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Making a budget can be the foundation of taking control of your money and reaching your financial goals. It can help you get in touch with the cash you have coming in, your spending, and your savings. Put simply, a budget can get your financial life in balance.

The math involved doesn’t have to be complicated, and a good budget can be easily revised to align with changes in your life, whether that’s a rent increase or a raise at work. Read on for the five simple steps to creating a budget that can boost your financial savvy and make your money work harder for you:

5 Steps to Creating a Budget

  1. Determine Your Financial Goals

  2. Calculate Your Income

  3. Review Your Expenses

  4. Choose Your Budgeting Method

  5. Make Adjustments

1. Determine Your Financial Goals

Setting financial goals is a crucial first step to being more intentional with your money management tactics. As in, having a purpose can give you more motivation to stick to your budget and get you on your way to creating smart financial goals that suit your life.

How to set financial goals? Start by taking time to come up with a clear idea of your short-term and longer-term aspirations. What kind of things could you dream about? Anything that’s ultimately important counts.

Examples of financial goals could include:

•  Having $1,000 in the bank

•  Hosting an amazing 30th birthday party for your partner

•  Buying a home

•  Saving enough to cover your kid’s college tuition

•  Getting some new wheels

•  Taking a dream vacation

•  Getting out of credit card debt

•  Starting your own business

•  Planning for retirement

•  Establishing and maintaining an emergency fund.

2. Calculate Your Income

Before allocating money for various spending categories and goals, you need to know how much money you have to work with each month. Calculate your income — you can look at your paystub and/or other earnings from your side businesses or second job. Or maybe you are the lucky holder of an investment account that generates dividends. Perhaps you regularly receive bonuses or tips at work. Add it all up.

💡 Quick Tip: Make money easy. Open a bank account online so you can manage bills, deposits, transfers — all from one convenient app.

3. Review Your Expenses

To make a solid, workable budget, you also need to know exactly how much money is typically going out. Pull together all your financial statements and look at how much you typically spend per month for different categories.

Budget categories can include:

•  Loans (such as student or car loan payments) and debt (including credit cards)

•  Insurance premiums

•  Housing

•  Utilities

•  Monthly food expenses

•  Childcare, child support, or related family obligations

•  Transportation-related expenses

•  Healthcare

•  Savings/investments (for instance, 401(k) or IRA automatic savings deductions).

In addition, think about some other spending categories that are more about discretionary purchases. This is about identifying wants vs. needs. For instance, in terms of wants, you can also track discretionary spending:

•  Dining out (even those lattes to go)

•  Entertainment, such as movies, books, concert tickets, and streaming services

•  Personal care (manicures, yoga classes, etc.)

•  Travel

•  Gifts or treating friends to birthday drinks or dinners

•  Non-essential clothing, electronics, home furnishings, and any other fun things you might go shopping for.

As you gather this information, you may want to look at a couple of months’ worth of records. For example, your credit card bill may vary considerably, so averaging a few months will give you a more realistic picture than checking a single month.

Once you have an idea of what you spend, it’s time to take a look at where you may be able to make adjustments.

•   Many people look at their spending as “needs” versus “wants.” A need is something required for basic existence, while a want is discretionary spending. Needs also include debt payment, so if you have a student loan or similar monthly expenses, include that in the need category.

•  Also consider looking at each spending category in terms of fixed and variable expenses. For instance, your mortgage is a fixed expense since it typically won’t change from month to month, whereas entertainment would be a variable expense since it can change. Don’t forget to look at occasional expenses — like semi-annual car insurance payments — so you can set aside money in your budget each month to account for this expense.

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

4. Choose Your Budgeting Method

Subtract your monthly expenses from your monthly income. How are you doing? If there’s money left over, it means you may be able to meet your financial goals. Otherwise, you may need to either cut your expenses a bit or earn more money (or try a combination of both).

Whichever direction your money is trending in, you can benefit from a budget to get your cash aligned with your goals and provide guardrails for your spending and saving.

While there are a bunch of budgeting methods, what’s most important is to find an organizing principle that works for your personal and financial style. Some options to consider:

The 50/30/20 Budget Rule

The 50/30/20 budget rule breaks up your budget using the following percentages:

•  50% on essential expenses. This category could include housing costs, utilities, car payments, debt payments (student loans, credit card minimums due, etc.), education costs, food, basic clothing, childcare, and medical expenses.

