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If you want to build financial security and hit your long-term savings goals, it’s probably a wise move to put a portion of each paycheck into a savings account.

Week by week, month by month, and year by year, the money will grow and help you afford your dreams, whether that means buying a house, funding your kids’ education, or having enough cash to retire early. Or all of the above.

But it can be challenging to know how much to stash away. Some people save 10% of their take-home pay, others three or four times that. Still others deposit a round number (be it $50, $500, or $5,000), into their savings account on a regular basis.

So how much should you aim to save? That depends upon a variety of factors, including your personal style and financial aspirations. In this guide, you’ll learn how to use percentages to your advantage when it comes to saving, plus hear smart advice on how to prioritize and reach your goals.

What Percent of Your Income Should You Save?

There isn’t a set percentage of how much of your annual income you should save. Much will depend on your particular circumstances. For example, your income, your cost of living, your expenses, and your debt level will all matter. A person who earns $75K per year, lives in an expensive city, has student loans to pay off, and is supporting a family of four will likely find it more difficult to save money than someone who is earning $125K, lives in a less pricey location, has zero loans to pay down, and is single with no dependents.

That said, you are likely to hear that 20% is a good number to aim for in terms of the percentage of your income to be saved. If that proves too high, then 10% is a good figure to use as a goal.

Pros and Cons of Saving a Fixed Percentage of Your Income

Sure, saving money is important. But what about saving a percentage vs. a specific dollar amount?

There are pluses and minuses to saving a fixed percentage of your income. This approach may or may not work for everyone. Consider the upsides first:

•   It’s consistent. You know that every paycheck, the percentage you’ve indicated will be heading into savings, helping you reach your financial goals. Even if your earnings vary, your savings will be aligned.

•   It protects you against lifestyle creep. If, say, you are saving $500 per pay period and then get a raise, you might just spend all of that additional cash you are earning. Called lifestyle creep, that means your expenses rise, gobbling up your enhanced income.

When, however, you set a percentage to go into savings, you know that the amount will automatically adjust with any income fluctuations. For instance, if your pay varies depending on your hours or goals achieved, you will always be allocating the same ratio of your money to savings, whether you earn more or less.

But there are potential downsides to consider too.

•   When you determine a percentage of income to save, it may feel more challenging to know how much you’re socking away. Again, if you allocate $500 a month to savings rather than a percentage, it’s easy to calculate where you stand at any moment during the year.

•   The way a percentage automatically adjusts to income changes may not suit you. For example, if you are saving 20% of your salary and then get a $10K raise, the amount funneled into savings will rise correspondingly. But what if you wanted to earmark that money to pay down your credit card debt more quickly? You will have to take steps to adjust where your money goes.

The 50/30/20 Rule

If you’re wondering, “What percent of my income should I save?” the 20% figure is likely to crop up often. One reason: the 50/30/20 budgeting plan, which was made popular by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi, in a book they co-wrote. It suggests savers should allocate their money as follows:

•   50% of their after-tax paychecks toward essentials like housing, food, healthcare, and minimum debt payments.

•   30% toward discretionary spending

•   20% toward savings

So, someone who takes home $3,000 every two weeks (or $78k per year) might put $1,200 a month into savings. They would have $15,600 at the end of the year.

That’s just a guideline for getting started, though, so don’t panic if putting 20% into savings seems impossible right now. You can start at 10% or bump it up to 30% or more.

It All Starts With a Budget

Ack. The b-word: Budget. Making a budget may sound boring or even arduous, but it doesn’t have to be either. And sticking to a realistic spending plan can make or break a savings plan.

By prioritizing monthly expenses — from keeping a roof over your head to gassing up the car to indulging in a gelato or good sushi every Friday — you may be able to avoid impulse spending and hold on to more of your hard-earned dollars.

You can track your spending manually with a notebook or spreadsheets, or keep the data in the palm of your hand with a money-tracking app, where you can see your expenses, savings, and earnings all in one place whenever you want to take a peek.

4 Different Types of Savings

Once you determine what percentage you’ll be able to save from your salary, you may want to break down that amount even further, into separate designated “buckets” or sub-accounts for different goals, which could include things like:

1. Emergency Fund

An emergency fund has the potential to turn life’s potholes into speed bumps.

It’s money you can use to pay for unexpected expenses, such as medical bills, home repairs, and fender benders. And your emergency fund might serve as a lifeline if you lose your job and don’t have another source of income.

A good rule of thumb is to save at least three months’ salary, but you don’t have to come up with those dollars all at once.

You could start by saving a small amount each month — and you can always add to the fund when you get a raise, bonus, or tax refund. (You also should be prepared to replenish the fund if you have to use all or part of it at any point.)

The money in your emergency fund could go into a savings account at your local branch bank, or you might want to check out the benefits of an online bank account which might offer no account fees and a solid interest rate.

2. Short-Term Goals

Most of us have goals we hope to fund in the next few months or couple of years. This could be anything from throwing your significant other a memorable birthday party to booking that vacation to Positano to affording a new car. You can start your own short-term fund at your financial institution. You can label the account “holiday spending” or earmark it for any other short-term goal: “Fall Wardrobe,” “Beach Vacation,” or maybe a “New Laptop.”

You may want to automate your savings and have money whisked from your checking as soon as your paycheck hits.

3. Long-Term Goals

Setting aside money for a long-term goal — a down payment on a house, a honeymoon in Bali, a year in Paris with your bestie — can feel like a slow slog. But you may improve your chances for success if you set up an account for the money and designate a consistent amount to slip in there from every paycheck.

Depending on your timeline, you may want to check into a certificate of deposit (CD), or you could stick with that same high-interest savings account, which you can build with automatic deposits and link to other accounts with a tracking app. These are secure ways to save towards future goals.

4. Retirement Savings

Another aspect of how much of your annual income you should save involves preparing for retirement. If you have a 401(k) investment savings account available through your employer, you’re likely already building wealth for retirement with automatic contributions every payday. And if your employer offers any type of matching contribution, you have an opportunity to grow your money even faster.

Beyond that, it’s up to you how big of a slice of your savings pie you want to put toward retirement at any time.

