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Jul

2025

What Is a Limit Order and How Does It Work?

By Rebecca Lake | Growing Wealth, Investing, Terminology | No Comments

Table of Contents

Limit Order Defined
How Do Limit Orders Work?
Types of Limit Orders
How to Set a Limit Order
When a Trader Might Use a Limit Order
Pros and Cons of Using Limit Orders
Limit Order vs Market Order
Limit Orders vs Stop Orders
What Happens If a Limit Order Is Not Filled?
Limit Orders and Price Gaps
Advanced Strategies for Using Limit Orders
FAQ

Limit orders are a type of market order that gives investors the opportunity to trade stocks or other securities at a specified price. Doing so allows traders or investors to garner some form of price protection — it allows them to sell only at a price at which they won’t take a loss, or purchase securities at a price they’re comfortable with.

Limit orders can be used as a part of a broader investment or trading strategy, but can be fairly advanced for some investors.

Key Points

• Limit orders allow investors to buy or sell securities at a specific price or better, ensuring price protection.

• Buy limit orders set a maximum price; sell limit orders set a minimum price.

• Advantages of limit orders include price protection, convenience, and reduced risk of emotional trading.

• Disadvantages involve the risk of non-execution and missing out on better prices.

• Stop-limit orders combine stop and limit features, offering additional control over trade execution.

Limit Order Defined

As noted, a limit order allows investors to buy or sell securities at a price they specify or better, providing some price protection on trades.

When you set a buy limit order, for example, the trade will only be executed at that price or lower. For sell limit orders, the order will be executed at the price you set or higher. By using certain types of orders, traders can potentially reduce their risk of losses and avoid unpredictable swings in the market.

How Do Limit Orders Work?

In the simplest terms, limit orders work as a sort of restriction that an investor can choose (to either buy or sell) with “limits” on a minimum or maximum price. An investor places an order to buy a stock at a minimum price, for instance, or places an order to sell at a maximum price, in an effort to seek returns, while limiting losses.

There are two types of limit orders investors can execute: buy limit orders and limit sell orders. An important thing to know is that while a limit order specifies a desired price, it doesn’t guarantee the trade will occur at that price — or at all.

When you set a limit order, the trade will only be executed if and when the security meets the terms of the order — which may or may not happen, depending on the overall market conditions. So, when an investor sets a limit order, it’s possible to miss out on other investing opportunities.

Types of Limit Orders

As mentioned, there are two types of limit orders investors can execute: buy limit orders and limit sell orders. But there’s another, a sort of combination of the two, to be aware of.

1. Buy Limit Order

For buy limit orders, you’re essentially setting a ceiling for the trade — i.e., the highest price you’d be willing to pay for each share. If a trader places a buy limit order, the intention is to buy shares of stock. The order will be triggered when the stock hits the limit price or lower.

For example, you may want to buy shares of XYZ stock at $15 each. You could place a buy limit order that would allow the trade to be carried out automatically if the stock reaches that purchase price or better.

2. Sell Limit Order

For sell limit orders, you’re setting a price floor — i.e., the lowest amount you’d be willing to accept per share. If a trader places a limit order to sell, the order will be triggered when the stock hits the limit price or higher. So you could set a sell limit order to sell XYZ stock once its share price hits $20 or higher.

3. Stop-Limit Order

A stop-limit order is a combination of a stop order and a limit order. Stop-limit orders involve setting two prices. For example: A stock is currently priced at $30 and a trader believes it’s going to go up in value, so they set a buy stop order of $33.

When the stock hits $33, a market order to buy will be triggered. But with a stop-limit order, the trader can also set a limit price, meaning the highest price they’re willing to pay per share — say, $35 per share. Using a stop-limit order gives traders an additional level of control when they’re executing a strategy.

Stop-limit orders can also help traders make sure they sell stocks before they go down significantly in value. Let’s say a trader purchased stock XYZ at $40 per share, and now anticipates the price will drop. The trader doesn’t want to lose more than $5 per share, so they set a stop order for $35.

If the stock hits $35 — the stop price — the stock will be triggered to sell. However, the price could continue to drop before the trade is fully executed. To prevent selling at a much lower price than $35, the trader can set a limit order to only sell between $32 and $35.

How to Set a Limit Order

When placing a limit order with your brokerage firm, the broker or trading platform might ask for the following information:

• The stock or security

• Is it a buy or sell order

• Number of shares to buy or sell

• Stock order type (limit order, market order, or another type of order)

• Price

When setting up a limit order, the trader can set it to remain open indefinitely, (until the stock reaches the limit price), or they can set an expiration date.

Limit Order Example

Here’s an example of how a limit order might work: Say a trader would like to purchase 100 shares of stock XYZ. The highest price they want to pay per share is $26.75. They would set up a limit buy order like this:

Buy 100 shares XYZ limit 26.75.

As noted above, the main upside of using limit orders is that traders get to name a desired price; they generally end up paying a price they expect; and they can set an order to execute a trade that can be executed even if they are doing other things.

In this way, setting limit orders can help traders seize opportunities they might otherwise miss because limit orders can stay open for months or in some cases indefinitely (the industry term is “good ‘til canceled,’ or GTC). The limit order will still execute the trade once the terms are met.

When a Trader Might Use a Limit Order

There are several reasons why a trader or investor might want to use a limit order.

• Price protection. When a stock is experiencing volatility, you may not want to risk placing a market order and getting a bad price. Although it’s unlikely that the price will change drastically within a few seconds or minutes after placing an order, it can happen, and setting a limit order can set a floor or a ceiling for the price you want.

• Convenience. Another occasion to use a limit order might be when you’re interested in buying or selling a stock, but you don’t want to keep a constant eye on the price. By setting a limit order, you can walk away and wait for it to be executed. This might also be a good choice for longer-term positions, since in some cases traders can place a limit order with no expiration date.

• Volatility. Third, an investor may choose to set a limit order if they are buying or selling at the end of the market day or after the stock market has closed. Company or world news could be announced while the market is closed, which could affect the stock’s price when the market reopens. If the investor isn’t able to cancel a market order while the market is still closed, they may not be happy with the results of the trade. A limit order can help prevent that.

Limit orders can also be useful when the stock being traded doesn’t have a lot of liquidity. If there aren’t many people trading the stock, one order could affect the price. When entering a market order, that trade could cause the price to go up or down significantly, and a trader could end up with a different price than intended.

Pros and Cons of Using Limit Orders

Each type of order has pros and cons depending on the particular situation.

Pros of Limit Orders

Some advantages of limit orders include naming your price, and taking a set-it-and-forget-it approach.

• The trader gets to name their price. One of the chief reasons traders rely on limit orders is to set baselines for profits and losses. They won’t end up paying a price they didn’t expect when they buy or get a price below their target when it’s time to sell.

• The trader can set the order and walk away. Day trading can be time-consuming, and it requires a significant amount of knowledge. Investors who use limit orders don’t have to continuously watch the market to get the price they want.

• Insulate against volatility. Volatility can cause you to make emotional decisions. Limit orders can give traders more control over their portfolio and ward off panic-buying or selling.

• Ride the gaps. Stock prices can fluctuate overnight due to after-hours trading. It’s possible to benefit from price differences from one day to another when using limit orders.

