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Budgeting is key to financial success, but with so many strategies available, it can feel overwhelming. One of the most powerful and simplest approaches is the pay-yourself-first method. This system turns traditional budgeting upside down by prioritizing saving and financial goals before addressing everyday expenses. Instead of saving what’s left over at the end of the month, you save first — and spend what’s left after.

If you tend to live paycheck to paycheck, adopting a pay-yourself-first mindset could help you break free from that cycle and start getting ahead. Whether you’re working toward building an emergency fund, saving for a house, or investing for retirement, this strategy can help you get there faster. Here’s a closer look at why this method works so well and how to put it into practice.

3 Reasons to Pay Yourself First

Before we get into what it means to pay yourself first, let’s explore why you might want to adopt the so-called “reverse budgeting” method.

1. To Save Consistently

One of the biggest advantages of the pay-yourself-first budget is that it creates a consistent saving habit. Many people intend to save whatever money remains at the end of the month, only to find that there isn’t much — or anything — left.

By paying yourself first, you’re removing the temptation to spend that money. It becomes a non-negotiable — just like your rent or electric bill. You commit to putting aside a set amount each month into a savings account or investment account, treating your future self as a priority. Over time, these small contributions can accumulate into a sizable savings or investment fund, providing financial stability and peace of mind.

2. To Prepare for the Future

Financial emergencies are almost inevitable. Whether it’s a car repair, medical bill, or trip to the vet, unplanned expenses can derail even the most careful budgets. Paying yourself first ensures you’re building a safety net before life throws a curveball.

Beyond emergencies, the pay-yourself-first strategy also helps you prepare for long-term goals. Whether you’re hoping to buy a home, travel, or fund a child’s education, prioritizing savings makes it easier to achieve big-picture plans without relying on debt. And while retirement may seem a long way off, the sooner you start saving, the more time your money has to grow through compound returns (when your returns start earning returns of their own).

3. To Stay Motivated

Budgeting can feel restrictive and discouraging, particularly when the main focus is on cutting expenses and limiting spending. Paying yourself first changes that mindset. Instead of seeing what you’re giving up, you see what you’re gaining — a growing savings account, a bigger retirement fund, and real progress toward your goals.

Each month that you pay yourself first is another step forward. That sense of progress can inspire you to stay on track, stick with your budget, and look for even more ways to improve your financial well-being.

How to Start Paying Yourself First

If the idea of paying yourself first sounds appealing, here’s a simple step-by-step guide to getting started.

1. Assess Your Income and Spending

Before you can determine how much to pay yourself, you’ll need to get a sense of your overall financial picture. You can do this by gathering up the last several months of financial statements and using them to calculate your average monthly income and average monthly spending. Next, you’ll want to categorize your monthly expenses and divide the list into essential spending (like housing, utilities, groceries, debt payments) and nonessential spending (dining out, entertainment, clothing).

Once you have a clear picture of your income and expenses, you can start identifying how much room there is to pay yourself first. Keep in mind that the goal here is to prioritize saving as if it were an essential bill.

2. Determine How Much to Pay Yourself

How much you should siphon into savings each month depends on your income, expenses, and goals. A good starting point is 10% to 20% of your take-home pay, but don’t be discouraged if that feels out of reach at first. Even saving 5% is better than nothing, and you can gradually increase the percentage as your financial situation improves.

To hone in the right amount to pay yourself, you’ll want to consider your short- and long-term financial goals, how soon you want to reach them, and how much you’ll need to save monthly to meet those goals.

If saving for multiple goals feels too overwhelming, it’s okay to prioritize. For example, If you don’t have a solid emergency fund, you might start there. Once that’s in place, you might bump up your 401(k) contributions and/or start saving for another goal like a downpayment on a home or car or your next vacation. The key is to start somewhere and commit to regular contributions.

