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You may hit one of those life moments where you need a bundle of cash and fast. Maybe you have been hit with a major car repair bill, you want to attend a destination wedding, or you’re motivated to pay off your student loans ASAP.

Whatever the situation, there are smart strategies that will help you accrue that money as quickly as possible. Tactics like trimming your expenses, selling your unwanted stuff, and bundling your insurance can help you meet a savings goal at top speed.

In this guide, you’ll learn those techniques and more to help you finance whatever is most urgent on your financial to-do list.

How to Save Money Fast 10 Ways

One person’s goal for saving money quickly might be, “I need $500 by the end of the week.” For another, it could be, “I’m going to stash away $10,000 within the next year.” Wherever you may fall in terms of your short-term financial goals, these 10 tactics will help you save money daily and achieve your aspiration.

1. Getting Rid of Unnecessary Expenses

In an age of automated billings and subscriptions, it is easy to lose track of what exactly you’re paying for each month. It is entirely possible that you’re paying for something you’re not even using.

In order to pinpoint any potentially unwanted expenses, review a month’s worth of auto debits from your bank account. You may find that you’re paying $5 a month for a digital magazine you no longer read or that you could save on streaming services by dropping one or two you don’t watch but are paying $15 a month for.

Once you’ve canceled, you could reroute the money you would have spent directly into your savings account. While $20 or $30 a month saved on subscriptions might not seem like much, even small amounts can quickly add up over time. In combination with other savings techniques, this might help you build your savings fast.

2. Negotiating and Automating Your Bill Payments

Did you know that some companies offer discounts when you set up automatic bill payments, or autopay? This means connecting a bill directly to your bank account and allowing the company to automatically withdraw the amount of the bill on the due date.

Some companies offer a discount in these situations because automatically debiting your account gives the company assurance that the bill will be paid on time. The bonus for you is double: You might get a little discount on your bills, and you won’t have to remember to manually pay the bill each month.

Autopay might also help you avoid unexpected late fees, which in turn could help you build up savings faster. There might be some downsides to autopay, however. If you set up an autopay agreement but then don’t have enough money in your account to cover the charge, you might end up with a canceled subscription or overdraft or NSF fees from your bank.

3. Carefully Considering Big Decisions

Yes, it’s hard to save money, but learning to be mindful about your purchases can help. Instead of buying something as soon as you want it, you might want to sleep on it overnight and see if you still want it the next morning. Giving yourself more time before pulling out your credit card could help you determine if you really need the item or if you were just caught up in the excitement of shopping.

This can be especially useful when making big purchases because they might require more research anyway. For example, if you’re buying a couch and you fall in love with a sectional sofa, waiting overnight might give you a chance to read reviews, double-check the measurements of your space, and look to see if there are similar styles available online that might cost less.

Some people wait longer still. They use the 30-day rule, which involves writing a note in your calendar for 30 days after you see the item you want. If you still are determined to buy it when the calendar alert pops up, then you can probably feel confident that it isn’t an impulse buy and go for it.

By delaying purchases this way, you may be able to avoid compulsive shopping and save funds, which can go towards your savings goal.

4. Considering a Spending “Fast”

Ready to learn another way to save money quickly? Some savers find that they can save money fast with a challenge: They plan a day or two every week where they eliminate all unnecessary spending. That’s what’s called a “fast”: You avoid spending money, similar to the way a dietary fast means you eat nothing.

For example, if you decide to do a two-day spending fast, you might decide that on Tuesdays and Wednesdays you don’t spend any money other than what it costs to commute to work. That means that on those days, you might choose to forgo your daily pitstop at the coffee shop, a lunch from the salad place (you’d bring food from home), or ordering the brand new book you’ve been waiting to read.

Planning to not spend could help you reign in unintentional spending. Chances are that you barely think about that $4 you spend at the coffee shop, but if you give it up twice a week, that’s $8 that could be going into your savings.