For example, if a trader places a buy limit order for a stock at $3.50, but the order doesn’t get triggered while the market is open, the price could change overnight. If the market opens at $3.30 the next morning, they’ll get a better price, since the buy limit order gets triggered if the stock is at or below the specified price.

Cons of Limit Orders

Conversely, limit orders can have some disadvantages.

• The order may never be executed. There may not be enough supply or demand to fulfill the order even if it reaches the limit price, since there could be hundreds or even thousands of other traders wanting to buy or sell at the specified price.

• The stock may never reach the limit price. For example, if a stock is currently priced at $20, a trader might set a limit order to buy at $15. If the stock goes down to $16 and then back up to $20, the order won’t execute. In this case, they would miss out on potential gains.

• The market can change significantly. If a trader sets a shorter-term limit order, they might miss out on a better price. For example, if a stock a trader owns is currently priced at $150, the trader may choose to set a sell limit order at $154 within four weeks. If the company then makes a big announcement about a new product after that period, and the stock’s price spikes to $170, the trader would miss out on selling at that higher price.

• It takes experience to understand the market and set limit orders. New investors can miss out on opportunities and experience unwanted losses, as with any type of investment.

Limit Order vs Market Order

Limit orders differ from market orders, which are, essentially, orders to buy a security immediately at its given price. These are the most common types of orders. So, while a market order is executed immediately regardless of terms, limit orders only execute under certain circumstances.

Limit orders can also be set for pre-market and after-hours trading sessions. Market orders, by contrast, are limited to standard trading hours (9:30am to 4pm ET).

Remember: Even though limit orders are geared to a specific price, that price isn’t guaranteed. First, limit orders are generally executed on a first-come-first-served basis. So there may be orders ahead of yours that eliminate the availability of shares at your limit price.

And it bears repeating: There is also the potential for missed opportunities: The limit order you set could trigger a trade. But then the stock or other security might hit an even better price.

In other words, time is a factor. In today’s market, computer algorithms execute the majority of stock market trades. In this high-tech trading environment, it can be hard as an individual trader to know when to buy and sell. By using certain types of orders, like limit orders, traders can potentially limit their losses, lock in gains, and avoid swings in the market.

Though limit orders are commonly used as a part of day trading strategies, they can be useful for any investor who wants some price protection around their trades. For example, if you think a stock is currently undervalued, you could purchase it at the current market price, then set a sell limit order to automatically sell it when the price goes up. Again, the limit order can stay open until the security meets your desired price — or you cancel the order.

However, speculating in the market can be risky and having experience can be helpful when deciding how and when to set limit orders.

When to Consider a Market Order vs a Limit Order

If you’re trying to parse out when a market order or a limit order is the best tool to use, consider the following.

A trader might want to use a market order if:

• Executing the trade immediately is a priority

• The stock is highly liquid

• They’re only trading a small number of shares

• The stock has a narrow bid-ask spread (about a penny)

A trader might want to use a limit order if:

• They want to specify their price

• They are trading an illiquid stock

• They want to set a long-term trade (or even walk away for their lunch break and still have the trade execute)

• They feel a stock is currently over- or undervalued

• The stock has a large bid-ask spread

• They are trading a larger number of shares

Limit Orders vs Stop Orders

There is another type of order that can come into play when you’re trying to control the price of a trade: a stop order. A stop order is similar to a limit order in that you set your desired price for a stock, say, and once the stock hits that price or goes past it, a market order is triggered to execute the purchase or sale.

The terms of a limit order are different in that a trade will be executed if the stock hits the specified price or better. So if you want to sell XYZ stock for $50 a share, a sell limit order will be triggered once the stock hits $50 or higher.

A stop order triggers a market order once XYZ stock hits $50, period. By the time the order is executed, the actual stock price could be higher or lower.

Thus with a stop order there’s also no guarantee that you’ll get the specified price. A market order is submitted once the stop price is hit, but in fast-moving markets, the actual price you pay might end up being higher or lower.

Stop orders are generally used to exit a position and to minimize losses, whereas limit orders are used to capture gains. But two can also be used in conjunction with each other with something called a stop-limit order.

What Happens If a Limit Order Is Not Filled?

A limit order can only be filled if the stock’s price reaches the limit price or better. If this doesn’t happen, then the order is not executed, and it expires according to the terms of the contract. An order can be good just for a single trading day, for a certain period of time, or in some cases it’s possible to leave the limit order open-ended using a GTC (good ‘til canceled) provision.

So if you placed a buy limit order, but the stock does not reach the specified price or lower, the purchase would not be completed and the order would expire within the specified time frame.

And if you’re using a sell limit order, but the security never reaches the specified sell price or higher, the shares would remain in your trading account and the order would expire.

Limit Orders and Price Gaps

Price gaps can occur when stocks close at one price then open at a different price on the next trading day. This can be attributed to after-market or pre-market trading that occurs after the regular market hours have ended. After-hours trading can impact stock price minimally or more substantially, depending on what’s spurring trades.

For example, say news of a large tech company’s planned merger with another tech giant leaks after hours. That could send the aftermarket trading markets into a frenzy, resulting in a radically different price for both companies’ stocks when the market reopens. Pricing gaps don’t necessarily have to be wide, but large pricing swings are possible with overnight trading.

Limit orders can help to downplay the potential for losses associated with pricing gaps. Placing a buy limit order or limit sell order may not close the gap entirely. But it may help to mitigate the losses you may experience when gaps in pricing exist. Whether the gap is moving up or down can determine what type of limit order to place and where to cap your limit price.

Advanced Strategies for Using Limit Orders

Seasoned investors may utilize more advanced strategies with limit orders. But note that it takes some practice and a solid understanding of what you’re doing to ensure you’re not taking undue risk.

Combining Limit Orders With Technical Analysis

Utilizing technical analysis strategies — which involve analyzing chart movements to try and get a sense of what a stock might do next — is one advanced strategy that investors can utilize. It’s fairly advanced, and requires some homework and analysis skills, but paired with limit orders, it may be a way for investors to incorporate new methods into their overall strategy.

Again, though: This is advanced, and doesn’t guarantee results.

Setting Conditional Limit Orders

Investors may also want to look at the possibility of using conditional limit orders to fine-tune their strategy. Conditional limit orders allow investors to set order “triggers” based on price movements, and there are several types: Contingent, one-triggers-the other, one-cancels-the-other, and one-triggers-a-one-cancels-the-other. So, they all sort of relate and can rely on each other.

The Takeaway

Limit orders can be an effective and efficient way for investors to set price caps on their trades, and also give them some protection against market swings. Limit orders offer other advantages as well, including giving traders the ability to place longer- or shorter-term trades that will be executed even if they’re not continuously watching the market. This can potentially protect investors against losses and potentially lock in gains.

That said, limit orders are complicated because they don’t guarantee that the trade will be executed at the set price. The stock (or other security) could hit the limit price — and there might not be enough supply or demand to complete the trade. There is also the potential for some missed opportunities, if the price you set triggers a trade, and subsequently the stock or other security hits an even better price.

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FAQ

Can I specify the price for a limit order?

Yes, investors can specify the price for a limit order. In fact, the price typically is the limit in a limit order, representing either a price ceiling or a price floor.