If you’re just starting out, and especially if you have some debts to pay off, saving for retirement may seem like the least of your worries. But the earlier you start putting money away, the faster it can grow. Time is the investor’s true friend; it allows you to ride the ups and downs of the market without panicking as you work toward your goals. (Remember, investments aren’t insured, so you need to be aware of the risk involved.)

If you don’t have an employer-sponsored plan — or even if you do, but you want more investment options or maybe more help than you’ve been getting — you can open your own traditional or Roth IRA outside of work. When considering which type of retirement account to open, IRA or 401(k), you might want to keep an eye on what fees might be associated with each plan.

It’s important to note that employer-sponsored plans allow investors to contribute more annually than an IRA would (basic limit in 2023: $22,500 for a 401(k) for those under age 50 vs. $6,500 for an IRA). And if the employer offers a matching contribution, that’s essentially free money you wouldn’t get from an IRA.

Deciding on Your Goals

Goals are a good thing: They can provide motivation for saving. But they can’t just hang out there; they probably need some prioritizing. That doesn’t mean that you are picking just one to focus on. More likely, you are going to decide how to divvy up that percentage of your income that goes into savings.

Say you are committed to saving 20% of your income. You may want to determine percentages for:

•   Retirement

•   Your child’s college education

•   A down payment on a house

One person might split that as 10%, 5%, and 5%. Another might instead do 8%, 2% and 10%. It depends on your particular goals, how else you might finance them (perhaps you expect your child to take out student loans), and the urgency of each.

Setting a Timeline

Some goals will be easy to plot on a timeline. For example, if your wedding is in a year and you’re saving $6,000 for your honeymoon, you’ll need to save $500 a month.

Others goals will likely need more finessing. (The amount you might need for retirement, for example, can be tough to pin down.)

But you’ve got this. You’ve probably been editing your mental wish list since you were a kid saving for candy … no, a toy … no, a bike. And you’ll likely be doing that for the rest of your life. If there isn’t enough money, something has to go or at least wait.

Could you drive your old car for another year or two, thereby saving money daily, if it meant getting a house sooner? Should you work another year before taking time off to be a stay-at-home parent? Would a weekend in Vegas be just fine as this year’s vacation if it meant next year you could afford 10 days in Greece? Only you can make those choices.

Deciding how much money you’ll need when you’ll need it, and how long it will take to save it may seem daunting as you start toward each new goal.

But it also can help you stay motivated to note when you’re making headway. And you might even find new ways to cut expenses as you go — especially if you use an app to track your progress.

Pay Off Debt

The average American had almost $8,000 in high-interest credit card debt as of the end of 2022. In addition, many people are also shouldering other debts, such as car loans and student loans.

If you’re a part of those statistics, paying off those debts could be the most important part of your saving plan.

How’s that?

•   Any debt on which you’re paying interest can feel painful. But if you’ve missed some credit card payments and you’re paying the default rate, say 27%, you’re likely putting an awful lot of money toward your past instead of toward your future.

•   High-interest debt can drag you down, so it’s important to ditch it as quickly as possible. Once you know where you stand with your budget and your savings goals, you may want to start by building a sort of “starter” emergency fund and then move forward with a personal debt reduction plan, like the debt avalanche, debt snowball, or the hybrid debt fireball, which focuses on paying high-interest debt in a way that can build momentum and keep you motivated.

Here’s how the debt fireball method works:

1.    Categorize your debts as either “good” or “bad.” (“Good” debts are generally for things that have potential to increase your net worth, like student loans or a mortgage. “Bad” debt is usually considered to be debt incurred for a depreciating asset, like car loans and credit card debt.) As you develop the list, note all the debts with higher interest rates, above what student loans and mortgages charge (say, 8% or higher) This is likely the “bad” debt you’ll want to focus on first.

2.    List your “bad” debts from smallest to largest based on their outstanding balances.

3.    Make the minimum monthly payment on all outstanding debts, then funnel any excess funds to the smallest of your “bad” debts.

4.    When that balance is paid in full, go on to the next smallest on the bad-debt list. Blaze through those balances until all your “bad” debt is repaid.

5.    When that’s done, keep paying off your debt on the normal schedule while also putting more into various savings strategies that will help get you to your goals.

Remaining Flexible

Consistency can be a key to successful saving. Otherwise, it’s just too darn easy to let yourself off the hook from paycheck to paycheck, month to month, and year to year. But that doesn’t mean your savings plan has to feel like a forced march.

Flexibility is also important.

A savings plan that seems smart and doable today may feel like torture six months from now. Or you might get a raise and decide your plan is actually far too easy and you could be socking away much more.

You might need a major car repair (or a whole new car). Get married. Have a baby. Get sick. Get fired. Or get hired for your dream job and have to move to Dubai.

Life changes. So it makes sense to tighten and lighten your budget — and the savings aspect you build into that budget — as necessary. If you’re tracking your expenses regularly, you may be better able to gauge how you’re doing and make any course corrections that much more quickly.

Anything Saved Is Better Than Nothing

It can feel discouraging when you get started on a long-term savings plan. Say you want to accumulate $60,000 for a down payment on a house. Perhaps saving 20% of your paycheck is impossible right now. And putting a couple of hundred dollars as a start can feel as if you will never reach your goal.

But over time, that little bit of money regularly contributed will indeed grow and propel you ever closer to your goal. Getting in the habit of contributing frequently can be a goal in and of itself, even if the amount is not as high as you’d like.

You may have also had this experience with shorter-term goals, such as building an emergency fund. Even if you only start by contributing $20, you will eventually reach your aim with steady saving.

Start Saving With SoFi

If you’re ready to start on the path to achieving a savings goal, look for a financial partner that minimizes fees and maximizes interest, to help your money work harder.

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 4.60% APY on SoFi Checking and Savings.

FAQ

Is it good to save 50% of your income?

It’s a wise move to save a portion of your paycheck, and 20% is an often-quoted figure to aim for. Fifty percent may be too high for many people, but if you can afford to save half of your take-home pay, you may get to your savings goals that much more quickly.

Is 20% of your income enough to save?

Many financial experts recommend saving 20% of your income or more if you can. The 20% figure is part of the popular 50/30/20 budget rule. However, some people may want to save more if possible, especially if they have a couple of major long-term goals they are saving for, such as buying a home, saving for their children’s education, and affording an early retirement.