If you save an average of $40 a week with a two-day fast, that could add more than $2,000 to your savings in a year.

5. Putting Your Accounts to Work

Choosing the right account for your money can be a great way to save funds fast. Some checking accounts charge monthly or annual account maintenance fees, with little to no interest.

Savings accounts might offer higher interest rates than a checking account, but the reality is that the average interest rates on a standard savings account can still be very low. Instead, you might shop around for a no-fee, high-interest account to make your money work harder for you. These kinds of accounts are often found at online vs. traditional banks.

If you currently have, say, $5,000 sitting in a checking account, earning no interest, if you were to put it in a savings account at 4.50% interest compounded daily, you’d have an extra $230.12 a year later, with no effort on your part.

6. Bundling Your Insurance

Insurance can be one of those “set it and forget it” expenses. You might buy a policy and then never really focus on the cost of the premium again.

Many insurers, however, will reduce your rate if you give them more of your business. Typically, this means having your auto and home insurance with the same company. You might be able to save a chunk of change and put it towards your savings goal.

It can also be wise to review your insurance annually. You might be paying for coverage you don’t really need.

7. Starting a Side Hustle

Sure, cutting back on your spending is one way to save money fast. But so is bringing in more cash. Many people find starting a side hustle is a good way to bring in more income. This could mean anything from selling your nature photography on Etsy or providing social media services to a local business or two.

While one of the key benefits of a side hustle is the money it can bring in, you also might find it personally rewarding and even an entry to a new full-time career.

8. Saving on Essentials

Looking for another idea for how to save money fast? There’s no doubt that many things you spend money on are necessities. Food, personal-care items, and gas for your car. But there are plenty of ways you can trim those costs.

•   To save on food, you could do some meal-planning so you can more efficiently manage your grocery budget. Using up what you buy vs. wasting food can help you save a bundle towards your goals.

•   You could get a gas card to save at the pump. There are also plenty of apps that point you towards the cheapest gas stations in your area.

•   Joining a warehouse or wholesale club can help you save on your typical purchases. If you find the quantities too large (say, a 12-pack of shampoo), partner up with a friend of two to share the wealth.

9. Selling Your Stuff

If you’re trying to save money fast, you might be able to “find” a pile of cash by selling your used items that you no longer need. This could mean anything from selling gently worn clothes online (say, on Poshmark or thredUP) or IRL (at Buffalo Exchange perhaps); putting functional electronics up for sale on eBay; or offering items on places like Nextdoor or Facebook Marketplace.

Just be cautious as there are scammers who try to prey on direct sellers.

10. Checking Your Tax Withholding

Here’s another idea for accumulating money quickly: Double-check your tax withholding. If you get a sizable tax refund every year, you may feel as if you are getting “free money.” Not at all! That’s actually your hard-earned money that you overpaid to the government and are now getting back. It could have been earning interest in the bank rather than being whisked out of your paycheck.

If you typically receive a refund, tweak your withholding, and then put the additional money that stays in your paycheck into your savings.

Is Saving Money Fast Realistic?

Saving money fast can be realistic, as long as you keep in mind your income and the fact that most financial experts say to save 20% of that figure. That’s one of the principals of the popular 50/30/20 budget rule. Fifty percent of your money goes towards essential spending, 30% goes to discretionary expenses, and 20% gets socked away as savings.

So, if you earn $100,000 a year and have an important goal in mind, such as the down payment for a house, you might be able to stash $20K in a single year. That might involve pausing your retirement savings for a year as you go all-in on accumulating as much cash as possible for a home purchase.

Also, if you are able to bring in more income (whether by selling your stuff, starting a side hustle, or via passive income ideas), that can accelerate your savings as well.

Keeping Your Savings Safe With SoFi

Whichever strategies (or combination of tactics) you try, it’s important to find the right banking partner where your money can grow. You’ll likely want a financial institution with Federal Deposit Insurance Corporation coverage, low or no fees, and a healthy interest rate.

