selling:

•   Clothing

•   Furniture

•   Electronics

•   Sporting equipment

•   Collectibles

Online marketplaces, consignment shops, and local community groups can make it easy to turn unwanted items into money that can be directed toward savings goals. While this approach usually provides only a temporary boost, it can help jump-start an emergency fund.

Automate Your Savings and Cut Unnecessary Costs

Automation removes some of the effort involved in saving. Setting up automatic transfers from checking to savings on the same day each month (ideally right after you get paid) can help ensure savings remain a priority.

You may also find opportunities to save money by reviewing your bank and credit card statements and looking for places where you may be able to cut back. Some examples include:

•   Canceling unused (or rarely used) subscriptions

•   Negotiating bills (like cable and cell phone)

•   Reducing dining out

•   Refinancing high-interest debt

•   Shopping around for better rates on insurance coverage

Even saving an additional $25 to $50 per week can add up substantially over the course of a year. Pay raises, bonuses, tax refunds, and side income can also provide opportunities to accelerate your savings without significantly affecting your current lifestyle.

How Can Creating a Budget Help You Reach Your Savings Goals?

A budget gives your money a purpose and helps ensure savings become intentional rather than an afterthought.

While the process may sound complicated, making a budget is simply a matter of looking at your income and expenses for the past several months, identifying spending patterns, and determining how much you can realistically save each month. This process can also help you prioritize competing goals, such as building an emergency fund, paying down debt, and saving for retirement. Whether you use a spreadsheet, budgeting app, or just pen and paper, having a plan can help ensure your spending aligns with your priorities and can make it easier to stay consistent. Most importantly, a budget helps turn long-term goals into manageable monthly actions. Even small contributions made consistently can lead to significant progress over time.

The Takeaway

There is no perfect amount of money everyone should have saved. Your ideal savings balance depends on your income, expenses, goals, and stage of life.

General rules of thumb — such as saving 15% to 20% of your gross income, maintaining an emergency fund, and building retirement savings over time — can provide helpful benchmarks. Whether you’re just getting started or trying to increase your savings, consistency matters more than reaching a specific number overnight.

Regardless of your income, building savings gradually and creating a realistic budget can help you strengthen your financial foundation and prepare for both expected and unexpected expenses.

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, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.10% APY on SoFi Checking and Savings.

FAQ

How much money should I have saved by 30?

There is no universal target, but many financial experts suggest having about one year’s salary saved for retirement by age 30. It’s also a good idea to maintain an emergency fund with three to six months of essential expenses. Your actual savings goal may vary depending on your income, debt, and financial priorities. Building consistent saving habits is often more important than reaching a specific number.

Is $20,000 a good amount of money to have in savings?

Yes, $20,000 can provide a strong financial cushion for many households. Whether it’s enough depends on your monthly expenses, income stability, and financial goals. For some people, $20,000 may cover six months of expenses, while others may need more. Having savings available for emergencies and short-term goals is generally more important than comparing your balance to someone else’s.

How much of my paycheck should I save each month?

A common recommendation is to save 15% to 20% of your gross income (including retirement contributions). Another is the 50/30/20 budgeting rule that suggests directing 20% of your take-home pay toward savings and debt repayment. If 15% to 20% isn’t realistic, you might start with whatever you can afford and gradually increase your contributions over time. Consistent saving can help build long-term financial security.

What is the difference between an emergency fund and general savings?

An emergency fund is money reserved for unexpected expenses or loss of income, such as medical bills or car repairs. General savings are typically used for planned goals and purchases, including vacations, home improvements, or holiday spending. Keeping these funds separate can help ensure you don’t dip into emergency reserves for nonemergency expenses.

How much cash should I keep in a checking vs. a savings account?

A common guideline is to keep one to two month’s worth of monthly bills and routine spending in a checking account, while storing excess cash in a savings account. Savings accounts are better suited for emergency funds and longer-term goals because they generally earn more interest. The ideal balance depends on your expenses, income schedule, and financial goals.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. 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.
^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.

*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. 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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Money values are a set of beliefs about money and how it’s meant to be used. Do you see money as something that should be spent and enjoyed in the moment? Or is watching your pennies so you can retire early your chief financial goal?

Whether someone’s financial values are positive or negative can influence the decisions they make with money. For example, research suggests that children who learn positive money lessons early on are more likely to be better with money and have stronger relationships as adults.

But what are money values more specifically and where do they come from? And are they set in stone or can they change over time? Understanding the impact of money values is an important step in improving your financial health and developing good money habits. Read on to learn more about how money values are formed, and how you can better align your values and finances.

What Are Financial Values?

When talking about values in finance or in general, you’re talking about beliefs. Specifically, values are beliefs that motivate people to action in some way and drive behavior. If you apply that concept to finance, you could define financial values as a set of beliefs that drive decision-making about money.