What is the 60/20/20 rule?

The 60/20/20 rule is similar to the 50/30/20 budget guideline. In this case, it means that a person allocates 60% of their take-home pay to necessities, 20% to discretionary spending, and 20% to savings.

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Here’s the definition of disposable income: It’s the amount of money you have available to spend or save after your income taxes have been deducted.

You may also hear this sum of money called disposable earnings or disposable personal income (or DPI). Another interesting fact: Disposable income is carefully watched by economists because it is a valuable indicator of the economy’s health.

What’s more, as you may realize, disposable income is the basis of your own personal budget. It’s an indicator of your financial status as well as the foundation for deciding how to spend and save your cash.

Here, you’ll learn more about this concept, including:

•  What is disposable income?

•  What is disposable vs. discretionary income?

•  How can you calculate your disposable income?

•  How can you budget disposable income?

What Is Disposable Income?

Simply put, the disposable income definition is money you have left over from your earnings after taxes and any other mandatory charges are deducted.

This money (which may also be referred to as expendable income) can then be spent or saved as you see fit. You will likely use it for your basic living expenses, or the needs in your daily life, such as housing, utilities, food, transportation, healthcare, and minimum debt payments.

You may also spend that money on the wants in life, such as dining out, entertainment, travel, and non-vital purchases, such as a cool new watch or mountain bike.

Your disposable income can also be allocated towards your goals, such as saving for your child’s college education, the down payment on a house, and/or retirement.

Why Disposable Income Is Important

There are different types of income, and disposable income is usually defined as the amount of money you keep after federal, state, and local taxes and other mandatory deductions are subtracted from gross earnings. Consider these details:

•  Mandatory deductions include Social Security, state income tax, federal income tax, and state disability insurance.

•  Voluntary deductions, such as health benefit deductions, 401(k) contributions, deductions for other employer-sponsored benefits, as well as any assignments of support (such as child support) are excluded from the calculation. These costs are considered part of your disposable earnings.

•  Disposable income is an important number not just for consumers, but also the nation as a whole. The average disposable income of the country is used by analysts to measure consumer spending, payment ability, probable future savings, and the overall health of a nation’s economy.

•  International economists use national measures of disposable income to compare economies of different countries.

On an individual level, your disposable income is also a key economic indicator because this is the actual amount of money you have to spend or save.

For example, if your salary is $60,000, you don’t actually have $60,000 to spend over the course of the year. Federal, state, and possibly other local taxes will be deducted, as will Social Security and Medicare taxes.

What is left over is what you would have to spend on everything else in your life, such as housing, transportation, food, health insurance and other necessities.

Of course, that doesn’t mean you should spend all of your disposable income. Another thing to consider is disposable vs. discretionary income. This will tell you actually how much money you have to play with.

Recommended: What’s the Difference Between Income and Net Worth?

Disposable Income vs. Discretionary Income

Although they’re often confused with one another, disposable income is completely different from discretionary income.

While disposable income is your income minus only taxes, discretionary income takes into account the costs of both taxes and other essential expenses. Essential expenses include rent or mortgage payments, utilities, groceries, insurance, clothing, and more.

Discretionary income is what you can have leftover after the essentials are subtracted. This is what you can spend on nonessential or discretionary items.

Some costs that fall under the discretionary category are dining out, vacations, recreation, and luxury items, like jewelry. Although internet service and your cell phone may seem like necessities, these expenses are considered discretionary expenses.

Similarities

Both disposable and discretionary income are a way of looking at income after taxes.

However, discretionary income goes a step further and deducts essential expenses, such as housing and healthcare.

Differences

As you might expect, discretionary income is always less than disposable income. When you subtract discretionary income from disposable income, the amount that remains is how much you can put towards wants (fun spending) and savings.

Calculating Disposable Income

Disposable income refers to the amount of earnings left over after mandatory federal, state and local deductions. But disposable income is not necessarily the same as your take-home pay.

Deductions from your paycheck may include additional items such as health insurance, retirement plan contributions, and health savings accounts. These deductions are voluntary, not mandatory.

To calculate your disposable earnings, you can simply subtract federal, state and local taxes, Medicare, and Social Security from your gross earnings. Be sure to include any passive income streams, such as rental income, or side hustle earnings (more on that in a moment), when doing the math for your gross income. The resulting amount is your disposable income.

Some of the finer points to note:

•  You may want to keep in mind, however, that taxes deducted from your paycheck are an estimate. If you have a history of getting a large refund or having a large amount of taxes due, it may be worth reviewing your withholdings through your employer.

This could help you adjust the withholdings so it is closer to the actual expected tax that will be calculated when you file. You can then plan accordingly.

•  Even if you’re a contractor or freelancer, or if you made additional income from side gigs along with your salary, you can still calculate your disposable income.

This requires subtracting your quarterly tax payments and any additional taxes you will owe from your overall income. You can then determine your monthly after-tax income.

Setting aside money to pay taxes can also help you budget with your disposable income.

Disposable Income Budgeting

Calculating your disposable income is a key first step in preparing a budget. You need to know how much you have to spend in order to plan your monthly spending and saving.

A personal budget puts you in control of your disposable income and helps you make financial decisions. It forces you to take a closer look at how you’re spending your money.

Here are a few ideas that could be helpful when developing a budget based on disposable income.

Tracking Spending

Disposable income is what’s coming into your account every month. It’s a good idea to also determine what is going out each month.

To do this, you can gather up bank and credit card statements, as well as receipts, from the past three months or so, and then list all of your monthly spending (both essential and discretionary/nonessential).

To make this list more accurate, you may want to actually track your spending for a month. You can do this with a phone app (your bank’s app may include this function), by carrying a small notebook and jotting down everything you buy, or by saving all of your receipts and logging it later.

This can be an eye-opening exercise. Many of us have no idea how much we’re spending on the little things, like morning coffees, and how much they can add up to at the end of the month.

Once you see your spending laid out in black and white, you may find some easy ways to cut back, such as getting rid of subscriptions and streaming services that you rarely use, brewing coffee at home, cooking more and getting less take-out, or getting rid of a pricy gym membership and working out at home.

Setting Goals And Spending Targets

Tracking income and spending can provide a great starting point for setting financial goals and spending targets.