3. Trim Unnecessary Expenses

If your current spending habits don’t leave much room for saving, you’ll need to find some places to cut back. The easiest way to find extra money is to look closely at your nonessential spending and consider what you can live without.
Some areas where people tend to overspend include:

•   Eating out or ordering takeout frequently

•   Subscriptions and streaming services

•   Unused gym memberships

•   Impulse purchases or retail therapy

•   Expensive cable or phone plans

Redirecting even $50 or $100 per month from nonessential spending into savings can make a big difference over time. Trimming the fat in your spending not only eliminates waste, but also helps you start spending with more intention, rather than making decisions impulsively or passively. Like other budgeting methods, the pay-yourself-first strategy helps ensure that your spending aligns with your values and goals.

4. Review Your Bank Accounts

To successfully pay yourself first, you need the right banking set-up. It’s a good idea to have multiple accounts to separate your savings from your everyday spending. This prevents the temptation to dip into savings for nonessential expenses.

At a minimum, you’ll want to have one checking account that doesn’t charge any monthly fees (bonus if it also earns some interest), along with at least one savings account that pays a competitive annual percentage yield (APY). To help grow your savings faster, you may want to open a high-yield savings account. These accounts offer significantly higher APYs compared to traditional savings accounts. You can often find the best rates at credit unions and online banks.

5. Automate Your Savings

Once you’ve decided how much to pay yourself each month and where to put those payments, automating your finances is key. By setting up automatic transfers from your checking account to your savings accounts, you eliminate the need to make a decision each month. It happens behind the scenes — just like a bill payment.

Consider setting your transfer to occur on the same day you receive your paycheck. This ensures the money is moved before you have a chance to spend it elsewhere. Alternatively, you might see if your employer will do a split direct deposit, where most of your paycheck goes into checking and a certain percentage goes directly into savings.

6. Review and Adjust Based on Your Goals

Life is constantly changing, and your personal budget should reflect that. It’s a good idea to periodically review your financial goals, income, and spending habits to make sure your savings strategy still aligns with your priorities. You might set a reminder in your calendar to review your budget every three to six months. You’ll also want to go over your budget whenever you experience a major life change (like a new job, move, or marriage).

Some questions to consider when doing a budget review:

•   Am I meeting my savings goals?

•   Can I afford to increase how much I pay myself?

•   Are there any expenses I can reduce or eliminate?

•   Have my financial goals changed?

Adjustments are normal and necessary. The key is to remain proactive and intentional with your money. As your income increases and/or debt decreases, look for opportunities to boost your savings rate and pay yourself even more.

The Takeaway

The pay-yourself-first strategy isn’t simply a budgeting method — it’s a shift in mindset that puts your financial well-being front and center. By prioritizing savings before spending, you can build a habit of consistency, prepare for the future, and stay motivated as you work toward your goals.

This approach to budgeting is also easy to implement. To get started, you simply need to assess your income and expenses, decide how much to pay yourself based on your financial goals, cut unnecessary expenses to free up savings, and automate your savings to stay consistent.

Remember that it’s fine to start small. The key is that you start — and stick with it. Over time, you’ll likely gain momentum and confidence, and those early efforts will pay off in the form of more financial flexibility and greater peace of mind.

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.

FAQ

Are there any disadvantages to paying yourself first?

While paying yourself first is a powerful savings strategy, it can present challenges if your income is irregular or your monthly expenses are high. Automatically transferring money into savings before covering essentials could cause cash flow issues, especially during emergencies or months with unexpected costs. Prioritizing savings without a flexible plan could also lead to relying on credit cards or loans to make ends meet. It’s important to balance saving with realistic budgeting to avoid financial strain.

What types of accounts are best for paying yourself first?

High-yield savings accounts, retirement accounts, and investment accounts are ideal for paying yourself first. High-yield savings accounts offer easy access and better interest rates than traditional accounts, making them ideal for short-term goals. Retirement accounts often provide tax advantages for long-term saving. For building wealth, automated investments in diversified portfolios can be beneficial. You’ll want to choose your accounts based on your goals, time horizon, and tolerance for risk.

How does paying yourself first help with financial stability?

Paying yourself first builds financial stability by prioritizing savings before spending. This habit ensures you’re consistently setting aside money for emergencies, future goals, and retirement, rather than relying on leftover funds. Over time, it can help you create a financial cushion that reduces stress, prepares you for unexpected expenses, and lessens the need for high-interest debt. This proactive approach also helps you build long-term financial security.