Financial values can be formed in childhood through your first-hand experiences with money. For example, if you grew up in a household that emphasized saving and avoiding debt, then you might be more inclined to value the importance of stashing cash in a savings account as an adult. On the other hand, if you grew up in a home with a parent who was a compulsive shopper, then your money values might tell you that buying things constantly is normal behavior.

Financial values can vary widely from one person to the next, and it’s possible that you may have developed money values without being consciously aware of them. But those values can affect the decisions you make when it comes to saving, spending, and handling debt.

Recommended: Improve Your Financial Literacy

What Are Social Values As They Pertain To Money?

When individuals with money values come together as a society, that society has collective money values. Each individual may not agree or have the same financial resources, but certain trends can prevail. When your personal values are in friction with the larger social values and behaviors of your community, you might feel stress.

In real life this can manifest in ways small and large. For example, when you and a group of friends go out to eat, the money attitudes of the group might influence the choice of restaurant or determine how you split the check. On a larger scale, a group’s social values might drive what neighborhood you choose to live in (whether or not you can afford to live there), what charities you contribute to, or whether your children attend public or private school.

How Do Core Money Values Influence Your Habits?

Your personal money values shape your decision-making with money. So again, someone with positive money values might believe that carrying excessive amounts of debt or making unnecessary purchases are bad financial habits to avoid.

If you have poor money values as an adult because of your childhood experiences with money, then you might not see anything wrong with being in debt. Or you might simply think that having lots of debt is a fact of life, and there’s nothing you can do to change it. For that reason, having negative money values can be dangerous to your financial health, today and tomorrow.

The good news is that it’s possible to change your money values over time. It can take an effort to learn new values and behaviors and adopt a new money mindset. However, the effort can be worth it if you’re not happy with your financial situation and you’d like to change it for the better.

Why Are Financial Values Important for Your Future?

There are certain fundamentals for personal finance that can help you to get ahead financially. These include things like budgeting, avoiding high-interest debt, and saving consistently. Your money values matter because they can determine how committed you are to practicing good financial habits.

Here are some things that positive money values can do for you:

•   Help you to be more disciplined with your money, rather than allowing money to control you

•   Make it easier to keep track of money because you’re committed to sticking to a monthly budget, keeping an eye on your checking account balance, and avoiding unnecessary spending

•   Give you clarity when setting financial goals so that you know exactly what it is you want to achieve with your money

•   Underscore your purpose for pursuing those goals so that you stay motivated and on track

•   Make decisions confidently with your money, whether it’s where to invest or what to say to a friend who asks for money

Financial values can act as a guidepoint or compass for you so that you don’t feel like you’re operating in the dark with money. Understanding your personal values toward money can also help with navigating relationships with people who might have different financial values. The clarity you have about how you want to manage your money can help you determine needs vs. wants and stay the course to meet your goals.

5 Steps for Determining Your Money Values

If you’re not sure what your money values are or you’re questioning what they ought to be, figuring it out doesn’t have to be difficult. Here’s how to drill down to your financial values and what money means to you.

1. Map Out How Money Impacts Your Daily Life

When creating a financial plan that revolves around money values, it’s helpful to first understand how money affects your life. Making a list of areas where money impacts you the most can give you perspective on what money values you have and how they drive your decision-making.

For example, consider how money affects you on these levels:

•   Friendships

•   Romantic relationships

•   Family relationships

•   Work and career decisions

•   Hobbies and recreation

•   Health

•   Long-term planning (whether that means home ownership or retirement)

Also, think about how money affects you mentally and emotionally. If money is a constant source of stress, for example, that could be a sign that your money values might be getting in the way of good financial habits.

2. Define Your Short- and Long-Term Financial Goals

Setting goals can motivate you to make changes to your financial outlook, whether big or small. It can also help you to determine what your money values are and how your goals align with those values.

Making two lists — one for short-term goals and one for long-term goals — can give you an idea of what you’d like to do with your money. For example, financial short-term goals might include:

•   Saving an emergency fund

•   Setting aside money for a vacation

•   Saving up for new furniture

Financial long-term goals on the other hand might be things like saving for retirement or putting a large down payment on a home. You can never have too many money goals, but it’s important to be realistic about what you can achieve at any given time.

3. Visualize Your Ideal Financial Future

Many people use a five-year plan to map out their goals and financial progress. If you’ve never tried this before, consider where you’d like to be five or 10 years from now.

The idea is to create as vivid a picture as possible. For example:

•   Where will you live?

•   Will you rent your home or own it?

•   What kind of work will you be doing? Will you be working a 9-to-5 job, be in grad school, or running your own business?

•   How much money will you have in savings?

•   How much debt will you have?

•   Where will you be in terms of progress toward your long-term money goals?

Visualizing your future self is an important exercise because it gives you something to aim for. You can start working toward it now by adapting your money values to reflect where you want to go.

4. Prioritizing Your Goals Based on Core Values

If you have multiple financial goals, you might not be able to knock them all out at once. So you’ll have to decide which ones are most important to focus on first.