•  Goals are things that a person aims for in the short- or long-term — like paying off student loans or buying a new car.

•  Spending targets are how much you want to spend each month in general categories in order to have money left over to put towards your savings goals.

Since essential spending often can’t be adjusted, spending targets are typically for discretionary income.

One option for budgeting disposable income is the 50/30/20 plan. This suggests spending about 50% on necessities, 30% on discretionary items, and then putting aside 20% for savings and other long-term goals.

These percentages are general guidelines, however, and can be adjusted as needed based on individual circumstances. For example, if you live in a competitive housing area, rent may take up a larger portion of your expenses, and you may have to bump up necessity spending to 60% and decrease fun money to 20% instead.

Or, if you are saving for something in the near term, like a car or a wedding, you may want to temporarily bump up the savings category, and pull back unnecessary spending for a few months.

3 Uses for Your Disposable Income

Once you have calculated your disposable income, you can consider the ways you might divide it up:

Basic Living Expenses

Some of your disposable income will go towards necessities, such as:

•  Housing

•  Utilities

•  Food

•  Healthcare

•  Transportation

•  Insurance

•  Minimum debt payments.

Discretionary Spending

Next, there are the wants in life. These are things that are not vital for survival but can certainly make things more enjoyable:

•  Eating out

•  Entertainment, such as streaming platforms, movies, concerts, and books

•  Clothing that isn’t essential (like winter boots)

•  Electronics, like the latest mobile phone

•  Travel

•  Gifts.

Saving and Investing

In addition to the spending outlined above, you will likely want to save money or invest it for your short-term and/or long-term goals. These may include:

•  Your emergency fund

•  The down payment for a house

•  A college fund for children

•  Money to start your own business

•  A new car

•  Retirement.

Opening a Savings Account With SoFi

Disposable income is a key concept in budgeting, as it refers to the income that’s left over after you pay taxes. Knowing how much disposable income you have is the foundation for putting together a simple budget that allows for necessary expenses, having fun, while also saving for the future. Finding the right banking partner is another important element of planning for tomorrow.

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 4.60% APY on SoFi Checking and Savings.

FAQ

What does disposable income mean?

Disposable income (or what may be known as disposable earnings) is the money you have left after taxes and other mandatory deductions are taken out of your income.

What is an example of disposable income?

An example of disposable income would be a $100,000 gross salary, minus $30,000 in taxes and $15,300 in Social Security and Medicare deductions. The remaining $54,700 is disposable income.

What is the difference between disposable income and discretionary income?

Disposable income refers to earnings minus taxes and mandatory deductions, such as Social Security and Medicare. Discretionary income is a subset of disposable income. It is the money left once you have paid for essentials, such as housing, utilities, food, and healthcare. The money that is left can be used for non-essential spending and for saving.

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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 4.60% 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 4.60% 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 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. 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.

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.

SOBK0723023

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Have you noticed that as you earn more, you may not seem to have more in terms of growing your wealth, including your retirement account or that fund for the down payment on a house?

You might be experiencing lifestyle creep, which means that as you earn more, you spend more. It may well be human nature that, when you get a salary hike, you decide to splash out on a fancier car lease, a bigger home, or a luxurious vacation.

However, your spending may actually be outpacing your salary and even ringing up more credit card debt.

That’s lifestyle creep in action: Spending on “fun” non-essentials instead of putting that money to work for a more stable financial future. Learn more about it and how to rein it in while still enjoying the things money can buy.

What Is Lifestyle Creep?

Lifestyle creep can be a common phenomenon experienced as one progresses through their career. Lifestyle creep, sometimes known as lifestyle inflation, is the process by which discretionary expenses increase as disposable income increases.

Disposable income is income that isn’t already budgeted for necessities like housing, transportation, and food.

It could include anything from concert tickets to morning lattes to book buying sprees — basically anything that is likely to fall more into a “want” category rather than something strictly “needed.”

Lifestyle creep can put you squarely behind the 8-ball when it comes to getting out of debt, saving for retirement, or meeting other big financial goals. And it’s one reason people can’t escape the vortex of living paycheck-to-paycheck.

It might seem counterintuitive at first, but here’s a simplified example using a clothing budget. If you make $100 a month and set aside 5% for a shopping allowance, that’s $5 a month. If you earn a promotion at work and are now making $150 a month, that 5% now equates to $7.50 a month.

Lifestyle creep happens when you up your clothes budget to match the percentage, instead of putting the extra $2.50 toward savings or investments. Over time, those numbers can add up. And earning more isn’t all fun and games. It can also mean more expenses, and larger retirement goals.

What Causes Lifestyle Creep?

Graduating from the penny-pinching college life to your first full-time job is only one instance that can trigger lifestyle creep. It also can happen with any type of bump in cash flow that’s not part of your monthly budget, such as a raise, bonus, tax refund, gift, or winning a scratch-off ticket.

There are also psychological factors at play here, including the sometimes compulsive urge to keep up with the Joneses.

And before you blow it off as just envy with a lack of willpower, consider this: One examination of a lottery winner’s effect on the neighborhood found that the larger reward the lucky gambler collected, the more likely their neighbors were to incur more debt and even file for bankruptcy.

Say what?!

The social pressure to keep up with the consumption habits of family and friends, even when it’s conspicuous, can cause real and serious financial stress.

Social media can make matters even worse, with studies showing that post envy could be causing people to live beyond their means just so their feeds can reflect their acquaintances’.

But how do you resist the urge to upgrade your 2010-era sedan when your neighbor rolls up in a shiny new SUV? The answers might be simple on paper, but switching your mindset from “Should I spend this on a shopping spree or a vacation?” to “Should I put this money into savings or invest it?” can be easier said than done.

Discerning Needs Versus Wants

It’s normal to want to celebrate a new raise, but to avoid lifestyle creep, it can be important to make sure not to celebrate with something that will increase costs to the point of making the raise irrelevant.

For example, a person gets a raise that increases their income by $200 a month and then immediately trades in a fully paid-off car for a newer, fancier car (want), which results in a $300 monthly car payment.

Not only is the raise spent, but the amount of money available each month has also actually diminished. Sure, that person might have a car worthy of bragging about, but they may not be any healthier financially, even though they’re making more money.