Can I still pay myself first if I have debt?

Yes, you can — and often should — pay yourself first even if you have debt. Building savings, even a small emergency fund, can prevent further debt when unexpected expenses arise. It’s about balance: You might prioritize high-interest debt repayment while also saving a small portion of your income. Over time, having savings can improve your financial flexibility, reduces reliance on credit, and can help you make faster progress toward becoming debt-free.

What are the biggest challenges of paying yourself first?

One of the biggest challenges of paying yourself first is sticking to the habit, especially when money feels tight or unexpected expenses arise. It can be tempting to skip saving in favor of immediate needs or wants. People with irregular incomes may also find it challenging to divert a set amount of money to savings each month. To overcome these hurdles, it’s a good idea to start small, automate your savings, and track your progress to stay committed and motivated.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

SOBNK-Q225-111

Living beyond your means can easily happen. Typically, it’s a case of your spending outstripping your earnings. This in turn means it’s hard to pay off debt and save for your financial goals.

Sound familiar? If you find yourself running out of money before the next payday, you could be leaving above your means.

Here, learn more about this issue and the warning signs. Then you can begin to take action and take control of your money.

What Does “Living Beyond Your Means” Mean?

Simply put, ”living above your means” means that you are spending more money than you are earning. People are able to do this by relying on credit cards, loans, and prior savings to cover their expenses. However, the process is not sustainable, and eventually overspending is likely to catch up to you.

Living beyond your means can also mean that you’re spending most or all of what comes into your checking account each month and, as a result, don’t have anything left over for saving or investing, such as building an emergency fund, saving for a short-term goal like buying a car or a home, or putting money away for retirement.

Here are ten red flags that you’re living a lifestyle you simply can’t afford — and tips for how to get back on track.

1. You Live Paycheck to Paycheck

One of the most obvious and common signs of living beyond your means is when there’s little to no money left after you pay your bills. If your paycheck disappears within days of receiving it, and you’re counting down the days until the next one, that’s a major warning sign.

Living paycheck to paycheck means you have no cushion for emergencies and would not be able to cover your living expenses if you were to lose your income. This puts you in a precarious situation, where any financial bump in the road could throw your entire financial life into disarray.

2. Your Credit Score Has Dropped

A declining credit score is often a silent but powerful indicator that you’re overspending. This drop can result from late payments, high credit utilization (the amount of credit you’re using compared to your total limit), or accumulating too much debt.

If you’re relying heavily on credit cards to cover basic living expenses — like groceries, gas, or other monthly bills — it likely means your spending has outpaced your income. Over time, this kind of borrowing not only hurts your score but also racks up interest charges that dig you deeper into the hole.

3. You’ve Stopped Your Retirement Contributions

If money is feeling a little tight, you may feel that now is not the time to worry about retirement. While this may seem like a short-term fix, it can significantly damage your long-term financial health.

Halting retirement contributions — even temporarily — means missing out on compound returns (when the returns you earn start earning returns of their own), employer matches, and overall portfolio growth. If you’re regularly suspending or avoiding savings altogether, it may indicate your current expenses are too high to support your financial goals.

4. A Big Portion of Your Income Goes to Housing

Housing is typically the largest monthly expense, but if your rent or monthly mortgage payment is above 30% of your monthly pre-tax income, you may be financially overextended.^[1] This can make it hard to have enough money leftover to cover other expenses, save, invest, and build wealth over time.

Staying below 30% can be difficult if you live in a region of the country where the cost of housing is high. Nevertheless, spending a lot more than a third of your income on housing can leave you “house poor,” and put your other financial obligations at risk.

5. Your Savings Account Isn’t Growing

If your savings balance has stayed flat — or worse declined — over the past few months, it’s a sign that your lifestyle is too costly. A lack of progress in savings makes it hard to handle unexpected events or set aside funds for the future.

Making regular deposits into a savings account, such as a high-yield savings account — in addition to your 401(k) or IRA — allows you to work towards your short- and medium-term financial goals, such as putting a downpayment on a home or a car or going on vacation.