•  30% on discretionary expenses. Your discretionary expenses could include shopping, entertainment, personal care, travel, and other expenses that may not necessarily be considered essential.

•  20% toward your goals. This amount of money can go into savings and investments as you work toward things like an emergency fund, a new car, retirement, and/or covering your child’s college education expenses.

Recommended: Check out the 50/30/20 rule calculator to see a breakdown of your money.

The 70/20/10 Budget Rule

The 70/20/10 rule is another type of budgeting method. It’s similar to the 50/30/20 one, but you organize your money differently. In this case, you divide it up as follows:

•  70% toward spending on both needs and wants

•  20% toward saving

•  10% toward debt payoff and/or giving.

This budget can be a good variation for people who want to be sure they are covered for that debt payoff and/or giving category.

Zero-Based Budget

The zero-based budget system gives every single dollar a purpose so that every bit of your income is accounted for. You start with your monthly income then keep subtracting expenses (even savings or a sinking fund counts here) until you get to zero. This system can help you be more mindful since you know how your money is allocated.

The Envelope Budget System

With this technique, you write the name and cash amount you have for each spending category for a month. For example, you allocate $2,000 for housing for one envelope, and $600 for food in another. You can only spend the allocated amount in each category.

If there is no more cash in the envelope but the month isn’t over yet, you will need to wait until the next month to replenish it or borrow from another category and spend less there. For instance, if you need cash for an insurance premium that went up, you could save on streaming services by dropping a platform or two while you adjust your budget.

This method can be adapted to use debit card payments. You don’t have to literally only use cash.

5. Make Adjustments

A budget is a dynamic, living entity. Some months may be more expensive than others. For instance, you might have an emergency one month (your laptop dies) and wind up spending more (or even going into debt) to make ends meet. Life happens: use these situations to learn and readjust.

You can also look for trends in your money. If you find you are living paycheck to paycheck, you might find ways to economize (such as getting a roommate) or to earn more money.

After using your new budget plan, you should review and update it regularly. You may need to do it more often at the beginning of your budgeting journey when you’re getting used to looking at your finances in a new light. Still, it is typically useful to review your spending at the end of each month to see if your budget is still working for you. If not, then take the time to see what may be happening and tweak your spending as necessary.

Another reason you may want to make adjustments is if your life situation changes, such as you have a baby or get a divorce. Or your income may have gone up, so you will need to think strategically about how best to allocate those dollars to help you reach your financial goals.

Why Is Creating a Budget Important?

Creating a budget is important because it allows you to see where your finances stand: You see how much money is coming and how much is going out, plus what it is being spent on.

It can provide you with a snapshot of your financial life, and it can illuminate any issues you need to address. Think about it: If you don’t know where your money is going, you can easily spend more than your means, leading to more debt than you can handle. Not budgeting can also prevent you from reaching your goals, such as having enough in retirement savings or being able to afford that kitchen renovation you’re pining for.

Although some people think a budget will cramp their style, the truth is that a budget doesn’t have to hold you back, restrict you from fun, or sour your lifestyle. It can eventually set you free from the financial burdens that are keeping you from setting and reaching your ultimate life goals.

Monthly Budget Example

Here is an example of a family’s monthly budget:

Total monthly income: $4,650

Monthly breakdown of expenses:

Monthly income	$4,650
Monthly expenses
Rent	$2,000
Groceries	$400
Student loan payments	$337.50
Car payment	$150
Credit card payment	$300
Discretionary spending	$232.50
Utilities	$330
Auto & renters insurance	$150
Career enrichment class	$60
Savings	$400
TOTAL:	$4,360 ($290 surplus)

How to Handle Unexpected Expenses in Your Budget

You know how it goes: Life can be filled with unexpected expenses, such as a car repair or larger than expected medical bills. Instead of letting these derail you, work unexpected expenses into your budget.

There are several ways you can go about it, one of which is to have a bit of a buffer in your account. Meaning, you can allocate some extra cash each month just in case — any money that isn’t spent, you can roll it over onto the next month. It can act as a cash cushion in your checking account.

You can also consider building up an emergency fund, a separate set of savings in case you have unexpected expenses. The amount will vary, but a good rule of thumb for how much to have in an emergency fund is to save three to six months’ worth of basic living expenses.