On the other hand, for someone scraping by month to month, there might not be much of a choice but to fund some lifestyle upgrades with a raise. Lifestyle creep is not always a bad thing for someone working on being financially independent and secure.

Using the same example of the $200 monthly raise above, the recipient of the raise uses that money to buy a car needed to get to work to replace a lengthy public transportation commute each day, or perhaps invests in a professional development class to gain career advancement.

Either of those decisions might be perfectly worthwhile lifestyle changes that someone might be happy to pay for with a new raise. After all, part of financial wellness is investing in oneself when possible to achieve goals.

Tips for Avoiding Lifestyle Creep

Giving every extra penny of a cash windfall to a credit-card company doesn’t sound like much fun. But just knowing that lifestyle creep exists, and recognizing it in your own life, can put you ahead of the game when it comes to making better decisions with your money.

Here are a few possible ways you can avoid lifestyle creep while still enjoying the good things in life.

Celebrating Small

If you earn a raise, you should absolutely celebrate — especially if it’s higher than the average 2.9%. But to outsmart lifestyle creep, you may want to take a deep breath and resist the urge to run to the store for that expensive thing you’ve had your eye on. (What would Marie Kondo do?) Instead, consider a small way to congratulate yourself, like a dinner with friends.

Creating a Budget

One way to avoid lifestyle creep may be to give all income a job to do. Yep, that extra $200 a month shouldn’t just be chilling in a checking account with no purpose, like a freeloading cousin camping out on the couch.

Letting that extra money hang out in the checking account too long with nothing to do might lead to unplanned spending on a weekend trip or that budget-busting espresso maker that would be a tempting purchase. Putting that money to work might allow protection against impulse spending.

What exactly is “putting money to work”? It all comes down to budgeting. But don’t panic — gone are the days of lengthy kitchen-table sessions with bills and statements fanned out and calculations done by hand.

With the advent of online banking, most people are likely equipped with everything needed to make a budget right on your phone or computer.

Don’t have a basic budget already? Getting a raise can be a great time to crunch the numbers and be financially stable and responsible with that money. If there’s already a budget in place, a new raise is a great time to reconfigure the budget to make sure it still ticks all the financial boxes.

Avoiding Mindless Spending

Mindless or pointless spending might happen when there is unexpected extra cash sitting in the bank account. Much like the itch to spend that crisp, new $20 bill included in a childhood birthday card, there may be psychological and emotional temptation to spend money in the bank account without considering whether or not those new, modern table lamps or that brand new gaming system is really needed.

Casually buying unnecessary items could indicate compulsive or impulsive spending. This in turn could mean missing an opportunity to put money to work for the future, sustainably upgrading a lifestyle by planning ahead for financial growth.

Tracking Your Spending

When it comes to managing money, one question you don’t want to ask yourself is “Where did that money go?” Losing track of expenses could not only lead to a blown budget, but also overdraft fees, returned checks, or other unnecessary fees that could put you even further behind.

If you really struggle with this one, there’s an app for that. A large number of them, as a matter of fact. SoFi, for example, lets you see all of your accounts in one place to help you categorize and track your spending, set goals, and look for ways to streamline. It also can serve as the central hub for automatic payments to your bills, savings, and investment accounts.

Turn on the Auto-Pilot

One of the easiest ways to ensure that you’re only spending what’s in the budget is to automate as many payments and contributions as possible. After all, money you don’t have is a lot easier to not spend.

This strategy can start at work. If you get a raise, you might elect to increase your 401(k) contribution (or start one if you haven’t yet). And while it means that your take-home pay may not change, your retirement account can painlessly grow.

You also can automate bill payments and savings and investment contributions, all with the intention of getting the money out of your tempted hands ASAP.

Outlining Clear Goals

What’s your endgame? Do you want to retire early with a million dollars or more in the bank? Is owning a home a part of your plan? One key to avoiding lifestyle creep is to set long-term financial goals and keep your eye on the prize.

Two financial goals that can be beneficial to almost everyone include growing a short-term emergency fund and longer-term savings plan. But from there, the sky’s the limit and your goals are entirely up to you.

Avoiding New Debt

This might seem like a no-brainer, but you aren’t likely to get out of debt if you keep adding new debt to the pile. A recent report revealed that consumers are willing to spend up to 83% more using a credit card than they would with cash.

Ditching the credit cards is entirely possible — your parents and grandparents lived without them every day. Modern credit cards weren’t introduced in the U.S. until around 1958, which means that Boomers and their parents were raised on the philosophy that if you can’t afford it right now in full, you wait until you can.

And as the old saying goes, they turned out just fine.

Getting Your Head in the Game

Lifestyle creep likely isn’t impossible to reverse, but one could argue that the further you’ve allowed yourself to fall into the luxury lifestyle, the harder it could be to pull yourself out.

One way to get your head in the game is to make lists, starting with your needs (electricity) vs. wants (electric car.) From there, you could prioritize your “wants” and start to cut from the bottom.

Are there things in your life that just exist because they can? Consider eliminating them completely, or finding crafty ways to keep them around in more affordable ways, such as shopping consignment vs. retail or eating lunch out one day a week vs. all five.

And the jealousy that can mess with your head? All that glitters isn’t gold.

Choosing Your Friends Wisely

Peer pressure is a powerful motivator, but the perceived wealth of your friends, neighbors and acquaintances can be a far cry from the actual state of their finances.

If you seem to find yourself in situations where there’s pressure to overspend, including kids sports activities, nights out on the town, or an invite to a destination wedding, you may want to consider finding a circle of friends who share the same financial goals as you.

After all, it’s a lot easier to say “Let’s just cook at home to save money” to a friend who won’t pressure you to try the trendy new restaurant in town.

Spending a Raise

So what exactly should someone do with extra money after a raise? Paying more into a retirement account, paying off debts, or just putting some extra dollars towards a specific savings goal are some approaches to take.

A checking and savings account might be one helpful way to manage a raise and stay on top of a budget.

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 4.60% 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 4.60% 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 4.60% 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 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. 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.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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With inflation and interest rates rising, many people are looking for ways to generate additional income these days — and finding reliable sources of passive income, which require less effort than most jobs — has become particularly desirable.