For example, many people question whether it makes sense to save or pay down debt. Saving first can give you a small cushion so that you don’t have to turn to a credit card if an emergency comes along. On the other hand, putting off debt repayment can mean paying more in interest over time. Which side of the debate you land on can clue you in as to what your money values are.

You can go through each of your goals and ask yourself how urgent that goal is for you. That can help you to better organize your list so you know what to focus on first.

5. Practice Living Out Your Financial Values

Once you’ve identified what your money values are, you can work on living them out in your daily life. In other words, that means making sure that your behaviors with money match up with your beliefs about money.

So, let’s say early retirement is one of your long-term financial goals; specifically, you’d like to retire 15 years from now. Ask yourself what you need to do on a daily basis to reach that goal. It might mean finding ways to make more money or prioritizing debt payoff. Or it could be as simple as proposing a casual dinner at your place with friends instead of going out with them for a spendy restaurant meal.

When you consider how even seemingly small decisions might affect you financially, you’re living out your core money values. The more consistently you can do that, the easier it becomes to create the kind of financial life you want.

How to Align Your Values With Your Finances

Getting into some simple routines with your finances can make it easier to align them with your money values. Here are some of the best ways to make sure your financial values are reflected in how you manage your money:

•   Make a monthly budget and and then stick to it

•   Review your spending regularly

•   Use credit cards responsibly by keeping balances low and paying in full whenever possible

•   Start a regular savings plan

•   Contribute to a retirement account if you’re not doing that already

•   Choose investments that match up with your values

•   Consider ways that you can reduce expenses and save money

•   Surround yourself with people who have similar money values.

Communicating about money with your spouse or partner is another important step. If their financial values are different from yours, then talking things over can help you to avoid conflict. You may not be able to persuade them to accept your values or vice versa. However, you might be able to reach a compromise on how to manage your money that you’re both comfortable with.

The Takeaway

Having sound money values can pay off if you’re able to feel financially healthy and enjoy the kind of lifestyle you want without racking up debt. Or perhaps positive money values will help you buy a house sooner or retire earlier.

Part of managing your money successfully involves choosing the right place to keep your money.

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, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.10% APY on SoFi Checking and Savings.

FAQ

What are examples of financial values?

Financial values are principles that govern how you handle money. Examples might include charity (should those with money should share it?); sustainability (do you want to align your spending and investing with care for the planet and its people?); security (is having enough money in the long term important to you?); and legacy (do you wish to leave money to others when you die?).

Why are financial values important in a relationship?

Each person comes to a relationship with their own financial values. When those values don’t align, there can be friction in the couple. Talking about your financial values, setting joint financial goals, and working together toward these goals can help strengthen your bond.

What are social values as they pertain to money?

When groups of individuals come together, certain attitudes about money can prevail. For example, a society might value charity: caring for those who struggle to find shelter or feed their family. Members might therefore provide financial support to programs that offer help. Other examples of social values include thrift, sustainability, or long-term financial security.

How often should I re-evaluate my money values?

It’s a good idea to check in with your financial values at least annually, or whenever you are making a key life decision, especially one that involves money. Examples might include when you are moving to a new home, thinking about having a child, making a job change that could influence your earning potential, or settling into a new relationship.

Can you be financially stable without strong money values?

It’s possible to be financially stable even if you aren’t aware that you have any money values. You can still make good decisions with money without realizing that values are driving those decisions. But having clear financial values to follow can help make stability easier to achieve.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. 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 transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. 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 Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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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If you’re doing business internationally, you may have come across a requirement for a commercial letter of credit. This financial document serves as a guarantee of payment for goods or services, thereby playing an important role in facilitating international trade and industry growth.

These letters can help businesses work successfully with new clients and build trust. Learn more about how they work and their pros and cons here.

What Is a Commercial Letter of Credit?

A commercial letter of credit, also known as a documentary credit, is an aspect of business banking. It’s a document issued by a bank to guarantee payment for goods or services for a seller (also called the supplier or exporter). It’s issued on behalf of the company acquiring the supplies (the importer). It ensures that suppliers are paid for the services and/or goods they provide and that buyers receive the goods or services promised. This can be an important tool when doing business internationally or working with a new supplier. Simply put, it supports the deal and inspires trust.

Most of us know that good credit is important, and with a bank’s assistance, a commercial letter of credit can vouch for a new and/or foreign business partner. Let’s say an American company has never done business with Thailand before but wants to. Or it’s found some goods it would like to buy from a company in France, but that business was only established a few months ago. There can be an element of risk to this kind of deal. The commercial letter of credit can reduce that worry since a bank steps in as a third party.

Commercial letters of credit are considered to be a very secure form of payment and are able to power many international trade transactions. The parties involved typically have every reason to believe the deal is solid, thanks to the bank’s participation.

How Does a Commercial Letter of Credit Work?

A commercial letter of credit is more than a piece of paper promising payment. It acts a bit like an escrow agent between buyer and seller.