How long does a limit order stay active?

Generally, a limit order will stay active indefinitely, unless an investor cancels it or specifies otherwise. That means that if the limit is never reached, the order will not execute, and the limit order will remain active until the limit is reached.

Can I cancel a limit order once it’s placed?

Investors can cancel standing limit orders as long as conditions haven’t arrived that have led to the order being actively executed. The cancellation process will depend on the specific exchange an investor is using, however.

What happens if the market price doesn’t reach my limit price?

If the market price of a stock does not reach the limit price — either a price floor or price ceiling — then the limit order will not execute, and the limit order will remain active until it does.

Can I place a limit order outside of regular trading hours?

It’s possible to place limit orders outside of regular trading hours, depending on the rules of a given exchange, and what market conditions dictate. The order itself, of course, won’t execute until the market opens, assuming that the limit is reached.

Are there any fees associated with limit orders?

There may or may not be fees associated with limit orders, and it’ll depend on the specific exchange or brokerage an investor is using. Note that some brokerages may charge higher fees for limit orders than market orders — but some may charge no fees at all.

Are limit orders guaranteed to be executed?

No, there is no guarantee that a limit order will be executed, as it will only execute if the limit price is reached. If the limit is not reached, the order will remain active but not execute.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

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Jul

2025

25+ Potential Ways to Invest in a Carbon-free Future

27 Potential Ways to Invest in a Carbon-Free Future

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Table of Contents

How Carbon Impacts Our Planet
Climate-Friendly Industries and Companies to Invest In
FAQ

Investing in a carbon-free future may be a powerful way for individuals to help make an impact on the climate. Studies have shown that investing in climate mitigation efforts and adaptation now may prevent trillions of dollars in potential future losses from disaster relief, GDP decreases, and property losses, and it may cost far less to act now than to deal with future damages.

Investors with environmental priorities might consider investing in green stocks as a way to help build a strong long-term portfolio. As with all investing, it’s essential to carefully consider the risks involved in your chosen investment strategies. Some, all, or none of the strategies below may be appropriate for you.

Key Points

• Investing in carbon offsets and credits provides an option to support renewable energy and sustainable agriculture, though effectiveness is debated.

• ESG and climate-focused ETFs may help drive market growth and innovation in climate-friendly industries.

• Sustainable agriculture and forestry can help improve soil quality, enhance food production, and increase CO2 removal.

• Individual investments in green sectors can help support efforts vital for mitigating climate change and building a resilient, low-carbon economy.

• Green bonds, blue bonds, and investments in electric vehicles, green shipping, and waste management provide options for scaling climate solutions.

How Carbon Impacts Our Planet

Current carbon dioxide (CO2) levels in the atmosphere are higher than they have been for a long time, and likely higher than they have been in the past 3 million years.

Human activities ranging from automobile use and building construction to agriculture results in greenhouse gas emissions. Over millions of years prior to the Industrial Revolution, carbon was removed from the atmosphere naturally through plant photosynthesis and other processes — but by burning fossil fuels like coal and oil, humans have put that carbon back into the atmosphere in just a few hundred years. Once emitted, that CO2 stays in the air for centuries.

Changing the concentration of greenhouse gases in the atmosphere changes the Earth’s carbon cycles and results in global climate change. Some effects of climate change are already visible: rising sea levels, more intense hurricanes and fires, disappearing glaciers, and more. Around half of the CO2 emitted since 1850 is still in the atmosphere, and the rest of it is in the oceans causing ocean acidification, which interferes with the ability of marine life to grow skeletons and shells.

Currently, CO2 emissions continue to increase yearly, so it’s just as important for us to scale up the removal of CO2 from the atmosphere as it is to continue working on reducing emissions.

There are ways companies can do construction, agriculture, and all other industrial activity without emitting greenhouse gases into the atmosphere, but scaling up these solutions will require a massive amount of investment. That’s where individual investors can make a difference: By putting money behind companies that are working to create a carbon-free planet.

Climate-Friendly Industries and Companies to Invest In

Ready to make a difference by supporting climate visionaries? Here are 25+ ways to invest in efforts supporting carbon reduction.

1. Carbon Offsets

Individuals and companies can purchase carbon offsets to zero out their carbon emissions. How they work: You can calculate your estimated emissions from air or car travel or other activities, and invest in local or international projects that contribute to the reduction of emissions. For instance, an individual could invest in a solar energy project in Africa to offset their annual emissions.

Although carbon offsets are controversial because they don’t directly work to reduce one’s emissions, they do help to build out renewable energy infrastructure, regenerative agriculture, and other important initiatives. They are also helpful for offsetting certain activities that are often unavoidable and have no carbon neutral option, such as flying in a plane.

2. Carbon Credits

Carbon credits give a company the right to emit only a certain amount of carbon dioxide or other greenhouse gases.

They create a cap on the amount of emissions that can occur, and then the right to those emissions can be bought and sold in the market. Caps may be placed on nations, states, companies, or industries.

Carbon credits are controversial because larger companies can afford more credits which they can either use or sell for a profit, and some believe the program may lower the incentive for companies to reduce their emissions.

However, companies may be incentivized to reduce emissions in two different ways:

1. They can sell any extra credits they don’t use, thus making money.

2. Generally, limits are lowered over time, and companies that exceed their limits are fined — therefore, transitioning to lower emissions practices is in their best interest.

Although carbon credits are used by companies, individuals can invest in carbon credits through ETFs, or consider carbon emissions alternative investments.

3. ESG Indices and Impact Investing ETFs

Individuals can invest in ESG (environmental, social, governance) and impact investing ETFs, which are funds made up of companies focused on socially and environmentally responsible practices. Companies included in these funds may be working on renewable energy, sustainable agriculture, plastics alternatives, or other important areas, such as human rights standards and board policies.

4. Climate and Low-Carbon ETFs

Within the impact investing and ESG investing space, there are ETFs specifically focused on climate change and carbon reduction. These exclude companies that rely on fossil fuels, focusing exclusively on companies deemed as climate-friendly.

5. Carbon Capture, Sequestration, and Storage

There are many ways that carbon can be removed from the atmosphere, including through trees and other plants, or by machinery. CO2 can also be captured at the source of emission before it is released into the atmosphere. Once captured, the carbon needs to be stored in the ground or in long-lasting products, so it doesn’t get leaked into the air. Interested investors might want to consider buying stocks in companies that sequester millions of tons of CO2 each year.

6. Products and Materials Made from Captured Carbon

Once removed from the atmosphere, carbon can be used to make many products and materials, including carbon fiber, graphene, and cement. The construction industry is one of the biggest emitters of carbon dioxide, so replacing standard materials with ones made from sequestered CO2 could have a huge impact. All of these materials industries are poised to see huge growth in the coming years, and investing in them helps promote market growth, which may lower the cost of materials and help make them more accessible to customers.

7. Tree-Planting Companies and Sustainable Forestry

The business of planting trees has been growing. Newer tree planting companies may currently be private, but investors have the option to buy stocks, REITs (Real Estate Investment Trusts) and ETFs in companies that practice sustainable forestry and land management, as well as companies that allow investors to purchase a tree.