6. You’ve Been Charged an Overdraft Fee More than Once This Year

An overdraft fee is charged when there’s not enough money in your account to cover a check or debit card payment. Overdrawing from your account often means the bank will lend you money to cover the overage. You’re then responsible for paying back that amount, as well as an overdraft fee, which can potentially be more than the overdrawn amount. (That said, there are some banks that offer no-fee overdraft protection.)

Mistakes happen, and a one-off overdraft isn’t necessarily an indicator of overspending. But repeat offenses can be a sign that you are living too close to the edge and don’t have a clear picture of how much money is going in and coming out of your account each month.

7. You’ve Never Set a Budget

A lack of budgeting can be a fundamental sign of living beyond your means. If you’ve never taken the time to outline your income, expenses, and saving goals, you may well be spending money in ways that aren’t sustainable.

Without a budget, it’s easy to underestimate your monthly expenses or overestimate what you can afford. You might think you’re managing fine but in reality you could be accruing debt, missing saving opportunities, or overspending in certain categories.

Many people think making and following a budget will be too complicated. But having a budget can actually simplify your spending decisions by letting you know exactly what you can and can’t afford. Having a budget also helps to ensure you have enough money to cover essentials, fun, and also sock some away in savings.

8. You’re Leasing a Car You Can’t Afford to Buy

Leasing a vehicle you would not be able to purchase outright or finance can be a major financial red flag. Leasing lets you rent a high-end lifestyle, but many people end up with leases they really can’t afford.

You might be covering your monthly auto payments, but if you can’t do that while meeting your other expenses and also putting money into savings, then your car is likely too expensive. Leasing also means you’re never building equity in a vehicle and may face additional costs for mileage or wear-and-tear penalties.

9. You’re Only Making Minimum Payments on Credit Cards

It’s fine to use your credit card to pay for everyday expenses and the occasional big purchase. But if you can’t pay off most of the balance each month, it’s a red flag that you’re living beyond your means.

While minimum payments keep your account in good standing and avoid late fees, most of the payment goes toward interest, which means they don’t address the underlying debt. Minimum payments are also designed to be small, so it takes much longer to pay off your balance, sometimes even years. This can trap you in a cycle of debt where you’re constantly paying off interest rather than reducing the principal, making it highly challenging to ever become debt-free.

10. You Don’t Have an Emergency Fund

Not having a stash of cash you can turn to in a pinch can be a sign that you’re living above your means. You may be gambling on the fact that nothing will go wrong. But life is unpredictable, and you could well get hit with an unexpected expense (like a major car repair or medical bill) at some point, or potentially lose your job.

Without savings to fall back on, you may be forced to rely on high-interest credit cards or loans, which can lead to debt that’s hard to repay. This financial strain can cause stress, damage your credit, and disrupt long-term goals like saving for retirement or buying a home. An emergency fund provides a buffer that protects your financial stability.

How to Live Below Your Means and Get Back on Track

Overspending can feel like a slippery slope — once you’re living above your means, it can be tough to stop the cycle. But financial recovery is entirely possible. The key is to learn how to live below your means and establish habits that promote long-term stability. Here’s how to get started:

1. Create a Realistic Budget

A solid budget is the foundation of any financial turnaround. Start by tracking all your income sources and listing every expense, from rent to streaming services. Categorize your spending into needs, wants, and goals/savings, then determine if you want to rejigger how much you are spending in each area.

One popular budgeting framework is the 50/30/20 rule. This divides your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment beyond the minimum. This set-up ensures that your essential expenses are covered while also allowing for some “fun” spending and future financial security.

Recommended: 50/30/20 Budget Calculator

2. Reduce Unnecessary Expenses

To find room in your budget for saving and paying more than the minimum on debts, you may need to cut back on nonessential spending. For example, you might free up funds by cooking more and eating out less, getting rid of streaming services you rarely watch, and/or quitting the gym and working out at home.

To cut back on impulse purchases, you might institute the 30-day rule: When you feel the urge to buy something you want but don’t need, commit to waiting 30 days before making the purchase. If after the waiting period, you decide you truly want the item and it aligns with your financial goals, go ahead and buy it. There’s a strong chance, however, that the urge to buy it will have passed.