To explain it in more detail, a business (the buyer) can obtain a commercial letter of credit by applying for one at a bank or commercial lending institution. The seller may require this when the relationship is new (or perhaps the buyer is new and their credit history is not yet solid) or when exporting to another country.

After approval, the bank issues a letter of credit for the supplier (also called the beneficiary). This letter signals to the seller that the funds are guaranteed and will be paid by the bank (or depositary institution), making it safe for the seller to produce goods or provide services for the buyer.

Once the seller shows evidence of having provided services or shipped the goods to the buyer (such as a bill of lading), the seller can draw on the letter of credit using their own bank. After payment has been made to the seller, the buyer must reimburse the bank before receiving the documents necessary to take delivery of the goods from the supplier.

By using a bank in this way, both the buyer and seller can feel confident in the business transaction.

Recommended: Is a Bad Credit Score a Big Deal?

Protections Offered by a Commercial Letter of Credit

A commercial letter of credit offers protections for both the buyer and seller. This is one of the reasons why it’s such an important tool.

•   For the seller (or supplier), the letter guarantees payment for goods or services.

•   For the buyer, the letter requires sellers to provide these goods or services before payment is issued.

These are particularly important in international trade, where market conditions vary around the world and trust comes at a premium. For instance, a location might have intense climate conditions that threaten production, or perhaps there’s political instability at a given moment. With a commercial letter of credit, participants in a deal can feel more secure about the deal going smoothly and successfully.

What Parties Are Involved in a Commercial Letter of Credit?

There are always four parties involved in the execution of a commercial letter of credit. These are:

•   The buyer: The party that applies for a letter of credit from their bank

•   The supplier: The seller of the goods or services that the buyer desires

•   The issuing bank: The bank that has approved a letter of credit for the buyer

•   The supplier’s bank: The financial institution from which the supplier can draw on the letter of credit, thereby ensuring that the supplier receives payment via the issuing bank

Recommended: Can Personal Loans Hurt Your Credit?

Commercial Letter of Credit Process Example

Here’s an imaginary example of how a commercial letter of credit might be used during an international business deal: The Winter Company makes blankets in the U.S. and needs to order raw material from China. It wants to order from a new supplier, Fine Fibers, and that new supplier wants to be sure this is a legitimate, reliable deal before beginning work. Therefore, Fine Fibers asks for a commercial letter of credit in order to start manufacturing the material for the blankets.

The Winter Company (the buyer/importer) applies for a commercial letter of credit from its bank and is approved. The letter is sent to the seller/supplier/exporter, Fine Fibers. It then begins manufacturing the material needed by the blanket-making company.

After finishing the order, Fine Fibers ships the order and provides the bank with the bill of lading. The fiber company can collect payment from the bank using its own bank.

The Winter Company, the buyer, can pay its bank back, and the bank will release information to receive the shipment. The buyer now has possession of the goods shipped. The deal is done without any hitches.

Difference Between a Commercial Letter of Credit and a Standby Letter of Credit?

There are many different types of letters of credit. One of the other commonly used letters of credit is a standby letter of credit. There are a few differences between a commercial letter of credit and a standby letter of credit, which are explored in the table below.

Commercial Letter of Credit	Standby Letter of Credit
Bank pays the beneficiary	Bank pays the beneficiary only if the buyer can’t
Acts as payment	Acts more like a default or backup payment method
Buyer must apply and be approved for a commercial letter of credit	Buyer goes through underwriting to examine their creditworthiness
Used as the primary financing instrument	Used when a deal is threatening to fall through

Recommended: Are Credit Scores Supposed to Be Different?

Examples of Commercial Letters of Credit

For both domestic and international transactions, commercial letters of credit can fulfill payment according to the contract’s specifications and help identify the goods’ delivery so a final payment can be made.

For example, Wells Fargo offers these letters to business clients. The letters of credit have a renewable term and typically take two weeks to process once the letter of credit application has been completed. Many other banks (Citibank, for instance) also offer these letters of credit, facilitating business deals.

Pros of a Commercial Letter of Credit

There are benefits for both sellers and buyers in using a commercial letter of credit.

For the seller/exporter:

•   Ensures the supplier is paid when requirements are met, building trust

•   Allows payment to be remitted to a bank of their choice

•   Provides access to financing in many countries

•   Helps develop new trade relationships, especially internationally

For the buyer/importer:

•   Reduces the amount of money tied up in a lengthy transaction

•   Allows the buyer to stipulate terms and conditions for fulfillment of the contract before payment is made by the issuing bank

•   Ensures goods or services are provided to the buyer, building trust

•   Helps develop new trade relationships, especially internationally

Recommended: How Often Does Your Credit Score Update?

Cons of a Commercial Letter of Credit

There are a few drawbacks to consider, however, when using commercial letters of credit. These include:

For the seller/exporter:

•   Payment takes longer than with an all-cash transaction.

•   Compliance with conditions of the contract may delay payment.

For the buyer/importer:

•   The application process can take two weeks or longer.