Creating and managing passive income streams isn’t a truly passive activity, however. Generating passive income usually requires upfront work, or sometimes a substantial investment to get the ball rolling. And depending on what your passive income ideas are, whether you’re renting out property or selling a product via online platforms, you’ll likely have ongoing tasks to keep the money coming in.

That said, passive income can in some cases deliver more income with less effort than a traditional job that requires a fixed number of hours per week.

What Is Passive Income?

Passive income is money that you earn without active involvement. In other words, it is income that isn’t attached to an hourly wage or annual salary. Passive income ideas could include things like cash flow from rental properties, dividend stocks, sales of a product (that requires little or no effort), royalties, and more.

Essentially, these side hustles can help you earn money without contributing much, if any, active effort. If you are paid for a service you perform, that’s active income — you have to put in time and energy in order to get paid. If you can continue making money while staying mostly hands-off, that can be a form of passive income. That doesn’t mean you won’t have to put work in up front to get started — you probably will. But besides some maintenance, passive income shouldn’t require your active involvement.

There are obvious benefits to these low-effort side hustles over traditional active income. Earning more money without putting in more hours offers the opportunity to make extra cash without burning yourself out. If you’re successful enough, it might even give you the freedom and flexibility to quit your day job and do whatever you want instead, whether that’s going to school, traveling, writing, or making art.

39 Passive Income Ideas to Help You Make Money

There are a number of ways to earn passive income. Some options, like the following types of passive income, take relatively little active supervision.

1. Open a High-Yield Savings Account

A high-yield savings account (HYSA) is an alternative to traditional savings accounts, and they’re attracting more attention these days thanks to higher interest payments that might be 2% or more. By simply putting your money in the bank, you may be able to start to earn passive income on it. If you invest in an FDIC-insured account, the first $250,000 of your money is protected. There are both banks and online platforms which offer a high-yield savings account.

Savings accounts are generally appealing because they are a separate place to store money you don’t necessarily want to use on day-to-day expenses. For example, it could be a good place to save for emergencies, or even to save for a vacation or a move across the country.

When you find a high-interest savings account, take a look at the fine print. What conditions are attached for you to get that rate? The financial institution may require you to have a certain amount of money deposited into that account each month, maintain a certain balance or have your bills automatically deducted from it. You may need to use your debit card a predetermined number of times, as yet another example — or be limited in the number of transactions that can take place each month.

2. Invest In a Business

Although this may take an up-front investment, buying into a business and becoming a silent partner can be another passive income source.

Even if the company you are thinking of investing in seems solid, it’s important to have an understanding of the challenges the organization may face. There are some red flags to look out for, such as a company whose revenue is earned from just a couple of clients — or just one client — as opposed to several.

It’s also important to lay out the exact terms of your investment and compensation.

3. Become a Peer-to-Peer (P2P) Lender

Peer-to-peer (P2P) lending platforms are another type of crowdfunding that allows people to borrow money from individual investors. Through these sites, you can be matched with an individual seeking a loan, and lend your money at a rate that could be higher than the usual bank rates.

That’s because investors taking part in peer-to-peer lending tend to bear the bulk of any risk. It is possible that borrowers will default on their loans, leading to a higher risk if an investor were to lend money with a lower credit rating, for example. Returns are never guaranteed and while investors will receive a return on the money they invest, they could also lose some or all of it in the long run.

💡 Learn more: Understanding How P2P Lending Works

4. Buy a Rental Property

Another popular passive income source is rental property. You might want to purchase a home to rent out to an ongoing tenant or list a property on a short-term rental site. Hiring a property management company lessens your day-to-day involvement, thereby making this venture a more passive income strategy than active.

Obviously, setting up this type of income requires a pretty big outlay, and it may be a while before your investment property generates a profit over and above the many expenses required to run it. In addition, there are always risks in the rental markets to keep in mind.

💡 Learn more: Investment Property Guide for Beginners

5. Invest in Crowdfunded Real Estate

If you don’t have thousands of dollars to spend on a piece of property, you can always check out your options on crowdfunded real estate sites. These may require a smaller initial investment, and likewise the costs are also shared.

Crowdfunded real estate investments can be complex, however, and you’ll want to balance the risks and rewards.

6. Invest in Dividend Stocks

When companies choose to share a portion of their profits with the investors who own shares of the firm, those payments are called dividends, and they work generally the same way from company to company.

Typically, dividends are paid in cash (though some might be paid in stock), on a regular schedule. Dividends are usually paid quarterly, though there are variations.

Investors might receive dividends from companies they’re invested in, or from mutual funds they’re invested in that hold shares of dividend-paying companies.

There is no guarantee that investing in dividend stocks will continue to earn you passive income. As Liz Young, Head of Investment Strategy at SoFi, points out, “A stock’s dividend yield will fluctuate because it’s based on the stock’s price and prices can be volatile. You should also consider other factors like a company’s track record of increasing the dividend, the dividend payout ratio, debt load, and cash on hand when determining the overall health of an investment.”

💡 Learn more: What Is Dividend Income? Can You Live Off It?

7. Invest with an Automated Advisor

If you’re just getting started with investing, you may want to use automated investing tools to help you choose the appropriate allocation of assets for your goals.

Typically, an automated platform — also called a robo-advisor — is a digital investing service that provides you with a questionnaire so you can establish your financial goals, risk preferences, and time horizon.

On the backend, a sophisticated algorithm then recommends a pre-set, automated portfolio that aligns with your responses. These portfolios often have lower account minimums compared with traditional brokers, and the portfolios themselves are typically comprised of low-cost exchange-traded funds (ETFs) — which adds to the cost efficiency of some robo products.

You can use a robo investing as you would any account — for retirement, as a taxable investment account, or even for your emergency fund — and you typically invest using automatic deposits or contributions. The allocation in each portfolio is usually pre-determined, and investors cannot change the investments.

Tools such as SoFi’s Automated Investing allow you to automatically invest each month and potentially grow your portfolio over time.

8. Start a Retirement Account

When you open your retirement account, you can choose to invest it however you want. For example, you could open an individual retirement account (IRA).

One way to earn income in a retirement account is by investing in mutual funds. You can choose the level of risk you want to take with your money by finding a mutual fund that is higher or lower risk.