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

Better banking is here with up to 4.50% APY on SoFi Checking and Savings.

FAQ

How can I save $1,000 fast?

To save $1,000 fast, you can try a combination of such techniques as trimming subscriptions, essential, and discretionary spending; bundling insurance to cut costs; selling your unwanted items; and/or using the 30-day rule.

How to save up $10,000 in 3 months?

To save $10,000 in three months, you need to save $3,333 after-tax dollars per month. Your income and expenses will influence how doable this is. Some ways to save this amount include going on a spending fast (meaning you eliminate all possible discretionary spending) and starting a side hustle to bring in more money.

How to save $5,000 ASAP?

To save $5,000 ASAP, you can try cutting your expenses, avoiding big purchases, making sure your money is earning a good interest rate, and bringing in more cash via a side hustle.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

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

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

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

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

Determining How Much to Spend on a Car

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

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

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

The 10% Rule

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

The 36% Rule

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

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

The 20/4/10 Rule

This is a multi-part rule.

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

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

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

The 50/30/20 Rule

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

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

Finding a Car You Can Afford

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

What Are You Going to Use the Car for?

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

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

Doing Your Research

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

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

Will You Buy Used or New?

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

Test Driving a Few Options

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

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

Being Prepared to Walk Away

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

Recommended: Budgeting for Beginners

Saving For Your New Car

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

Better banking is here with up to 4.50% APY on SoFi Checking and Savings.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

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

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

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

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

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

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

Emergency Fund Ratio

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

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

Formula: Monthly Expenses X 6 = Emergency Fund Ratio

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

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

Liquid Net Worth Ratio

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

Formula: Liquid Assets/Monthly Expenses = Liquidity Ratio

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

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

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

Personal Cash Flow Ratio

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

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

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

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

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

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

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

Housing-to-Income Ratio

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

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

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

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

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

Debt-to-Income Ratio

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

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

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

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

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

Net Worth Ratio

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

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

Formula: Total assets – Total Liabilities = Net Worth Ratio

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

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

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

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

Savings Ratio

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

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

Formula: Savings/Gross Income = Savings Ratio

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

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

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

50/30/20 Budget Ratio

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

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

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

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

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

The Takeaway

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

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

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

Better banking is here with up to 4.50% APY on SoFi Checking and Savings.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

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

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Building a budget can pay off quite literally: It provides guidelines for your money and helps you wrangle your spending and saving to achieve financial health. With smart planning, you can make your cash work harder for you and grow.

Many people think that a budget is all about deprivation, but it’s really about organization. A key step in developing a good budget is knowing how to categorize both your spending and saving. That can help you get a handle on where your money is going and how to make the most of it.

In this guide, you’ll learn how to divide your expenses into three main categories (namely, needs, wants, and savings), and then further separate things into smaller groups. This can help you truly understand your spending habits and optimize your finances.

Whether you’re just starting out on your independent financial life or if you’re looking to tweak your existing budget, this advice can help you better manage your budget categories and direct your spending goals.

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

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

The plan recommends making a budget by breaking your after-tax (or take-home) income into needs, wants and savings. Here’s how these categories are allocated:

•   50% of your earnings to needs

•   30% to wants

•   20% to savings

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

9 Budget Categories for Needs

Of course, you probably are wondering what actually constitutes budgeting categories. First, focus on the needs of life.

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

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

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

The percentages, however, are just guidelines. Because the cost of living in different states varies across the country, you may need to adjust your budget according to where you live.

1. Housing

Whether you pay rent or have a home mortgage, paying to keep a roof over your head is definitely a need. In addition, you may have property taxes to pay if you are a homeowner, and home maintenance costs can be part of this category for renters and owners alike.

2. Utilities

Depending on your living situation, you might pay for electricity, WiFi, heating fuel, telephone service, water, sanitation services, and other necessities.