3. Build an Emergency Fund

Living paycheck to paycheck leaves little room for error. An emergency fund is your financial safety net — it prevents one unexpected bill from becoming a crisis.

Financial advisors often recommend setting aside at least three to six months’ worth of living expenses for emergencies. But you don’t have to come up with that entire sum overnight. Begin with whatever amount you can afford, even if it’s just $10 a week. Consider setting up an automatic transfer to a separate savings account earmarked for emergencies so you’re not tempted to spend it. Or, if your bank offers it, you might dedicate a savings vault within your account for emergency savings.

This buffer provides peace of mind and helps you avoid falling into debt when life throws curveballs.

The Takeaway

Living above your means doesn’t always look like luxury vacations or designer clothes. Often, it’s more subtle: relying on credit cards, skipping savings, or struggling to cover basic expenses. The good news is that these warning signs are not life sentences — they’re signals that you can change course.

Learning how to live within your means involves awareness, building a budget, and making one smart money decision at a time. With consistent effort, you can shift from financial survival to financial security — and ultimately, financial freedom.

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.

FAQ

What are the long-term impacts of living beyond your means?

Living beyond your means can lead to chronic debt, poor credit, and financial instability. Over time, high-interest credit card balances and loans can become unmanageable, making it difficult to build savings or qualify for major purchases like a home. This behavior often leads to stress, strained relationships, and limited future financial opportunities. Without change, it can also delay or prevent retirement, forcing individuals to work longer or rely on others for support later in life.

What are the first steps to take if I’m overspending?

The first step is to track your spending for a full month to understand where your money is going. Then, categorize your expenses and identify areas where you can cut back, such as dining out, subscriptions, or impulse purchases. Creating a realistic budget is crucial — allocate funds for needs, savings, and limited wants. Set financial goals and consider using a budgeting app or cash envelopes to stay disciplined. If overspending is tied to emotional triggers, you might benefit from speaking with a financial counselor.

How can I start saving if I have no extra money?

Start by reviewing your expenses and identifying small, nonessential costs to reduce or eliminate — like daily coffee runs or streaming services. Even setting aside just $5 to $10 a week adds up over time. You might also want to automate your savings (so money is transferred to a savings account before you can spend it) and boost your income through side gigs or selling unused items. The key is to start small and build momentum through consistency and gradual lifestyle adjustments.

What percentage of my income should go toward housing?

Financial experts generally recommend spending no more than 30% of your gross monthly income on housing. This includes rent or mortgage payments, property taxes, insurance, and utilities. Staying within this limit helps ensure you have enough left over for other essential expenses like food, transportation, savings, and debt payments. In high-cost areas, it may be harder to stay under 30%, but exceeding it by too much can strain your finances and reduce your ability to build long-term wealth.

What helpful resources exist if I’m struggling financially?

There are many free and low-cost resources available. Nonprofit credit counseling agencies, like the National Foundation for Credit Counseling (NFCC), offer budgeting help and debt management plans. Local community organizations often provide food assistance, utility aid, and housing support. Government programs like SNAP, Medicaid, and unemployment benefits can also offer relief during tough times. In addition, financial literacy websites, public libraries, and budgeting apps offer tools and guidance to help you regain control of your finances.

Photo credit: iStock/urbazon

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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.

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SOBNK-Q225-108

Before the age of digital payments, traveler’s checks were considered one of the safest and most convenient ways to carry money while traveling, especially abroad. Though their popularity has waned with the rise of credit cards and mobile wallets, traveler’s checks do still exist and are issued by a limited number of banks and credit unions.

Whether you’re curious about their modern use or holding onto a few from a past trip, understanding traveler’s checks can help you make informed financial decisions on your next journey.

Traveler’s Checks Defined

Traveler’s checks are paper checks you can purchase at a bank or credit union then carry when you travel abroad in a place of cash. Unlike cash, however, travelers checks are secured by the issuing financial institution, which means that the issuer will replace the funds if the checks are lost or stolen at any point at home or abroad.