8. Regenerative Agriculture

The way the majority of agriculture is currently practiced worldwide depletes the soil and land over time. This not only makes it harder to grow food, it also decreases the amount of CO2 that gets removed from the atmosphere and stored in the soil. But with regenerative agricultural practices, the quality of soil improves over time. Spreading the knowledge and use of regenerative farming can be extremely important to both food security and greenhouse gas management. Individuals have the option to invest in regenerative agriculture through REITs, or even by investing in individual farms.

9. Green Bonds and Climate Bonds

Green bonds function the same way as other types of bonds, but they are specifically used to raise money to finance projects that have environmental benefits. Projects could include biodiversity, rewilding, renewable energy, clean transportation, and many other areas in the realm of sustainable development. In addition to buying individual bonds, investors can consider buying into bond funds.

10. Blue Bonds

Blue bonds focus on protecting the oceans by addressing plastic pollution, marine conservation, and more.

11. Refrigerant Management and Alternatives

Refrigerants used for cooling are a top emitter, and there are several ways to invest in improvements in the refrigerant industry:

• Invest in alternative refrigerants such as ammonia and captured carbon dioxide.

• Invest in companies making new types of cooling devices.

• Invest in refrigerant management companies that reclaim refrigerants.

Other companies are working to retrofit old buildings and provide new buildings with more efficient HVAC systems.

12. Plant-based Foods

Raising livestock for food has a huge environmental footprint: It leads to huge amounts of deforestation, and cows emit methane when they burp, which is a much stronger greenhouse gas than CO2. Raising cows also uses a lot of water, transportation, chemicals, and energy. Replacing meat and materials with plant-based options can significantly reduce emissions and resource use.

13. Food Waste Solutions

Food waste in landfills does not biodegrade naturally — instead it gets buried under more layers of refuse and biodegrades anaerobically, emitting greenhouse gases into the atmosphere for centuries. Landfills are one of the biggest contributors to global emissions, with food waste contributing 8% of greenhouse gas emissions worldwide.

Some companies are heavily investing in waste-to-energy and landfill gas-to-energy facilities, which turn landfill waste into a useful energy source — essentially making products out of food ingredients and byproducts that would otherwise have gone to waste. One has developed a promising food waste recycling unit that could help reduce the amount of waste that sits in landfills as well.

14. Biodiversity and Conservation

Protecting biodiversity is key to creating a carbon-free future. Biodiversity includes crucial forest and ocean ecosystems that sequester and store carbon while also maintaining a planetary balance of nutrient and food cycles.

Interest in biodiversity investments has been growing, and there is even an ETF focused on habitat preservation.

15. Sustainable Aquaculture

The demand for fish rises every year, in part because eating fish is better for the planet and emissions than eating livestock. But a lot of work goes into making sure fishing is done sustainably to avoid overfishing and species depletion, and prevent widespread disease and wasted seafood. Investors may choose to support sustainable aquaculture by seeking out new and established businesses in the industry, or by investing in ETFs that include companies involved in responsible use and protection of ocean resources.

16. Green Building Materials

Creating construction materials such as steel and concrete results in a significant amount of CO2 emissions. There is currently a race in the materials industry to develop new materials and improve the processes of making existing ones. Both new and established businesses are part of this race. Besides steel and concrete, other key building materials that can help contribute to a carbon-free future include bamboo and hemp.

17. Water

Clean water systems are essential to the health of the planet and human life. As the population grows, there will be more demand for water, which requires increased infrastructure and management. Proper water management can have a huge impact on emissions as well.

There are three main ways for individuals to invest in the future of water. One is to invest in public water stocks such as water utilities, equipment, metering, and services companies. Another is to invest in water ETFs or in ESG funds that focus on water.

18. Green Shipping

The transportation of goods around the globe is a huge contributor to greenhouse gas emissions. In order to improve shipping practices, a massive shift is underway. The future of green shipping includes battery-operated vessels, carbon-neutral shipping, and wind-powered ships. Other technologies that play into green shipping including self-driving vehicle technology and AI. Investing in any of these areas can help the shift towards a carbon-free future.

19. Electric cars and bicycles

The use of electric cars and bicycles can significantly reduce the amount of CO2 emissions that go into the atmosphere. Interested investors might want to research stocks in the electric vehicle, charging, and battery space.

20. Telepresence

As proven during the pandemic in 2020, the reduction of work-related travel can significantly reduce global CO2 emissions. Video conferencing and telepresence tools continue to improve over time, which reduces the need for people to fly and drive to different locations for business meetings. Investing in companies working on these technologies may help solidify and continue the trend of remote work.

21. Bioplastics

Bioplastics include plastics that are completely biodegradable as well as plastics that are made partially or entirely out of biological matter. Currently bioplastics make up a very small portion of global plastic use, but increasing their use can greatly help to reduce waste and emissions.

22. Energy Storage

One of the biggest hurdles to scaling up renewable energy is creating the technology and infrastructure to store the energy, as well as reducing the costs of energy storage to make it more accessible. Investing in energy storage can help develop and improve the industry to help hasten the transition away from fossil fuels.

23. Green Building

Making the construction industry carbon-free goes beyond the creation and use of green building materials to include LED lighting, smart thermostats, smart glass, and more. These technologies can drastically reduce the energy used in buildings. There are many companies to invest in in the green building industry, as well as ETFs that include green building stocks.

24. Recycling and Waste Management

As the world’s population grows and becomes more urbanized, waste management and recycling will become even more important. Preventing waste from going to landfills is key to reducing emissions, as is the reuse of materials. For interested investors, there are many companies to invest in within waste management.

25. Sustainable Food

Food production is heavily resource-intensive, with many moving parts. In addition to companies working to improve soil health, refrigeration, plant-based foods, and food waste, there are also companies working on sustainable fertilizers, pesticides, irrigation, seeds, and other areas. One way to invest in sustainable food is through an ETF.

26. Sustainable Fashion

The fashion industry is one of the world’s worst polluters. In fact, the fashion industry produces about 10% of global carbon emissions, in addition to its huge water use and polluting the ocean with plastics. Several of the world’s most well-known sustainable fashion brands are privately held, but increasingly, public companies are also making big strides in sustainability. Individuals can also help support sustainable fashion by investing in material companies and agricultural producers that make bioplastics, bamboo, hemp, and sustainable leather alternatives.

27. Renewable and Alternative Energy

Energy is another important area to invest to help support a carbon-free future. Within the renewable and alternative energy space, individuals can invest in companies working on wind, solar, biomass, hydrogen, geothermal, nuclear, or hydropower. There are many companies and ETFs to invest in within renewable energy.

The Takeaway

Every industry around the world needs to make big shifts in the coming years in order to reduce emissions and help and build a carbon-free future. As an individual, investors can make their voices and their choices heard with their dollars, by investing in companies leading the way in sustainability.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What are green stocks?

Green stocks are shares of companies that are focused on sustainability, or that are working on technologies or in industries that are looking to help decarbonize the planet.

What does ESG stand for?

ESG stands for “environmental, social, governance,” and is a broad qualifier for certain investments that qualify for certain activities. That may include, for example, sustainable agriculture, renewable energy, fair executive pay ratios, and labor rights.

What is green building?