3. Insurance

Having car, health, life, homeowners or renters insurance and possibly pet insurance can be important. You don’t want to wing it with this kind of protection (and auto insurance is required).

4. Groceries and Personal Care Items

Of course, you need food and toiletries as part of daily living. So the food you purchase to make meals and items like toothpaste go into your budget as “needs.” However, buying that $7 pack of cookies or $40 hair conditioner? Those might be better deemed “wants.”

5. Transportation

Car ownership expenses, public transportation, and the occasional Uber to get to urgent care can all be considered necessities.

6. Clothing

Yes, you need a warm winter coat if you live in the climates that get chilly, plus boots. And you need basic garments to wear to work and on your off-hours. However, if you buy a cool jacket because you love it or yet another pair of cute shoes since they are on sale, those are not vital to your survival and should go in the “wants” category.

7. Debt

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

8. Parenting Expenses

Child care, as well as child support or alimony payments, go into the “must” bucket of your budget. Those are not discretionary expenses.

9. Healthcare

Depending on your insurance coverage, you may have expenses related to staying well, such as copays, prescription costs, and the like. Treating yourself to a massage that isn’t medically required? That’s not a “need” but a “want.”

Recommended: Budgeting for Beginners

6 Spending Categories for Wants

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

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

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

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

1. Clothing and Personal Care

Treated yourself to a new but unnecessary shirt as part of a little retail therapy? Took yourself to the spa for a day? Or bought yourself a fancy watch since you got a promotion? Those are all wants. They aren’t necessarily bad things, but be clear that they are not vital to your survival.

2. Dining Out and Drinking

It’s part of life to meet friends and loved ones for happy hour or a nice meal, or to get a bubble tea while running errands on the weekend. Or maybe you don’t feel inspired to cook so you order some Pad Thai for pickup or delivery. These are all discretionary food expenses vs. those that are vital to your survival.

3. Entertainment

While entertainment can definitely enrich your life, it goes into the “wants” category. This includes things like concert, play, and movie tickets; books and magazines; cable and streaming services; downloading music; and attending festivals and fairs.

4. Gym Memberships, Self-care, and Grooming

You could just workout for free at home while watching a Youtube video, so health club memberships, yoga or Pilates classes are “wants.” Same goes with self-care and grooming: Facials, manicures, and the like are considered discretionary. That $50 hair conditioner you can’t live without? That isn’t a “need” either.

5. Travel Expenses

If you are traveling for business purposes to pitch a new account, that’s more of a “need,” but otherwise, a getaway is a “want.” So tally up any airfare, rental car costs, hotel or Airbnb, food, and tour/attraction tickets, and consider them “wants.”

6. Home Decor

If your mattress bites the dust and you replace it, that is a “need,” but deciding to buy a new couch because your home could use a spruce-up is a “want.”

Categorizing Your Savings

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

Here are specifics.

1. Emergency Fund

Financial experts recommend having three to six months’ worth of basic living expenses socked away in case of emergency. This could mean job loss or receiving an unexpected and major medical or car repair bill. You don’t want to have to resort to using your credit card for such things.

2. Retirement Savings

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

3. Other Short- and Long-Term Savings

You’ll also probably want to fund non-retirement savings goals, such as saving for a summer vacation or the down payment on a house. It can be a good idea to open a separate savings account, ideally where you can earn higher interest than a standard savings account, such as a money market fund, online savings account, or a checking and savings account.

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

4. Additional Debt Payments

If you can pay more than the minimum on your credit card bill or make extra payments on your loans, that can decrease what you are spending on interest. That in turn can help increase your overall financial health and wealth.

Why Categorizing Your Budget Is Important

Categorizing your budget is important because it can give you a much better sense of where your money goes versus just paying whatever bills turn up.

•   When you see how much cash goes towards the different kinds of “needs,” “wants,” and savings, you can better manage your cash. Tracking your spending can bring greater financial insight.