Issuers print checks in varying denominations, such as $10, $20, or $50, and they are available in a range of currencies. Depending on where you buy traveler’s checks, you may be charged a fee in the range of 1% to 3% of the total purchase amount.^[1]

You can use travelers checks just like cash to pay merchants for goods and services, as long as they accept traveler’s checks. Typically, any change due back to you will be given in local currency. You may also be able to get the checks converted into cash in the local currency at some banks, hotels, and currency exchange offices, though you may need to pay a fee.

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How Do Traveler’s Checks Work?

Traveler’s checks operate somewhat like regular checks but are pre-paid and come with built-in fraud protection. Here’s a step-by-step explanation of how they work:

Where Can I Get a Traveler’s Check?

While traveler’s checks still exist and people still use them, they are getting increasingly hard to come by. American Express — which issued traveler’s checks for over a century — no longer offers new checks (though they will honor previously issued checks). However, some financial services companies — including Visa —- still issue traveler’s checks, which are sold through various partner banks.

If you’re interested in buying traveler’s checks, you will likely need to contact several banks and credit unions to find one that still offers them.

💡 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.

Pros and Cons of Traveler’s Checks

Traveler’s checks offer a mix of benefits and drawbacks. For some, they are a nostalgic or extra-safe backup option. For others, they may seem outdated compared to more modern financial tools.

Pros of Traveler’s Checks

Cons of Traveler’s Checks

Do I Need Traveler’s Checks When Going Abroad?

Generally, no. Modern travelers often find credit cards, debit cards, and mobile wallets to be more convenient, widely accepted, and cost-effective. However, there are exceptions. You might consider traveler’s checks if:

Still, for the majority of travelers, modern financial tools usually make traveler’s checks unnecessary.

4 Alternatives to Traveler’s Checks

Traveler’s checks are no longer the only secure option for carrying money while abroad. Here are four modern, practical alternatives:

1. Prepaid Debit Card

A prepaid travel card is the modern-day version of a traveler’s check. You can load the card with a set amount of money from your bank account before you travel, then use it to get local currency, shop, dine, and more while you’re abroad.

Like traveler’s checks, prepaid cards are not linked to your bank account, which prevents anybody from draining your checking account if the card gets lost or stolen — and you can’t go into debt. On the downside, these cards limit you to a pre-set spending amount. And if you lose your card, there’s no way to get your money back.

2. Credit Card

Using a credit card is a convenient and secure way to pay for goods and services while you travel. These cards come with robust fraud protections that safeguard your money if your card gets stolen or lost while overseas. And many cards also offer spending rewards, such as points, miles, or cash back. However, there may be fees involved with using your card overseas, called foreign transaction fees.

And unless it’s an emergency, you’ll likely want to avoid using your credit card for getting cash at an ATM. When you request a cash advance from a credit card, you can get hit with a fee (often 3% to 5% of the advance amount), as well as interest, which can run as high as 29%. You may also pay an ATM fee of several dollars.

3. Debit Card

Another alternative to traveler’s checks is your debit card, which you can use to get local currency at ATMs and also to make purchases while traveling. Unlike a credit card, you’re spending your own money when you pay by debit card, so you can’t run up debt.

Like a credit card, however, you may get hit with a foreign transaction fee when you pay something overseas using your debit card. You may also have to pay out-of-network ATM fees every time you withdraw cash. However, some banks have partnerships with banks in other countries that allow travelers to make fee-free withdrawals. Before you travel, it’s a good idea to check to see if your bank has this kind of arrangement.

4. Mobile Wallet

Mobile wallets like Apple Pay, Google Pay, and Samsung Wallet are becoming more accepted around the world. You can link your credit and debit cards and pay directly from your phone without needing a physical wallet. This method of payment is not only convenient, it’s also highly secure, since digital wallets use encryption and tokenization to protect your data.

Just keep in mind that not all merchants accept mobile wallets, especially in rural areas, so you may not want to rely on this as your only payment option when you travel.

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

How to Keep Your Money Safe While Traveling

Regardless of your preferred payment method, keeping your money safe while traveling is essential. Here are a few tips:

Recommended: How to Keep Your Bank Account Safe Online

What Can I Do With Old Traveler’s Checks?