Green building refers to construction projects that utilize low-carbon or carbon-free resources, such as LED lighting, smart thermostats, smart glass, and more. These can also reduce energy usage in buildings.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q225-141

Jul

2025

10 Ways to Practice Financial Discipline

By LeeMarie Kennedy | Budgeting & Goals, Financial Independence, invest | Comments Off

Table of Contents

What Does Financial Discipline Mean?
10 Steps For Achieving Financial Discipline
Focusing on Financial Planning
FAQ

Financial discipline means making wise, consistent decisions about how to manage your money and achieve your goals. It may come naturally to some people, but many others need to learn and then practice it. Doing so can help you better understand and track your earnings, spending, and savings and make your money work harder for you. Financial discipline can help you on the path to buying a home, saving for your child’s education, or retiring early. And it can pay off by minimizing your money stress and enhancing your confidence.

This guide shares 10 essential ways to achieve financial discipline and enjoy its rewards.

Key Points

• Financial discipline can require setting clear financial goals to help optimize spending, saving, and investing.

• Creating a budget and tracking expenses regularly ensures financial control.

• Paying down existing debt improves financial health and frees up resources.

• Automating savings and payments builds savings and avoids late fees.

• Flexibility and patience are essential for adapting to life changes and maintaining long-term financial discipline.

What Does Financial Discipline Mean?

Financial discipline is the act of making smart decisions about your money so that you can achieve your financial goals and a sense of well-being. This can involve setting specific monetary (spending and saving) goals and tracking your progress.

Some aspects of financial discipline include:

• Budgeting

• Managing debt responsibly

• Saving and investing

• Setting and achieving financial goals

10 Steps For Achieving Financial Discipline

There are many paths to financial discipline, but these 10 steps can help you take control of your money and your financial destiny.

1. Getting Clear About Financial Goals

A vital step toward getting disciplined about money is setting financial goals. Writing down specific short-term, mid-term, and long-term financial goals can help illuminate a plan for how to proceed.

Here are some common examples of financial goals. They range from short-term money goals to longer-term ones:

Short-term Financial Goals

These are typically goals that you hope to achieve within a year or less.

• Paying off credit cards and charge cards

• Saving money for summer vacation

• Setting and sticking to a spending limit for the month

• Establishing an emergency fund

• Saving a certain amount each month

Mid-term Financial Goals

Mid-term goals tend to have a longer horizon. Perhaps you work to achieve them in one to five years.

• Paying off student loan debt

• Setting aside funds for a wedding

• Putting away money to buy a big-ticket item like a car

• Saving up for an important home renovation

Long-term Financial Goals

These are aspirations that will likely take longer than five years to accomplish.

• Saving for your child’s future college tuition

• Putting away money for a down payment on a house

• Investing in stocks and bonds for future returns

• Setting aside money for retirement

2. Creating a Convenient Budget

Building a monthly budget isn’t necessarily at the top of everyone’s bucket list, but analyzing and tracking your expenses, spending habits, and savings can make it easier to get a handle on overall finances. Whether you use a cool journal, an online spreadsheet, or an app, there are many ways to manage a budget.

It can be worthwhile to try different types of budgets until you find one that is a good fit. Many people like the 50/30/20 budget rule, which says to dedicate 50% of your take-home pay to necessities, 30% to wants, and 20% to savings and/or additional debt payments above required minimums. Creating a budget can be a key aspect of becoming financially disciplined.

Recommended: 50/30/20 Budget Calculator

3. Paying Down Existing Debt

Debt comes in many forms — from student loan debt to car loans, medical bills to mortgages, and of course credit card debt. By getting rid of debt, you can save on interest and might positively impact your credit score by lowering your credit utilization ratio.

Paying down debt can be a critical facet of financial discipline, making it easier to save money, invest, and plan for a brighter financial future. Adding the debt paydown amount to your budget ensures it’s covered each month.

4. Opening a High-Yield Savings Account

There’s no specific answer to how much money you should have in savings. However, it is important to get started and contribute regularly. Even if it’s as little as $20 a month, setting something aside for savings ensures that funds will start to add up. By opening up a savings account and setting up a recurring deposit, you’ll be putting a pivotal piece of financial discipline on autopilot.

Of the different types of savings accounts, the specific kind you choose can make a big difference. According to the FDIC, the national average interest rate on savings accounts was 0.42% APY as of December 16, 2024.

By choosing a high-yield savings account (typically found at online banks), however, interest rates can reach 3.00% APY. This can help you build your financial position.

5. Establishing an Emergency Fund

Approximately 42% of Americans have no emergency savings, according to recent surveys. That means these individuals would likely have to take on credit card debt, secure a personal loan, or ask family or friends for financial help if they, say, lost their job or had unexpected bills to pay.

Establishing an emergency fund is an important step in gaining financial discipline. Most money experts advise socking away enough over time to cover three to six months’ worth of living expenses.

6. Cutting Back on Spending

Despite the best of intentions, overspending happens. Whether it’s a pileup of holiday gift purchases or too much shopping on social media, spending more than what you earn is bound to occur from time to time. Making sure it’s not a regular occurrence is a sign of good financial discipline.

Cutting down on spending can be guided by a good budget. Habits like shopping with a list to avoid impulse purchases, hunting for bargains, and using promo codes can help you make sure that you don’t overdo it with your credit and debit cards.

7. Seeking Sound Investment Strategies

Familiarizing yourself with a wide variety of investment accounts and strategies can help educate you and enhance your financial discipline. By weighing the risks and benefits of certain account types, penalties, fees, and the ability to access funds, you can select the right investment strategy. This in turn may help you achieve some of your longer-term money goals.

8. Automating Savings and Payments

A solid tool for achieving financial discipline can be to tap tech and automate your savings and payments. If you set up recurring transfers from your checking account to your savings right around payday, you can seamlessly build your savings instead of spending that cash.

By automating payments (say, to your utility companies or car loan lender), you help ensure that your bills get paid on time. This helps you avoid late fees and maintain your credit score.

9. Tracking Expenses Regularly

Tracking your expenses is something typically done when setting up a budget, but to achieve financial discipline, it’s important to check in regularly with your money. For example, inflation can take a toll on your expenses. Insurance premiums, rent, heating costs, and other regular payments can creep up and threaten your financial stability.

It’s wise to take a closer look if not monthly, then every few months. There are tools that can help you with this, too. See what your financial institution offers. They may offer a good money tracker to make this task extra easy. If not, third-party products are available.

10. Be Flexible and Patient

Last but not least is the fact that cultivating financial discipline is a process. Sometimes it will be harder than others. Perhaps you have a period in which you’re out of work and your credit card balance creeps up. Or maybe you have a baby or buy a home and are having trouble contributing to your retirement account. These curves along the road to financial discipline are part of life. Roll with them and adjust your plans, seeking help from a qualified financial planner if you like.

Don’t feel that just because you’re not where you want to be means all is lost. Financial discipline is a long haul, so go easy on yourself and keep pushing ahead, one step at a time.

Focusing on Financial Planning

The term “financial planning” might feel more like a unicorn you only get to meet when you’re floating high on a cloud of financial independence, but it’s actually another sound step along the way. These days, financial planning isn’t designated for the already wealthy, it’s becoming accessible and essential for people at every stage of life. In fact, in the age of digital transformation, financial planning can even be automated. This can be another way to optimize the long-term view of your money and your goals.