•   It can be pricey. The bank fee for a letter of credit is usually taken as a percentage of the amount of goods sold.

Recommended: Differences Between a Bank Guarantee and a Letter of Credit

The Takeaway

A commercial letter of credit can help businesses conduct transactions by guaranteeing payment from the issuing bank once requirements are met. This way, you can work with new businesses to dependably complete deals domestically and internationally. Commercial letters of credit can be a valuable asset in building trade and trust.

If you’re looking for solutions for your day-to-day personal banking needs, take a look at what SoFi has to offer.

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, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.10% APY on SoFi Checking and Savings.

FAQ

Who is the beneficiary in a commercial letter of credit?

A commercial letter of credit facilitates trade by guaranteeing funds (payment) for a supplier. The beneficiary is the receiver of the funds, whether the seller or the bank named by the recipient.

What is a letter of credit in commercial banking?

A letter of credit in commercial banking is a document from a bank guaranteeing payment to a supplier once a deal’s conditions are met. Typically, it’s used in international trade and/or between companies that haven’t done business previously.

Why do you need a letter of credit?

You may need a commercial letter of credit if your company is working with a new supplier that doesn’t offer trade credit. It may also be a requirement if your supplier is outside the country, or your normal trading area, or your company doesn’t have enough credit history for a supplier to trust your ability to pay.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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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.
^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.

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*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.


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A debit memorandum is a notice issued to customers from a bank or a business informing them of an adjustment being made to their account balance. In all cases, a debit memo means that money will be taken out of an account to cover a fee or an underpayment.

Debit memos occur both in personal banking — such as after a bounced check or for an insufficient funds fee — but are also common in business-to-business (B2B) transactions. They’re often used to correct an erroneous invoice or reflect changing market prices. Understanding how debit memos work can help you stay on top of your money.

What Is a Debit Memo?

A debit memo is a notice from a financial institution or a business to a customer that there’s a forthcoming adjustment (a debit or withdrawal of funds) to their account. You may also hear it referred to as a debit memorandum or debit note.

A debit memo might show up on your bank statement for an atypical fee, such as for ordering checks or overdrafting. Normal checking account debits, such as debit card purchases or cashed checks, aren’t classified as debit memos and won’t appear on a bank statement as such.

In B2B transactions, a company may issue a debit memo after invoicing if there was something incorrect on the original invoice. Typically, this happens if the customer was undercharged.

💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

How Does a Debit Memorandum Work?

In banking, if you’ve incurred a fee, such as an overdraft fee, the bank will add a debit memorandum to your monthly bank statement. If you use a digital banking app, you can often see this debit note in real time — no need to wait for a paper statement in the mail.

Just make sure you’ve turned on account alerts to track deposits, withdrawals, and other important account changes.

Banks can’t just assess fees at random. Federal law requires banks to disclose any fees they might charge for a bank account. Before opening a bank account online or in person, ask to see a detailed fee structure. If you don’t think a debit memo on your bank statement is correct, contact customer service to address the issue.

In business, debit memos work a little differently. The company acting as the seller might issue a debit memo after sending an incorrect invoice. Doing so notifies the buying company that its accounts payable will increase to rectify the unpaid amount.

Recommended: How Long Does It Take to Open a Bank Account?

Real-Life Examples of a Debit Memorandum

Here are two real-life examples of bank memos, one for regular consumer checking accounts and one for a B2B transaction.

Banking Scenario

If you write a check to a friend but don’t have enough money in your checking account to cover it, the check will bounce when your friend goes to deposit or cash it. Every time you bounce a check, your bank will likely charge you a fee. Rather than sending you an invoice, the bank will directly debit the amount from your account.

Even if you have no money in your account, you can go into a negative balance. This debit will show up on your bank statement as a debit memo.

Business Scenario

In this example, your company has done construction work for a local business. However, when sending the invoice to the business, you accidentally left off the labor cost and additional materials required for one portion of the project, equivalent to $5,000.

To resolve this problem, you can issue a debit memo to the local business. This signals that you’ll be recording an increase in your accounts receivable of $5,000. In turn, the local business will then need to increase the amount in its accounts payable by $5,000 to cover the additional fee. To avoid delays or disputes, the debit note should include adequate information to explain the adjustment in the final cost.

Recommended: How to Transfer Money From One Bank to Another

Types of Debit Memos?

Three situations commonly call for debit memos: bank transactions, incremental billing, and internal offset. Here, learn about all three types of debit memos to understand their key differences.

Bank Transactions

As an individual consumer, you’ll most likely encounter a debit memo as a bank transaction. If you incur a fee through your bank, such as for printing checks or overdraft fees, the bank will debit your account directly to cover that fee. This will show up on your bank statement as a transaction labeled as a debit memo or debit note.