If you still have old traveler’s checks from past trips, don’t throw them away — they may still be redeemable. Here’s what you can do:

Keep in mind that in order to redeem old traveler’s checks, you’ll need to provide identification and possibly documentation proving you were the original purchaser.

The Takeaway

Traveler’s checks were once the gold standard of secure travel funds, but the rise of digital banking has made them largely obsolete. Still, they retain some usefulness as a secure backup for international travelers, especially in less developed regions or for those who prefer not to rely on digital methods.

For most modern travelers, credit cards, debit cards, prepaid cards, and mobile wallets offer more convenience, better exchange rates, and broad acceptance. However, understanding traveler’s checks — and knowing how to use or redeem them — can still come in handy.

Ultimately, the best approach is a balanced one: carry multiple forms of payment, stay aware of local customs and banking norms, and prioritize security. Whether you’re heading off the beaten path or to a major city, having a thoughtful plan for managing your money can make your travels smoother, safer, and more enjoyable.

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.

FAQ

How does a traveler’s check work?

A traveler’s check is a prepaid, fixed-amount paper check used as a secure alternative to cash while traveling. You purchase it from a financial institution, sign it when issued, and sign it again when spending it or cashing it, allowing merchants or banks to verify your identity. If lost or stolen, traveler’s checks can usually be replaced quickly. However, traveler’s checks are not as widely issued and accepted as they once were. They have largely been replaced by prepaid debit cards and credit cards.

Why are traveler’s checks not used anymore?

Traveler’s checks have largely fallen out of favor due to the convenience and widespread use of credit cards, debit cards, and digital wallets, which are accepted almost everywhere and offer strong fraud protection. ATMs are now globally accessible, making it easy to withdraw local currency as needed. Additionally, it’s hard to find banks that still issue traveler’s checks, and many merchants no longer accept them as payment.

Can you cash traveler’s checks?

Yes, you can still cash traveler’s checks, though it might take some effort. Some major banks will cash them for account holders, especially if they issued the checks. Some currency exchange offices and hotels may also accept them. You’ll need valid identification, and you’ll usually sign the check in front of the cashier. However, because these checks are less common now, it’s best to call ahead and confirm if a location will accept or cash them.

Do financial institutions still carry traveler’s checks?

Some financial institutions still offer traveler’s checks, but their availability is limited. American Express no longer issues travelers checks. However, Visa still offers them through participating banks. You may need to call around to find a bank in your area that offers these checks. Those that do may also require advance notice or only provide them to account holders. As the travel industry shifts toward digital and card-based payment methods, traveler’s checks are now less commonly sold or promoted.

What can I do with old traveler’s checks?

If you have old traveler’s checks, you can generally still cash or deposit them, as they typically don’t expire. Visit a bank — preferably one that issued the checks or one with international banking services — and present valid identification. You can also contact the issuing company (e.g., American Express) for assistance or to process a refund. You may be able to deposit them into your bank account (though check with your bank first). They retain their original value if unused.

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SOBNK-Q225-112

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

A gamma squeeze is a rapid stock price surge triggered by options hedging activity. Heavy call buying can force market makers to buy shares, which may push prices higher.

In general, a squeeze describes a situation where investors are pressured to make a move that they otherwise would not have made. In a short squeeze, short sellers are forced to buy shares to cover their short positions when prices rise, which can further drive up the price of the shares. In contrast, a gamma squeeze involves call option activity that triggers market makers to hedge their position, which can drive prices up. This feedback loop is distinct from short sellers covering losses.

This article digs into what a gamma squeeze is, what it has to do with options trading, and what it means for investors.

Overview of Options Trading

Here’s a quick recap of how options trading works. Options can be bought and sold, just like stocks. In short, they’re contracts that give purchasers the right (but not the obligation) to buy or sell an asset — i.e., the option to transact.

Options can be used to speculate on price changes. For example, if an options trader thinks the price of a stock is going to increase, they can purchase an options contract to put themselves in a position to profit if their prediction were to come true.

There are two basic types of options: call and put options. A call gives purchasers the right to buy an asset at a certain time or price, whereas a put gives them the right to sell it. Buying these types of options allows them to effectively bet on a stock, without outright owning it. Purchasers typically pay a “premium,” or the price of the contract.