•   Also, as you categorize and tally your spending, you may see that much more than 30% of your take-home pay is going to ”wants.” That could convince you to recalibrate and cut back.

•   Or you might notice that you are spending way more than 50% on “needs.” This can happen when you are just starting out in your career or if you live somewhere with a high cost of living. Again, you might look to lower costs.

Finalizing Your Budget Categories and Getting Started

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

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

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

If your “musts” are eating up more than 50%, perhaps you want to consider moving to a less expensive home or taking in a roommate. Another option could be to start a side hustle to bring in more income or train up for a higher-paying line of work.

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

The Takeaway

Putting expenses into categories and coming up with a spending plan can bring significant benefits. These include being able to pay off debt, saving up for short-term goals (such as an emergency fund, a vacation, or a down payment on a home), and funding your retirement.

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

Need some help keeping track of spending? Many financial institutions offer tools that can help you see where your money is going and make the most of your savings.

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

Better banking is here with up to 4.50% APY on SoFi Checking and Savings.

FAQ

What are the 4 main categories in a budget?

There are different ways to categorize a budget, but commonly, people focus on their take-home pay, their spending on their “wants,” their “needs,” and how much they save.

What categories should you have in a budget?

When building a budget, it’s important to know how much income you have after taxes, what are the expenses that are necessary for your survival, what is your usual discretionary spending (which some people call the “fun stuff” in life), and how much are you saving. Within the last three buckets, you can subdivide into more specific categories.

How do you organize a budget?

One good budgeting technique is the 50/30/20 budget rule. This principle says that 50% of your take-home pay should go towards necessities, 30% to discretionary spending, and the remaining 20% should be saved.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

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

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

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If you are hitched or have a significant other, you may wonder if a joint bank account is the right move or if you should keep your finances separate.

When you open a joint checking account, it can make it easier for the two of you to budget, spend, and save, especially if you are splitting household expenses. However, doing so also means you have less privacy financially speaking and you may not be comfortable with this level of transparency.

If you are mulling over this decision, read on to learn the pros and the cons of opening a joint bank account, as well as the steps required to open a joint bank account. In addition, you’ll find out about options to a shared bank account which may suit your needs.

How Does a Joint Account Work?

A joint account functions just like an individual account, except that more than one person has access to it.

Everyone named on a joint account has the power to manage it, which includes everything from deposits to withdrawals.
Any account holder can also close the account at any time. And, all owners of a joint account are jointly liable for any debts incurred in relation to the account.

Two or more people can own a joint account. They don’t have to be a married couple or even live at the same address to combine bank accounts.

You can open a joint account with an aging parent who needs assistance with paying bills and managing their money. You can also open a joint account with a teenage child, friend, roommate, sibling, or business partner.

Benefits of Having a Joint Bank Account

Here are some of the pros of opening a joint account.

•  Ease of paying bills. When you’re sharing expenses, such as rent/mortgage payments, utilities, insurance and streaming services, it can be a lot simpler to write one check (or make one online payment), rather than splitting bills between two bank accounts. A shared account can simplify and streamline your financial life.

•  Transparency. With a joint checking account, there can’t be any secrets about what’s coming in and in and what’s going out, since you both have access to your online account. This can help a newly married couple understand each other’s spending habits and talk more openly about money.

•  A sense of togetherness. Opening a joint bank account signals trust and a sense of being on the same team. Instead of “your money” and “my money,” it’s “our money.”

•  Easier budgeting. When all household and entertainment expenses are coming out of the same account, it can be much easier to keep track of spending and stick to a monthly budget. A joint account can help give a couple a clear financial picture.

•  Banking perks. Your combined resources might allow you to open an account where a certain minimum balance is required to keep it free from fees. Or, you might get a higher interest rate or other rewards by pooling your funds. Also, in a joint bank account, each account holder is insured by the Federal Deposit Insurance Corporation (FDIC), which means the total insurance on the account is higher than it is in an individual account.