💡 Quick Tip: An emergency fund or rainy day fund is an important financial safety net. Aim to have at least three to six months’ worth of basic living expenses saved in case you get a major unexpected bill or lose income.

How to Work With Your Family or Partner to Create a Budget

Creating a budget with others means being open to a conversation about what each one needs and how you can keep each other accountable. It can start by having a meeting about family spending. You can discuss and agree to budget goals and reasonable expenses and use a budget planner to help you solidify things.

Once a preliminary budget is created, find a way to ensure that everyone sticks to it. Some tactics include having one joint account to ensure everyone can track spending or having an app where your partner or family can see an overview of the finances. Whatever you choose, it’s important to meet regularly to review your budget to see whether adjustments need to be made.

The Takeaway

Creating a budget to set and reach your financial goals doesn’t have to be hard, and it can be a great way to guide your spending and saving. While there are many approaches and techniques to try, what matters most is finding one that is a good fit for you personally and helps you feel in control of your cash. By learning how to manage your money well, you can be on track to crush your personal and financial goals, whether short- or long-term.

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 SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Why is creating a monthly budget important?

Creating a budget is important because it allows you to see where your finances stand: You see how much money is coming and how much is going out, plus what it is being spent on. It can also help illuminate any issues you need to address.

What are some common budgeting mistakes to avoid?

Common budgeting mistakes include not tracking your spending, not saving enough (say, for an emergency fund or retirement), and forgetting to plan for occasional expenses, such as membership renewals, car maintenance, and holiday gift giving.

How often should I review and update my budget?

It’s wise to review and update your budget regularly. Some people may want to do so monthly; others, quarterly. You can find the right frequency to suit your needs. It’s also a good idea to tweak your budget after big life events, such as moving, getting married, or having a child.

How can I involve my family or partner in creating and sticking to a budget?

To involve others in creating and sticking to a budget, you might first meet and develop the plan together. Then, you could share accounts and both (or all) use an app so that all involved are watching where the money is going. This can help everyone stay on track.

How can I handle unexpected expenses in my budget?

You can allocate a bit of money in your budget to be “just in case” funds. This cash cushion or buffer can help if there’s an unexpected expense. If you have a major unplanned expense, you might have to dip into emergency savings; that’s why it’s crucial to have this kind of safety net.

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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 https://www.sofi.com/legal/banking-rate-sheet.

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

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Wondering how to lower your internet bill? With families paying roughly $64 every month for high-speed internet services, it can be a significant drain on the monthly budget. But the internet, like a phone plan, has become just as necessary for everyday life as other major utilities, especially with remote working and learning environments.

To help, here are 11 great tips for cutting back costs without getting rid of the internet altogether. In this post, you’ll learn how to save money on internet with tactics like:

•   Negotiating your rate

•   Buying your own equipment

•   Setting up auto pay

•   Downgrading your plan.

How Much Does the Average Household Spend on Internet

The average household spends $64 a month on internet services, according to a recent Parks Associate Survey. But internet prices can vary significantly depending on the speed you require, what other services you have it bundled with, what promotional offers you qualify for, and the way the internet is delivered to your home.

Broadband (cable or fiber) is the high-speed internet connection many of us have come to depend on, but some homes utilize dial-up, cable, or even satellite internet connections. These come at varying price points. Understanding what you have and what your options are in your neighborhood can help you find the best deal.

Recommended: How to Organize Your Bills

11 Money-Saving Internet Tips

With internet prices accounting for a notable portion of your monthly budget, you may be wondering how to cut internet costs — without sacrificing quality. To help you do that, here are 11 money-saving tips for decreasing your internet bill:

1. Shopping Around

Depending on where you live, you may have a handful of internet providers to choose among. If you’re not happy with the cost of your current internet bill, you can research what competitors are charging. They may offer low promotional deals for the first six months, year, or even two years. Often the deal is a lower rate, but sometimes it involves a prepaid gift card or other bonus.

It’s a good idea to read the fine print, as the price may go up when the promotional period ends. There may also be one-time fees to start up the service that could counterbalance any savings. Still, if you find a good offer, it could be an option if you want to find out how to lower your internet bill.