The Takeaway

Financial discipline revolves around setting specific financial goals and adopting habits that help you achieve them. By practicing financial discipline, you can create a budget, build up savings and an emergency fund, hit your money goals, and make progress toward a more stable financial future.

Finding the right financial institution to suit your needs can be another important step. Doing so can help you manage your money more easily, minimize fees, and earn interest on the money you stash away.

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

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

FAQ

How long does it take to develop financial discipline?

Financial discipline is at its best when it’s a lifelong habit that provides money guidance and guardrails. That said, the habits that create financial discipline can be adopted in minutes. Establishing recurring transfers from your checking account into an emergency fund, for instance, is a “set it and forget” move that can be quickly accomplished.

What are the most common financial mistakes people make?

Common financial mistakes include not budgeting, not automating finances, and not prioritizing saving. Other issues can be overspending, relying too heavily on credit cards, and not setting short- through long-term goals.

How does financial discipline impact long-term wealth building?

Financial discipline can help you build long-term wealth. It’s a path to funding your financial aspirations, such as automating deposits into a savings account that’s earmarked for the down payment on a house. Also, by adopting and following a budget, you can keep your spending and saving in line with your earnings throughout your life.

What are some tools that can help with budgeting and saving?

There are many tools available to help with budgeting and saving. A good place to start can be with your financial institution. They likely have tools for automating transfers from checking into savings, tracking your spending, and budgeting wisely. If what they offer isn’t what you’re looking for, there are an array of third-party apps, both free and paid, that can help you.

Is it ever too late to start practicing financial discipline?

It’s never too late to start practicing financial discipline. Whether you’re just starting your independent financial life or are much further along, there’s likely a way to make managing your money more effective and easier. That could mean building a better budget, paying down debt, earmarking more funds for retirement, or figuring out the best way to start saving for your child’s education.

Photo credit: iStock/shih-wei

Jul

2025

How Much of Your Paycheck Should Go to Savings?

By Janet Siroto | Budgeting & Goals, money | Comments Off

Table of Contents

What Percentage of Your Paycheck Should You Save?
4 Important Savings Goals to Work Toward
Strategies for Increasing Your Savings Rate
Reducing Your Costs to Save More
Where to Put Your Savings
FAQ

Financial experts typically advise people to save at least 10% to 20% of their salary, but recent GOBankingRates research reveals that 34% of Americans aren’t putting a cent of their paycheck into savings. Almost the same percentage saves less than 10% of their earnings.

Whether you are on track with your savings plans or struggling to get started, this guide can help. You’ll learn more about how much of your paycheck you should stash away and toward which goals, plus tactics for prioritizing savings.

Key Points

• Financial experts recommend saving at least between 10% and 20% of your salary, with 20% being a common figure.

• The 50/30/20 rule suggests allocating 20% of your take-home income to savings, including retirement, short-term savings, and other goals, such as debt repayment beyond the minimum due.

• The amount to save from each paycheck depends on factors like goals, current income, and living expenses.

• Saving for an emergency fund, retirement, and other goals are important savings objectives.

• Cutting spending, automating savings, and choosing the right savings account can help increase savings.

What Percentage of Your Paycheck Should You Save?

When it comes to what percentage of income to save for future expenses, financial advice can vary depending on where you look. Some experts suggest saving as little as 10% of each paycheck, while others might suggest 30% or more.

For some people who are living paycheck to paycheck, the amount may be lower still. It may be wiser to simply come up with a set amount (say, $25 to $50) to deposit into savings in your bank account.

Rules of Thumb

According to the popular 50/30/20 rule of budgeting, 50% of your take-home income should go to essentials (or needs), 30% to nonessentials (or wants), and 20% to saving for future goals (including debt repayment beyond the minimum).

The right amount for you to save from each paycheck will depend on your income, your fixed expenses, as well as your short- and long-term financial goals.

If, for instance, you are a recent grad living at home for a while and your living expenses are very low, you may be able to save a much higher percentage for the time being.

Or, if you have a sizable credit card balance, you might pump money toward paying that off. In this situation, you might minimize or even pause the amount saved while getting that debt eliminated.

Calculating Percentages From Your Paycheck

To figure out how much to save from each paycheck, you’ll need to consider a few factors. The right amount will depend on your income, your fixed expenses, as well as your short- and long-term financial goals.

• For example, if the cost of living is high in your state or local area, you may need to spend more than half of your take-home pay on living expenses, making it hard to put 20% of each paycheck into savings.

• On the other hand, if your goal is to buy a home in two years, you may need to put more than 20% percent of your paycheck into savings in order to have your down payment in that timeline. (Keep reading for tips on how to save more.)

• If you want to retire early, you may need to put more of your income toward retirement every month than the average worker.

Recommended: 50/30/20 budget calculator

4 Important Savings Goals to Work Toward

Having a few specific goals in mind can help you determine how much to save from each paycheck as well as motivate you.

Here are some common savings goals that can help you build financial wellness.

1. Emergency Fund

Yes, it can be hard to save money, but one of the most important priorities is to sock away money (even if just a little) regularly into an emergency fund. In SoFi’s April 2024 Banking Survey of 500 U.S. adults, 77% of respondents with a savings account said they use the account to save for emergencies.

Emergency Fund Balances
Source: SoFi’s April 2024 Banking Survey

An emergency fund is a bundle of easily accessible cash that could help you handle a financial curveball, such as a job loss, medical emergency, or big ticket car or home repair. Ideally, an emergency fund will contain enough money to cover your living expenses for three to six months, so you don’t wind up with credit card debt.

• If you are married with an employed spouse and with no children, for example, you may only need to cover three months’ worth of expenses.

• If you have kids or you’re single, you may want to have an emergency fund that could cover more than six months’ worth of expenses.

Recommended: Emergency Fund Calculator

2. Paying Off High-Interest Debt

Another important thing you could consider doing with your savings is paying off any high-interest debt (or “bad” debt) you may have. Typically, this is credit card debt, which currently has an average rate of well over 20%.

• One debt payoff strategy is the debt snowball method. You start by paying off the debt with the smallest balance and put all your extra payments toward that until it’s paid off (while continuing to pay the minimum on your other debts).

You then put extra payments toward the debt with the next highest balance, and so on. This can give you a sense of accomplishment which can help motivate you to continue your aggressive repayment.

• Another approach is the debt avalanche method, putting all your extra payments toward the debt with the highest interest rate, while paying the minimum on the others.

When that debt is paid off, you then focus on the debt with the next-highest interest rate. This strategy can be the most cost-effective method.

3. Saving for Retirement

Another reason why saving money is important: It can secure your future by providing for your retirement. Exactly how much of your paycheck should go to retirement savings will depend on your age and when you want to retire. Some pointers:

• If your company offers a 401(k) with matching contributions, it can make sense to put aside at least as much of your paycheck as your company will match (since this is essentially free money).

• If you don’t have access to a 401(k) or want to contribute beyond that fund, you may want to open a Roth or Traditional IRA. Both types of IRAs have different tax benefits.

• When you invest in a Roth IRA, the money is taxed at the time of contribution but then in retirement, you can withdraw it tax-free. Contributions made to a traditional IRA might not be taxed at the time they are made but are taxed when they are withdrawn in retirement.