💡 Learn more: 3 Easy Steps to Starting a Retirement Fund

9. Join an Affiliate Program

When you join a company’s affiliate program, you earn a commission from every product that someone purchases from that company. All you have to do is post the link on your blog, website, or social media pages. Amazon Associates is a great place to start.

10. Rent Out Your Car

Another one of the best passive income opportunities is renting out your car on a site like Turo. It’s basically the Airbnb of cars, and, according to Turo, the average annual income for one car on the site is $10,516.

11. Advertise on Your Car

If you have a clean driving record as well as a newer car, consider getting in touch with a car advertising agency. You simply drive around town with ads on your car and easily generate passive income.

12. Rent Your Parking Space

Do you have space in your driveway that you aren’t using? Then rent it out on platforms like Stow It, where you can find people who will pay to rent out the space.

13. Rent Storage Space

If you have extra space in your garage, shed, or storage unit, then you could start earning passive income by using a peer-to-peer storage site like Stashii to find people who need your space.

14. Invest in Real Estate Investment Trusts (REITs)

An alternative to becoming a property owner or landlord are real estate investment trusts, or REITs. REITs are publicly traded companies on the stock market that own income-producing real estate. They give you the chance to invest in real estate portfolios. REITs sometimes come at a higher risk than other funds.

You might consider investing in a REIT that focuses on storage units. For example, one option is Public Storage, which has ownership or interest in 2,548 properties located in 38 states.

15. Rent Your Bike

Perhaps you don’t have a car, but you do have a bike that’s just sitting around. Your bike could be a lucrative passive income source, especially if you live in a high-traffic area. List your bike on Spinlister to get started.

16. Airbnb or Rent Out a Room

Even if you don’t own an investment property, with your landlord’s permission, you may be able to rent out a room in your apartment or list it on Airbnb.

17. Pet Sit in Your Home

If you love pets, you can earn passive income by welcoming pets into your home while their owners are on vacation. For instance, you could charge $30 to $80 per day just for running a doggy daycare. You can gain clients through word of mouth or use a site like Rover to find customers.

18. House Sit for Someone

When your friends go out of town, they may need someone to stay in their home and do simple things like water their plants and collect their mail. You can easily make money and have somewhere new to stay for a little bit. Along with making yourself available to friends, you can sign up to be a house sitter on HouseSitter.com.

19. Buy and Sell Domain Names

Some domain names are cheap, while others cost a lot of money because they are in high demand. One thing you could do to start another passive income stream is to purchase domain names you think will be popular. Purchase low for around $10 to $100 and then sell them for a much higher price later on.

20. Rent Your Tools

Have you ever done a home improvement project that required you to purchase tools? You may never need to use those tools again. Thankfully, now you can rent tools, and rent out your tools, on peer-to-peer platforms such as Sparetoolz to earn passive income.

21. Invest in Royalties

Let’s say you don’t have any songwriting ability, but you would like to make money on other artists’ work. You can invest in royalties through Royalty Exchange and earn passive income on the intellectual property.

22. Purchase a Billboard

You can make thousands of dollars per month if you own a billboard where companies can advertise their products and services. Do your research and make sure you get the right permits before committing to a billboard.

23. Purchase a Blog

If you don’t have the time or energy to create content for your own blog, then look into ones that are already successful and see if the owners are willing to sell. You could also hire someone to manage your blog so that you’re truly earning in a passive way.

24. Create an Online Course

If you have a special skill or knowledge about a certain topic, you may be able to create a video course where you teach people about that topic and charge them to take the course.

25. Sell Digital Products

You may want to research online platforms where you can sell everything from digital art to e-books. Whether you’re an artist, graphic designer, or writer, you can create digital products to sell online.

26. License Your Photos

Many companies, bloggers, and individuals use stock photos on a regular basis. You may be able to upload your best photos to stock media platforms and earn passive income on them.

27. Create a Mobile App

If you’ve been dreaming about an amazing phone app that you think a lot of other people would use, you may want to look into hiring a development team to create it.

28. Sell a Product

You may be able to earn passive income through sales of a product that you create. This could be a book that you write or a physical product that you design and make. You might also list items you already own on sites like eBay and earn extra income through those sales.

29. License Your Music

Do you love to write songs? Then you could license your music and start earning passive income. You’ll just have to team up with a music licensing company to get started.

30. Self-Publish a Book

Through platforms like Amazon’s KDP, you can self-publish a book and earn a royalty on it every time someone makes a purchase. You will be able to set the price of your book and be in full control of your book’s Amazon page, where you can list pictures of the book, reviews, and videos promoting it.

31. Sell Blank Books

You can start selling books online without having to write anything. How? By focusing on blank books, such as journals, sketchbooks, and planners. Simply find a design you believe will appeal to people and begin collecting royalties when people buy your books.

32. Create Greeting Cards

Another artistic endeavor that could be a good passive income stream is creating greeting cards that you sell to a wholesale or retail stationery company that accepts independent artist submissions.

33. Sign Up for Dropshipping

If you want to sell products and make money online but don’t want to store any of the goods, you could always look into dropshipping to create passive income. With dropshipping, you don’t have to have much money to start since you don’t need inventory to fulfill orders for customers.

34. Start a Blog

Blogging seems like a pretty cool space to operate in and gives you a lot of creative freedom. You can make your blog all about crafts, share tutorials, ideas, and more. It’s up to you how your space operates.

Blogging might seem like too much work to many people, but it doesn’t have to be a full-time job for everyone. For some people, blogging can be fun after a day at the office — and, with time and effort, it could turn into something more lucrative.

Here are a few ideas on how you can make passive income from blogging:

•   Affiliate marketing

•   Google AdSense: Cost Per Click and Cost Per Impression

•   Sponsored posts

•   Selling products

35. Start a YouTube Channel

If you enjoy creating videos more than writing, then consider starting your own YouTube channel. Once you get enough viewers, you can begin to generate passive income through YouTube advertising.

36. Publish an Ebook

Like an online course, an ebook is a way to share your expertise with the world. Anyone can self-publish a book online through services like Amazon’s Kindle Direct Publishing, iBooks Author, or Kobo Writing Life.