Incremental Billing

If you’re involved in billing for B2B transactions, you may encounter debit memos. A seller might issue a debit memo to a buyer for several reasons:

•   If there were errors on the original invoice

•   If the buyer paid upfront, but the project costs were higher than expected

•   If the cost of materials or labor increased during the course of the project

•   If the scope of the work changed and resulted in higher costs

Internal Offset

If a customer’s account has a credit balance of insubstantial value, a company can issue a debit memo to clear out the balance. If the balance is large enough to be considered material (i.e., a significant amount of money), the company would typically refund the customer rather than issue a debit memo.

Debit vs Credit Memorandum: What’s the Difference?

Credit memos are essentially the opposite of debit memos. In banking, credit memos alert customers of an increase in their account balance. In business, a seller might issue a credit balance to alert the buyer that the original invoice was too high, thus reducing the amount the buyer owes.

Notification to Customers

When a bank issues a debit memo, it typically notifies the customer of the debit on the bank statement. Similarly, a credit memo will show up on a customer’s bank statement.

As a customer, you may receive paper or electronic statements. If you bank online, you can typically check your transactions at any time on the app or website. When you receive notification of a debit, you’ll want to take it into account when balancing your bank account.

Invoicing

As a seller issuing a debit memo, you’re notifying the buyer that you’re increasing the final invoice amount. A credit memo does the opposite: It notifies the buyer that you’re reducing the final invoice amount.

Recording the Reduction

In the event of a debit memo, the seller will record an increase in the accounts receivable amount, and the buyer must record the larger debit in their accounts payable ledger. For a credit memo, the seller records a decrease in the accounts receivable amount, while the buyer records a smaller debit from accounts payable.

Debit: Remit Payment vs Credit: Future Purchases

To clarify a bit more, debits are amounts owed that must be remitted to settle an account. Credits are money that an individual or business is owed, perhaps reflecting an overpayment, which may be applied to future purchases.

Here’s a summary:

Debit	Credit
Notification of a reduction in bank balance	Notification of an increase in bank balance
Increases the amount of an invoice	Decreases the amount of an invoice
Buyer must remit payment	Buyer can receive a refund or apply credit to a future purchase
Reduces a buyer’s accounts payable	Reduces a seller’s accounts receivable

Recommended: Credit vs Debit Memo

Managing a Bank Account

When you open a checking account or savings account, it’s important to understand the fee structure so that you aren’t surprised by a debit memo on your monthly account statement. You can ask for a fee structure upon opening a new account, and monitor your statements closely to understand what fees are being assessed.

As best as you can, it is a good idea to check your checking account for low balances and set up alerts for all transactions. It can also be wise to activate fraud alerts to help manage your banking security and protection.

The Takeaway

Debit memorandums alert banking customers that funds will be withdrawn from their accounts, often to cover fees incurred. This will lower an account balance, so it’s important to be aware of these changes and make sure your account doesn’t go into overdraft.

Looking for the right banking partner? See what SoFi offers.

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, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.10% APY on SoFi Checking and Savings.

FAQ

Do you pay a debit memo?

A debit memo serves as a notification of a debit from your account. The bank will automatically debit your account. In a business-to-business (B2B) scenario, a debit memo is a form or document that notifies the buyer that the seller has increased the accounts receivable amount.

Who issues a debit memo?

A bank or credit union may issue a debit memo to a personal or company account for specific fees, including bounced checks, insufficient funds, or printing checks. A business may issue a debit memo to another business to correct an invoice that results in underpayment. A business can also use a debit memorandum internally to offset a credit balance in a customer account.

Is a debit memo the same as an invoice?

A debit memo isn’t the same as an invoice. Rather, businesses often issue debit memos as a correction to an initial invoice, typically when they’ve mistakenly undercharged a customer.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. 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. ^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.
We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. 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 Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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A financial checkup is a process in which you thoroughly review your finances and how you are tracking against your goals. It’s the financial equivalent to an annual physical with your doctor.

A financial checkup can be an important step in achieving financial wellness, which means meeting your money obligations today and also funding your future goals. Regular financial health checks can help you see how well you’re doing. What’s more, they give you the opportunity to pinpoint where you might be able to improve your money management strategy.

If you’ve never done a personal financial health check before, fear not. Getting started is easier than you might think.

What Is a Financial Health Check?

A financial checkup is a thorough review of your personal finances. For example, some of the things you might review as part of a financial check include your:

•   Monthly budget and expenses

•   Assets, ranging from money in a savings account to equity in a home

•   Debt situation and repayment strategy

•   Credit reports and scores

•   Retirement savings

•   Emergency savings

•   College planning, if you have kids

•   Insurance needs and coverage

Those are all things that can go along with setting up a financial plan, which is a strategy for managing your money to reach your personal money goals. You can complete a financial check and financial plan yourself or do so with the help of a professional financial advisor.

Why Is an Annual Financial Checkup Important?

A financial health checkup can help you establish where you are with your money, where you’d like to be financially, and what steps you need to take to get there. Completing regular personal financial checkups can guide you to improve your financial health as you work toward your goals.