When choosing how much of your paycheck to put into retirement savings, you may want to keep in mind that the IRS sets restrictions on how much you can contribute to your retirement funds each year. IRS retirement guidelines are published and updated regularly.

4. Saving for Other Goals

After establishing plans for debt repayment, an emergency fund, and retirement savings, you may also want to consider working toward your other financial goals, like buying a house, saving for your kids’ future education, or affording a great vacation.

When you’re saving for a big purchase, you can start by determining how much money you’ll need and when you want to have the money. You can then break that dollar amount down into the amount you need to save each year and each month.

Strategies for Increasing Your Savings Rate

If you want to ramp up your savings, here are a couple of strategies that can pay off.

Automating Your Savings

Also known as paying yourself first, automating your savings involves setting up recurring payments or transfers into an account where the money won’t be spent and can earn interest. You might have a portion of your direct-deposit paycheck go straight into savings, or you could have a set amount whisked from checking into savings every pay day.

Read on for ideas about which kind of account is best for your savings.

Adjusting Your Budget

If you need to save more, take a closer look at your budget. Checking in with your budget is an important way to stay in control of your money. You may see patterns that you can address to maximize your savings. For example, did your wifi provider raise costs or have your property taxes increased year over year?

Once you size up your situation, you can take the right next steps, such as reducing costs (see below), finding a budget that works better for you, or using tech tools, such as money trackers, to manage your money more effectively.

Recommended: How to Make Money From Home

Reducing Your Costs to Save More

You can help ramp up your savings by cutting your spending. Here are some ideas:

• Review your monthly bills and see if there’s anything you can cut. You might have signed up for a couple of subscriptions and then forgotten about them, or you might see that your restaurant spending is surging lately.

• Learn how to save on food. You might try planning your meals weekly, so nothing goes to waste; joining a warehouse or wholesale club to lower your grocery bill; and using coupons and discount codes to downsize your food costs.

• Bundle up: If you get your auto and home (or renters) insurance from one provider, you may save on your premiums.

• Fight off FOMO spending (fear of missing out). Just because your friends are upgrading to a luxury car or a social media influencer is frolicking on the French Riviera, that doesn’t mean you have to too.

• Pause, for a day or a month, before making pricey impulse buys to make sure you really and truly want or need them. Try a 30-day spending rule to eliminate impulse buys. It involves waiting 30 days to make an unplanned purchase; the urge to buy may vanish in that time period.

• Pay in cash. Plastic, whether a credit or debit card, can make it easy to overspend. If you take out the cash you need for the week ahead and use only that to pay for purchases, you may be able to rein in your purchasing.

• Use budgeting tools to help stay on track. Twenty-three percent of people in SoFi’s survey use budgeting tools offered by their bank, and 20% have knowingly used AI to manage their budget or finances.

Where to Put Your Savings

Once you’ve committed to saving money, you’ll have some options about where to keep it.

High-Yield Savings Account

A high-yield savings account pays a significantly higher interest rate than a standard account. As of mid-2025, the average savings account earned 0.38% interest while some high-yield savings accounts were paying 4.00% or more.

These accounts are often found at online banks vs. traditional ones. Just be sure to read the fine print and make sure you are aware of and comfortable with any account fees or minimums that might be involved. These accounts allow for easy access to your money when needed.

Certificate of Deposit (CD)

A certificate of deposit (CD) is an account in which you commit to keeping your money at the bank for a specific term and you know what rate you will earn. Typically, there is a penalty for early withdrawal. The terms for CDs can range from a few months to several years, so you can pick what works best for you. Longer terms will often have higher interest rates.

Investment Options for Long-Term Savings

Longer-term savings goals, meaning five or 10 years or longer (such as your retirement savings) can involve investing, since you’ll likely have more time to ride out the ups and downs of the markets.

For college savings, you may want to consider opening a 529 savings plan.

Test your understanding of what you just read.

The Takeaway

Many financial experts and budgeting methods recommend putting 20% or more of your salary into savings, but that may not fit your needs. Consider your savings goals, your financial situation, and other factors to find the right figure and the right tactics to help you stash the right amount of cash. Also consider where to keep your savings: A higher rate of interest can help your money grow and work harder for you over time.

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

FAQ

Is saving 10% of my paycheck enough?

Most financial experts advise saving between 10% and 30% of your salary, with 20% being a common figure. Based on this, 10% is an adequate amount for some, but if you can ramp that up in the future, so much the better.

Is 20% of your salary enough to save?

According to the 50/30/20 budget rule, saving 20% of your salary is a good goal to have; that’s the 20 in the name of the guideline. This amount can then be divided to address different needs, such as saving for the down payment on a house, for your child’s college education, and for retirement. However, for some people, 20% won’t be enough if, say, you have a large family to support.

How much of a $1,000 paycheck should I save?

Typically, financial experts recommend saving between 10% and 30% of your paycheck, with 20% being a good figure to aim for. For $1,000, that would mean between $100 and $300, with $200 being the 20% figure. However, if you are earning a lower salary and money is tight, it would be understandable if you save less until your salary increases.

How much should you save if you don’t have a regular paycheck?

If you don’t have a regular paycheck, it can be especially important during high-earning periods to save at least 20% of your pay. Also aim for at least six to 12 months’ worth of living expenses in your emergency fund. This can be a good cushion during the off-season (if you have a seasonal business) or you lose a steady gig.

How can I save money if I live paycheck to paycheck?

If you’re living paycheck to paycheck, saving is still important. Review your fixed expenses and see what cuts you can make to free up funds for your emergency savings account and other goals. Put in the time to find a budget that works for you, and stash any money windfalls (such as a tax refund or unexpected gift of cash) into your savings. You might also sell your unwanted but still useful items to raise some cash for your savings.

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

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

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

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOBNK-Q225-107

Jul

2025

How Long Do Late Payments Stay On a Credit Report?

By Dan Miller | Credit, Family Finances, money | Comments Off

Table of Contents

What Is Considered a Late Payment?
When Do Late Payments Fall Off a Credit Report?
How Late Payments Affect Your Credit Score
How to Remove Late Payments From a Credit Report
What Can You Do to Minimize the Impact of a Late Payment?
Guide to Avoiding Late Payments
FAQ

Late payments generally only make it onto your credit report if they’re late for more than 30 days. Once a payment is late for 30 days, the creditor will likely report it to the credit bureau, where it will stay for seven years from the date of the first delinquent payment.

Because late payments can have a negative impact on your credit score, it’s best to avoid them when possible. Here’s what you need to know about this important topic.

Key Points

• Late payments are typically reported to credit bureaus after 30 days.

• They usually remain on your credit report for seven years.

• Payment history can significantly affect credit scores.

• Negotiating with creditors or disputing errors can reduce the impact of late payments on credit scores.

• Set up autopay, reminders, or change due dates to avoid late payments.

What Is Considered a Late Payment?

Most accounts have a grace period after the due date where the lender will accept payment without any penalty. The exact length of a grace period will depend on the terms of your credit card or other account, but 21 days is common.

After the grace period, your lender may charge a late fee or make other changes to your account. Once your account is 30 days or more past due, your lender will typically report it to the major credit bureaus.

When Do Late Payments Fall Off a Credit Report?