Generally, if an investor thinks a stock’s price will increase, they buy calls. If they think it will decrease, they buy puts.

Recommended: Options Trading Terminology

Gamma Squeeze Definition

A gamma squeeze has to do with buying call options. Remember, purchasers buy calls when they think the price of a stock is going to increase. And as the price of that stock increases, so does the value of the call option. Now, when a stock’s price starts to increase, that can lead to more investors buying calls.

But on the other side of those calls are the traders or institutions that sold them — remember that options are a contract between two parties, so for an investor betting on a stock price’s increase, there’s another that’s betting that it’ll fall. They’re taking a “short” position, in other words.

“Market makers” — trading firms that sell call options — are typically the party on the other side of the trade. They’re essentially “short” those call options that investors in the market are buying. These market makers face a good amount of risk if the price of the underlying stock rises, so they typically will buy some shares of the stock to hedge some of that risk, which can help balance their overall exposure.Buying the shares also helps to ensure that they will be able to deliver the stock if they become “due,” or the investor exercises their call options.

However, if investors keep buying more and more calls, and the stock’s price increases, market makers need to buy more and more stock — increasing its price even further, and thus, creating a “squeeze.” The gains in share value increase market makers’ risk exposure, prompting additional hedging.

Part of this is also because the stock’s gains bring the options closer to the prices at which calls can be exercised.

Basically, the short positions held by some investors may allow a gamma squeeze to happen. And if a stock’s price rises instead of falls, the shorters’ need to start buying the stock, further increasing its price, creating the feedback loop mentioned earlier.

Recommended: Shorting a Stock Explained

What’s Gamma in Options?

Okay, so you may have a grasp on how a gamma squeeze can occur. But we still need to talk about what gamma is, and how it fits into the picture.

Gamma is actually just one of a handful of Greek letters (gamma, delta, theta, and vega) that options traders use to refer to their positions. In a nutshell, the Greeks help traders determine if they’re in a good position or not.

For now, we’ll just focus on delta and gamma. Gamma is actually determined by delta. Delta measures the change of an option’s price relative to the change in the underlying stock’s price. For instance, a delta of 0.3 would mean that the option’s price would go up $0.30 for every $1 increase in the underlying stock’s price.

Gamma measures the rate at which delta changes based on a stock price’s change. It’s sort of a delta of deltas. In other words, gamma can tell you how much an option’s delta will change when the underlying stock’s price changes. Another way to think of it: If an option is a car, its delta is its speed. Gamma, then, is its rate of acceleration.

When a gamma squeeze occurs, delta and gamma on options fluctuate, which may contribute to stock volatility and pressure certain market participants.

The Takeaway

When investors are making bullish bets on a stock, sometimes they use call options — contracts that allow them to buy a stock at a certain date in the future.

When brokers or market makers sell those call options to the investors, they buy shares of the underlying stock itself in order to try to offset the risk they’re exposing themselves to. This also helps them ensure they can deliver the shares if the options get exercised by the investor holding the call options.

Gamma squeezes may occur when market makers rapidly buy shares, contributing to a sudden increase in stock prices.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

FAQ

What happens during a gamma squeeze?

During a gamma squeeze, rapid buying of call options leads market makers to hedge their risk by buying the underlying stock. This buying activity can push the stock price higher, which may trigger further call option activity. This may create a feedback loop that drives additional volatility, accelerating a rise in price.

How long does a gamma squeeze last?

There is no set timeframe. A gamma squeeze can unfold over hours or days, depending on factors such as investor sentiment, trading volume, and how quickly market makers adjust their hedging strategies. They often end once demand for options eases or the stock stabilizes.

Is a gamma squeeze good?

It depends. For some investors, a gamma squeeze may present short-term opportunities if they’re positioned correctly. Volatility can also expose traders to significant risk, especially if prices move sharply in either direction without warning.

Has a gamma squeeze ever happened?

Yes. Several gamma squeezes have occurred, often tied to stocks with heavy options trading and high short interest. In certain cases, option activity has prompted market makers to rapidly buy shares to manage risk, which contributed to sharp price increases.