For instance, money checkups could help you to:

•   Get clarity around budgeting and expenses

•   Eliminate bad spending habits so you don’t overdraft your checking account

•   Set financial goals for the short-term and long-term

•   Instill a sense of financial discipline as you work toward those goals

•   Develop a habit of saving consistently

•   Create an actionable plan for paying off debt

•   Form a workable strategy for retirement savings

•   Fine-tune your investment goals

Taking those kinds of actions can get you on the path to living your personal definition of financial freedom. That might mean retiring early, for instance, or finding ways to create passive income so you can live a lifestyle that isn’t job-dependent.

Skipping regular financial checkups can make it more difficult to do those kinds of things and put your financial security in danger. Essentially, financial checkups are a key part of managing your money.

5 Steps to Conduct Your Financial Health Check

It may be a good idea to do a personal financial check at least once a year. For example, you might schedule it for the beginning of January. That way, you can review the previous year and set goals for the upcoming year. Quarterly checkups may be a better option if you’d like to get smaller snapshots of your finances throughout the year.

Whether you do your financial checkup yourself or hire an advisor is entirely up to you. An advisor can offer an extra set of eyes to review your finances but it’s important to know what you’ll pay for that help. The average financial advisor cost is around 1% of the assets they manage annually, but you might also be able to pay a flat or hourly fee. It’s worth doing some research to see what might be available.

Now that you’re ready to start your financial health checkup, here’s a simple step-by-step plan you can follow.

1. Calculate Your Net Worth and Financial Vital Signs

Getting some numbers down on paper can be a good way to start your financial checkup. Looking at certain metrics for the last 12 months can give you some perspective on where you are financially. Here are some of the most important measurements to take:

•   Your monthly income and expenses

•   How much you have saved for emergencies

•   What you’re carrying in total debt

•   Debt-to-income (DTI) ratio (i.e., how much of your income goes to debt repayment)

•   Your credit scores

•   How much you’ve invested for retirement

•   What percentage of your income you’re saving monthly

Along with looking at specific numbers, it can also be helpful to ask some basic questions to gauge your financial health. For example, you might ask yourself:

•   How many months did I stick to my budget vs. going over budget?

•   Have I bounced any checks or overdrafted my bank account this year?

•   Was I late paying any bills in the past 12 months?

•   Did I reach any savings goals or fall short of any goals?

•   Did my overall debt load increase or decrease?

•   How well did my investments perform?

The purpose of looking at numbers first and asking these kinds of questions is to establish your financial baseline. You can then move on to the next steps to take a deeper dive into your money situation.

2. Audit Your Budget and Cash Flow

Setting up a budget if you don’t have one can help you plan out your spending and sauvignon each month. The basic elements of a budget include:

•   Fixed expenses, such as housing

•   Variable expenses, which need to be paid monthly but their amounts may change (such as food costs)

•   Discretionary expenses or the “wants” in your budget

•   Income

•   Debt repayment

•   Savings

You might also include taxes as its own budget category if you’re self-employed. In this situation, you will need to set aside money regularly to pay estimated tax bills.

If you’re doing a financial checkup for the last 12 months, it can be helpful to look at what’s changed in your variable and discretionary expenses. For example, are you paying more for utilities than you were 12 months ago? Has your grocery bill increased? Is a bigger chunk of your budget going to things like hobbies, entertainment, or recreation?

Analyzing individual budget categories can help you pinpoint money leaks or areas where you might be able to cut back on spending. It’s also a good opportunity to review what you’re paying for things like cell phone service, internet, and car insurance to see if it’s worth switching to a cheaper provider.

3. Evaluate Your Emergency Fund and Savings Rates

An emergency fund is money that you save for unplanned or unexpected expenses. Emergency savings is meant to be separate from money you save for various short- and long-term financial goals.

If you have an emergency fund, check the balance to see how much cash you have on hand for rainy days. One popular rule of thumb dictates saving at least six months’ worth of expenses for emergencies, and up to 12 months’ worth, if possible. If your savings balance is below that amount, you might go back to your budget to see where you might be able to find extra money to set aside. You can even automate your savings so that money is transferred regularly to your emergency fund account

Also, consider where you’re keeping your emergency fund. Ideally, that money should be somewhere that’s easily accessible in case a true emergency comes along. But you might also be interested in earning a good interest rate in the meantime.

For example, if you’re keeping your emergency fund in a traditional savings account at a regular bank, you might consider switching to a high-yield savings account to get a higher rate. Exploring the options at different banks and online banks may help you find one with a competitive interest rate.

Recommended: Emergency Fund Calculator

4. Review Your Debt and Check Your Credit Score

Managing debt is a critical part of your financial checkup. High-interest debt like credit card debt can make it difficult to save for the future.

Start by reviewing the debt you have. This includes a mortgage, car loans, student loans, and credit card bills. Next, calculate your debt-to-income (DTI) ratio by adding up your total monthly debt payments by your gross monthly income. According to financial professionals, your DTI should be less than 36%.