The percentage of royalties you earn varies depending on the publisher. Of course, the more marketing you do, the more copies you’re likely to sell — and there’s no shortage of online marketing strategies to investigate. But once you write and publish the e-book, it’s out there ready to generate passive income for you.

37. Create a Podcast

Podcasts are still popular, and they can generate some passive income for you. If you start a podcast that resonates with people, then you can grow your audience and monetize your show by sponsoring with ad partners. If you get enough listeners, you may be able to sign up for podcast advertising networks.

38. Start an ATM Business

When people are out at a bar or nightclub or they’re frequenting a cash-only business, they may need cash right away. If you own an ATM business and you place your ATM in high-traffic locations, you could start to generate passive income through surcharge fees. Typically, you could earn around $3 per withdrawal.

39. Start a Vending Machine Business

Similar to an ATM business, a vending machine business allows you to use your creativity and determine high-traffic areas where you could make a lot of money. If you buy in bulk, you’ll be able to save on the snacks and drinks you purchase for your machines.

Potential Benefits of Earning Passive Income

There are only 24 hours in a day. If you go to a job each day that pays you a set amount of money, that is the maximum amount that you’ll ever make in a 24-hour period. That is called earned income.

By investing some of that earned income into different passive income ideas, you may be able to increase your earnings. Diversifying your income stream may also improve your financial security. Some benefits of passive income are:

•  More Free Time: By earning money through passive income sources, you might be able to free time in your schedule. You may choose to spend more time with your family, pursue a creative project or new business idea, or travel the world.

•  Financial Security: Even if you still plan to keep your 9-to-5 job, having multiple sources of income could help increase your financial security. If you lose your job, become sick, or get injured, you may still have money coming in to cover expenses. This is especially important if you are supporting a family.

•  Tax Benefits: You may want certain legal protections for your personal assets or to qualify for tax breaks. Consulting with an attorney and/or tax advisor to explore setting up a formal business structure like a sole proprietorship, a limited liability company (LLC), or a corporation, for example, might help you decide if this is a good route for your particular situation.

•  Location Flexibility: If you don’t have to go into an office each day, you’ll be free to move around and, possibly, live anywhere in the world. Many streams of passive income can be managed from your phone or laptop.

•  Achieve Financial Independence: The definition of financial independence is having enough income to cover your expenses without having to actively work in order to cover living expenses. This could allow you to retire early and have more freedom to live your life the way you choose. Whether you’re interested in retiring early or not, passive income can be one way to help you reach financial independence.

•  Pay Off Debt: Passive income may help you to supplement your income so that you will have the opportunity to pay off any debts more quickly.

Potential Downsides of Earning Passive Income

Although it might sound like a dream come true to quit your job and travel the world, earning through passive income is not quite that simple.

•  Earning Passive Income Is Not a Passive Activity: Whether you’re generating passive income through a rental income, running a blog, or in another way, you will still need to put in some time and effort. It takes upfront investment to get these income sources up and running, and they don’t always work out as planned.

If, for example, you run an Airbnb, you have to maintain the property, ensure a high-quality experience for guests, and address any issues or concerns guests may have to secure positive reviews.

•  Passive Income Requires Diversity: In order to earn enough passive income to quit your job and cover all your expenses, you would most likely need more than one source of income. Although you may no longer need to clock into a 9-to-5 job, you will likely still need to spend time managing multiple income streams.

•  It’s Lonely at the Top: It might sound great to never have to go to the office again and to have the freedom to travel, but earning money through passive income can become lonely.

Not having anyone to talk to during the day might make you feel lonely, and if you aren’t self-motivated, you may find it difficult to stay on task if you need to manage your passive income streams.

•  Getting Started May Require Investment: Depending on how you plan to create passive income, it may require an initial financial investment. You may need money for a down payment on an investment property, the development of a product you plan to sell, or for investment into dividend stocks.

Managing Passive Income Streams

No matter which type of passive income you choose to pursue, it’s important to keep track of your personal finances and both your short-term and long-term financial goals.

Tracking multiple sources of income in a monthly budget can be a complex task. To be profitable, it’s important to pay attention to how much money you put into the maintenance of your passive income stream(s), such as property upkeep or monthly online services.

SoFi is one option to simplify how you manage your income streams because it allows you to see all of your financial information in one place. In the app, you can keep track of your monthly income and create goals for your passive income, such as a home, vacation, or retirement, and automate your personal finances.

Other Types of Income

In addition to passive income streams, there are other types of income you can earn.

•  Earned Income: This is the most common type of income — money you make from a job. With earned income you are trading your time for money.

•  Profit Income: Profit income comes from the sale of a product after expenses have been deducted.

•  Interest Income: This can be money earned from one entity lending to another entity, such as a person, company, or bank. This can also be referred to as interest from accounts such as savings accounts and certificates of deposit (CDs) in which you receive a 1099-INT at the end of the year.

•  Dividend Income: Most dividend income is earned by the distribution of income from companies to shareholders owning stocks that pay dividends.

•  Rental Income: Rental income is earned when you rent or lease a house, car, or other property you own to someone else.

•  Capital Gains: This generally refers to profit (or gain) that is subject to taxation when you sell an asset such as stock or real estate. There are both long- and short-term capital-gains tax rates depending upon how long you held the asset before sale.

•  Royalty Income: Royalty income is generated when you own the rights to a piece of art, music, literature, or another asset licensed for other people to use, or from the extraction of oil, gas, or minerals.

The Takeaway

Establishing passive income streams is one way to diversify your income and can help you build wealth and achieve financial freedom in the long term. There are a variety of ways to earn passive income, such as through investing, rental properties, and automated investing.

Some passive income sources require a financial commitment or upfront investment, such as purchasing a rental property, and others may require a time commitment. And passive income, of course, is rarely 100% passive. Often there is considerable time and effort that goes into setting up a passive income stream. And some sources of passive income (from investing, real estate, running a business or creative endeavor) require ongoing maintenance.

Once you’re earning passive income, you can think about where to put that money. Whether you’re able to generate a passive income stream from your investments, or that’s a goal of yours, consider opening an Active Invest account with SoFi Invest. You can invest in stocks, exchange-traded funds, and SoFi also offers an automated portfolio.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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SoFi Invest®
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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