•  Fewer legal hoops. Equal access to the account can come in handy during illness or another type of crisis. If one account holder gets sick, for example, the other can access funds and pay medical and other bills. If one partner passes away, the other partner will retain access to the funds in a joint account without having to deal with a complicated legal process.

Challenges of Having a Joint Bank Account

Despite the myriad advantages of opening a joint account, there are some potential downsides to a shared account, which include:

•  Lack of privacy. Since both account holders can see everything that goes in and comes out of the account, your partner will know exactly what you’re earning and how much you are spending each month.

•  Potential for arguments. While a joint account can prevent arguments by making it easier to keep track of bills and spending, there is also the potential for it to lead to disagreements if one partner has a very different spending style than the other.

•  No individual protection. As joint owners of the account, you are both responsible for everything that happens. So if your partner overdraws the account, you will both be on the hook for paying back that debt and covering any fees that are charged as a result. If one account holder lets debts go unpaid, creditors can, in some cases, go after money in the joint account.

•  It can complicate a break-up. If you and your partner end up parting ways, you’ll have the added stress of deciding how to divide up the bank account. Each account owner has the right to withdraw money and close the account without the consent of the other.

•  Reduced benefits eligibility. If you open a joint account with a college student, the joint funds will count towards their assets, possibly reducing their eligibility for financial aid. The same goes for an elderly co-owner who may rely on Medicaid long-term care.

How to Open a Joint Bank Account

If you decide opening a joint account makes sense for your situation, the process is similar to opening an individual account. You can check your bank’s website to find out if you need to go in person, call, or just fill out forms online to start your joint account.

Typically, you have the option to open any kind of account as a joint account, except you’ll select “joint account” when you fill out your application or, after you fill in one person’s information, you can choose to add a co-applicant.

Whether you open your joint account online or in person, you’ll likely both need to provide the bank with personal information, including address, date of birth, and social security numbers, and also provide photo identification. You may also need information for the accounts you plan to use to fund your new account.

Another way to open a joint account is to add one partner to the other partner’s existing account. In this case, you’ll only need personal information for the partner being added.

Before signing on the dotted line, it can be a good idea to make sure you and the co-owner know the terms of the joint account. You will also need to make decisions together about how you want this account set up, managed, and monitored.

Alternatives to a Joint Bank Account

If you’re not keen on opening a joint bank account, but do need some type of money management system, here are some alternatives you may want to consider.

•  Adding an authorized user to an existing individual bank account. An authorized user has access to the account, but they’re not an owner. You still have full control, which means you can remove them from the account at any time.

•  Joint bank account, plus separate accounts. This allows couples to streamline payment for shared expenses, but also gives each partner some freedom to spend on themselves without having to explain or feel guilty about their expenditures.

•  View-only account. A view-only account gives another person the opportunity to view transactions, but they don’t have the power to manage the account.

•  Joint credit card. A joint credit card allows both you and your partner to use it. If your partner isn’t responsible with the card, however, it can affect both of your credit scores.

The Takeaway

One of the main pros of opening a joint checking account as a couple is that it can simplify paying for shared expenses. Having a joint account can also provide a couple with a clear financial picture, and make it easier for them to track spending and stick to a budget. A joint account also fosters openness and teamwork.

On the downside, sharing every penny can sometimes lead to tension and disagreements, especially if partners have different spending habits and personalities. And, if your partner isn’t responsible with money, you can end up paying for their mistakes.

If you decide to open a joint account, communication can be key. It can be a good idea to lay out expectations with the other account holder and also have regular open and honest discussions about money.

Looking for Something Different?

For couples who are ready to integrate their finances, SoFi makes it easy to create a joint account that gives couples shared access to their money.

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

Better banking is here with up to 4.50% APY on SoFi Checking and Savings.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

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

This article is not intended to be legal advice. Please consult an attorney for advice.

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