In most cases, it will take seven years for a late payment to fall off a credit report. Even if you bring your account current after the late payment has already been reported to the credit bureaus, it will still show up on your credit report for seven years after the first late payment. This is why one of the top credit card rules is to make payments on time whenever possible.

One exception to this can be paid medical debt and medical debt under $500, but guidelines are in flux, so it can be worthwhile to do your own research on this topic.

How Different Credit Bureaus Handle Late Payments

Each credit bureau has its own proprietary way of analyzing your information and calculating your credit score. A late payment could have a more significant impact on one score than on another. For example, the VantageScore vs. FICOScore currently gives a bit more weight to payment history. This is one reason why your credit score may vary among the different bureaus, and why your VantageScore could be lower than the digits provided by FICO®.

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How Late Payments Affect Your Credit Score

One of the consequences of a credit card late payment is that it will have a negative impact on your credit score.

Your past payment history is one of the biggest factors in what affects your credit score. As such, if you have a significant amount of late payments on your credit report, it will be tough to have an outstanding credit score.

Short-Term vs Long-Term Credit Score Impact

Late payments can impact your credit score in both the short and long term. Short-term consequences can include late fees and potentially increased interest rates from your lender. Long-term impacts of late payments could be a drop in your credit score, difficulty getting loans or credit, and even having the amount you owe turned over to debt collection.

How to Remove Late Payments From a Credit Report

It’s difficult if not impossible to remove a late payment from your credit report — unless it was reported in error.

However, the only way to find out if a late payment is reported in error is if you regularly review your credit report. If you have documentation that shows that you made the payment on time, you can contact the credit bureau and ask them to update your credit score and credit report.

What Are Acceptable Reasons for Late Payments on Your Credit Report?

To qualify as an acceptable reason for a late payment on a credit report, there usually must be unforeseen circumstances beyond your control, such as medical emergencies, job loss, or natural disasters. Administrative errors by the creditor can also sometimes be a valid excuse. Some creditors may also consider billing disputes or legitimate errors as acceptable reasons. You may be able to manage the impact of these kinds of late payments and fend off a credit score drop.

Goodwill Adjustment Letters

If any of the scenarios above apply to you and your credit report, you might write a goodwill adjustment letter. In this kind of letter, which may also be referred to as a late payment removal letter, you request that a creditor who reported your late payment(s) remove this entry from your credit reports. While not guaranteed to work, it could play a role in helping you get rid of the mark that is negatively affecting your credit.

Requesting a Pay-for-Delete Agreement

Another option if you have a late payment on your credit report is to negotiate with the creditor or collection agency. In this case, you are contacting the party you owe money to (usually in writing) and offering to pay a sum to settle the debt and have the negative mark completely removed from your credit report. Again, this method is not guaranteed to work, and there can be legal facets to it, which can add to the complexity of this undertaking.

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What Can You Do to Minimize the Impact of a Late Payment?

Say a late payment pops up on your credit report. Maybe you got busy with work and your family or ran short on cash. Whatever the case, if you’re willing to do the legwork, there are a couple steps you can take that could potentially minimize the impacts of a late payment.

Negotiate

One option you have for minimizing the impact of a late payment is to negotiate with your credit card issuer. This will generally be more effective if it’s only been a short time since your payment was due or if you have not had late payments previously.

For example, your lender may be willing to waive any late fees or penalty interest if you enroll in autopay from your checking account and/or pay any past-due balance. Contact customer service, and see what can be worked out.

Dispute Errors on Your Credit Reports

If it’s been more than 30 days and your lender has already reported the late fee to the credit bureaus, it can be difficult to remove it from your credit report. However, if you have documentation that you made the payment on time, you can contact the credit bureaus to have them update and correct your credit report.

This is why it is important to understand how checking your credit score affects your rating — generally when you are reviewing your own credit report, it does not impact your credit score. Regularly reviewing your credit report for errors and discrepancies is a great financial habit to have.

Catch Up on Payments as Soon as Possible

Another smart move is to address late payments ASAP. This should be a priority to protect your credit score. Many people have moments when they miss paying a bill on time, such as when on vacation or waiting for a payment for a gig job. Stay on top of payment due dates (see below) and, if and when one happens, do your best to take care of it immediately.

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Guide to Avoiding Late Payments

Since it is difficult if not impossible to remove late payments from your credit report once they’re there, the best course of action is to avoid late payments in the first place. Here are a few tips on some of the best ways to avoid late payments.

Set Up Autopay

One great way to avoid late payments is to set up autopay from a checking or savings account. You can customize your autopay payments to cover the minimum amount, the full statement balance, or anywhere in between. You’ll just want to make sure you have enough funds in the attached account to cover the balance.

Set Payment Reminders

If you can’t or don’t want to set up autopay on your accounts, another option is to set up payment reminders. That way, you can get an email or text message a few days before your payment is due. Getting a reminder can help you remember to make the payment on or before its due date.

Change Your Payment Due Date

Sometimes the due date for a particular loan or credit card doesn’t line up conveniently with when you have the money to pay it. You might find that your credit card due date always seems to come a day or two before payday. If that’s the case, many lenders allow you to change your payment due date to one that’s more convenient for you.

Consider a Backup Payment Method

Another way to make sure bills get paid on time is to use a backup payment method. This is typically applicable for bills you pay online or in app, including those you pay on a recurring basis, say with autopay. You can usually go to your account settings or billing management section of a platform you’re using, and add, say, a credit card or bank account to serve as a secondary source of funding should the first one be inadequate.

The Takeaway

Paying your credit card and other debts on time can be one of the best ways to positively impact your credit score. Late payments can be reported to the credit bureaus as soon as 30 days after the due date. Once they’re on your credit report, they will stay there for seven years from the date of the first late payment. Consider your bank’s capabilities when avoiding late payments: The ability to set up autopay, have overdraft protection, and other features can play a role in avoiding this issue as well.

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FAQ

Can I get late payments removed from my credit report?

Typically, once they’ve been reported to the credit bureaus, you can only get late payments removed if you didn’t actually pay late. If you have documentation that shows that you made the payment on time, you can submit that to each credit bureau and ask that they update your credit score. You might be able to negotiate with a creditor to remove a negative mark, but this is not guaranteed to work.

Is it true that after 7 years your credit is clear?

How long missed payments and late payments stay on your credit report is usually seven years. That means that if you have not had any negative marks or late payments for seven years, you’ll be starting with a fresh slate.

Is payment history a big factor in your credit score?

Yes, payment history is a big factor in how your credit score is determined. While each credit bureau calculates your credit score differently, payment history is typically listed as one of the biggest factors in what affects your credit score.

How many points does a late payment affect your credit score?

There is not a single set amount that your credit score will drop if you have a late payment. Factors include your current credit profile and how late you are with your payment. For instance, being a day or two late is likely to ding your score less than being a few weeks late or missing the payment completely.

Can one late payment stop me from getting a loan?

One late payment could have a negative effect on your loan approval in some cases. Your payment history is the single biggest factor for determining your credit score, and if your score were considered borderline, a late payment could push you into a lower category. That lower credit score range might change the lender’s perspective on your creditworthiness. That said, a late payment is more likely to be a red flag than a dealbreaker.

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