If yours is higher than that, come up with a plan to pay it off. One debt payoff strategy is the avalanche method in which you put extra money toward your debt with the highest interest rate first, while continuing to pay the minimum on all your other debts. Once that debt is paid off, you direct your extra funds toward the debt with the next-highest rate, and so on. Another approach to paying down high-interest debt is debt consolidation, which combines debts into one new loan or credit line — ideally with a lower interest rate.

This is also a good time to check your credit and credit score, which can affect everything from loan approvals to the interest rates you qualify for. Many major banks and credit card companies list your credit score on your monthly statement; you’re also entitled to free weekly credit reports from AnnualCreditReport.com.

Recommended: Tips for Maintaining a Good Credit Score

5. Reassess Your Investment and Retirement Goals

Investing can be one key to building wealth over the long-term. It’s possible to invest through a tax-advantaged plan, such as a workplace 401(k) or an individual retirement account (IRA), or through a taxable brokerage account.

As part of your financial health check, it’s helpful to know:

•   Where your money is invested (i.e., taxable vs. tax-advantaged accounts)

•   How your portfolio is diversified through different asset allocations

•   How those assets have performed over the last year

•   What you’re paying in investment fees

•   How your risk tolerance or tax situation has changed over the past year

•   How much you have in retirement savings.

Reviewing those things can give you an idea of whether you’re on the right track with your investments. For example, if you’re 30 years old and want to retire at 50 with $1 million, but you only have $10,000 in a retirement account, that’s a sign that you’ve got work to do. Using online investment calculators and retirement calculators can help you to figure out how closely you’re keeping up with your goals.

Just remember that investing involves risk. A brokerage account is not covered by the Federal Deposit Insurance Corporation (FDIC) the way bank accounts are, and it’s possible to lose the principal amount invested. It’s wise to keep risk tolerance and one’s financial goals in mind when choosing investment vehicles and assets.

Bonus Step: Factor in Life Changes and Insurance Needs

Life changes can affect your financial plans in different ways. Losing a job, for instance, can shrink your income. Getting married might increase your household income if you’re both working. Having a child, changing jobs, moving, buying a home, and starting a business are other situations that can impact your financial outlook.

If you’ve been through any of these life changes in the past year, consider what that might mean for things like budgeting, saving, and expenses. It’s also important to review your tax situation.

Getting married, for instance, means a change to your tax filing status. Having a child can open the door for added tax breaks. And starting a new business can bring additional tax obligations, such as estimated quarterly tax payments. Those are all things that could increase your tax bill year to year. It’s therefore important to consider where they fit in during your financial checkup.

The Takeaway

A financial checkup is a smart way to keep tabs on your money and your financial health. It can provide an opportunity to make course corrections and can help with overcoming personal financial challenges. If you’re struggling with credit card debt, for example, then a periodic financial checkup can help you to figure out a strategy for paying down your balances while streamlining your expenses so you’re less reliant on plastic. It can also help highlight ways you are succeeding financially and inspire you to keep going.

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, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.10% APY on SoFi Checking and Savings.

FAQ

How often should you do a financial checkup?

Completing a financial checkup at least once a year can be a good way to see whether you’re on track with your goals and where you might be able to improve. If you’d like to check in with your money more often, you might schedule quarterly financial checkups instead.

What does financial wellness include?

Financial wellness means being able to manage your current money obligations with ease while also being able to look ahead to the future. Someone who has achieved financial wellness generally has stable income, a firm grip on their expenses, a dedicated savings habit, and little to no “bad” debt. Another component is looking forward and tracking well for future financial goals, like retirement.

What is the most important part of a financial checkup?

Analysing your budget and cash flow is one of the most important parts of a financial check up. By reviewing your monthly income vs. how much you spend each month, you can make sure you’re not spending more than you bring in. You can also identify potential expenses to trim or eliminate. This can help you free up more money to use to pay down debt and save for future financial goals.

Can a financial check up help improve my credit score?

While a financial checkup won’t directly impact your credit score, reviewing your credit score as part of the checkup process can show you where your score currently stands and the factors influencing it. Then you can take steps to build your credit if need be. Some ways to potentially do this include paying your bills on time and in full each month, and keeping your credit card balances low. Additionally, reviewing your credit report during a financial check is a way to spot any errors on your report so you can work to correct them.

What tools do I need to conduct a financial health check?

To conduct a financial health check you’ll need to gather your financial statements, such as paychecks, bank statements, bills, debts, and so on. After that, the tools you use can be as high- or low-tech as you like. You can use online calculators to add up your expenses, and also to calculate your debt-to-income ratio. You may want to use spreadsheets to track expenses as well as income or perhaps you prefer budgeting apps to track your spending in real time. Finally you can use your bank or credit card’s online portals to check your credit score, and you can get free copies of your credit reports at AnnualCreditReport.com.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

^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 5/28/26. 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 transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. 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 Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Investment Risk: Diversification can help reduce some investment risk, but cannot guarantee profit nor fully protect in a down market.

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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