Recommended: Automate Your Finances

2. Negotiating for a Better Rate

If you spot a better offer from another company, you don’t have to jump ship. It may be worth your while to call customer service for your current provider and negotiate your rate down. Letting them know that you’ve found a better deal elsewhere but appreciate their service can go a long way. To retain you as a customer, they may be willing to offer you a discount.

If the conversation with the customer service rep feels like a dead end, you may want to end the call and try your luck with another rep. You can also ask to speak with a manager.

Not comfortable haggling over the phone — or just don’t have time to spend on hold? You might be able to find a third-party service to negotiate your rate for you. Services like Trim, BillFixers, and BillCutterz will call and negotiate on your behalf, but they’ll take a cut of any savings they earn you.

Recommended: 10 Tips for Spending Your Money Wisely

3. Checking Your Internet Speed

Your internet contract should spell out a certain speed that you’re meant to receive. Higher-tier plans offer faster speeds (and cost more). But internet service providers (ISPs) may not be delivering that speed to you at all times; in fact, research shows that 79% of us aren’t getting the speed we pay for.

You can test your internet speed with a third-party test site like speedtest.net, though many ISPs have their own proprietary speed tests. If you discover that you’re not getting anything close to the speed your contract stipulates, you may want to call customer service to demand a discount or faster speeds. Some providers may even offer a bill credit for the time you paid for higher speeds but didn’t receive them.

Recommended: Paying Bills Without a Job

4. Downgrading Your Plan

In some cases, you may be paying for faster speeds than you really need. If you regularly stream 4K videos and rely on Zoom meetings all day for your job, paying for fast internet is likely worth the cost. But if all you use the internet for is checking email, scrolling through Facebook, and occasionally streaming Spotify, you might be fine with slower internet service.

Similarly, individuals who live alone or with one other person are less likely to need internet services as fast as a larger household with multiple users accessing the internet at the same time.

Some ISPs offer “economy tiers” as slow as 3 mbps, though they may not always advertise these. If that sounds too slow for you, there may be a middle ground between the bottom and top tiers. Calling customer service to discuss options could be a good move if you’re ready to downgrade.

Recommended: How to Save Money on Streaming Services

5. Bundling with Another Service

Many ISPs offer discounts when you bundle your internet service with a phone plan or cable TV package. While this technically lowers your internet bill, it could add on new or higher costs for other services, so proceed with caution.

If you want cable TV or have it through another provider, it doesn’t hurt to see how much a bundle can save you. But if you won’t use cable TV, it likely isn’t the right move for you.

6. Using Auto Pay

Often, you can get a monthly discount on your internet bill by opting in to auto pay, sometimes as much as $5 or $10 a month. To avoid overdraft fees, however, it’s important that you ensure there’s enough money in your checking account before the auto pay processes each month.

Recommended: How Bill Pay Works

7. Reviewing Your Bill

Many ISPs offer a temporary promotional discount when you switch to their service, but your costs could go up afterward. That’s one of the reasons why it’s a good idea to review your bill every month, even if it’s on automatic bill payment. Doing so will alert you to changes in your bill total, whether it’s from the end of a promotional period or other unexpected charges.

If you have questions about your bill, it’s wise to call customer service as soon as possible. The longer you wait, the more months you’ll pay a higher rate.

8. Buying Your Own Equipment

ISPs usually charge you a monthly rental fee to use their modem and router. Before 2019, consumers might have also paid a fee to use their own equipment instead. Either way, consumers typically paid an extra fee.

But in 2019, Congress passed the Television View Protection Act, which prohibits internet providers from charging you a fee to use your own equipment. You’ll pay an upfront cost for such equipment, but over time, it could save you a lot of money on your internet bill.

Recommended: 15 Creative Ways to Save Money

9. Paying with a Cash Back Credit Card

Not every ISP allows you to pay your bill with a credit card. But if you have a cash back credit card that offers rewards with every swipe, you may want to find an internet provider that does permit it.

For example, if your card offers 3% cash back and your monthly internet bill is $64, that’s nearly $2 in savings every month. It’s not a huge savings, but every bit can help in today’s inflationary times.

10. Researching Low-Income Subsidies

In May 2022, President Biden announced the Affordable Connectivity Program, which offers up to a $30 discount toward internet services for qualifying low-income families. If you’re struggling with your internet bill, it can be a good idea to see if you qualify.

11. Reducing Usage

Some internet plans have monthly data caps. Once you reach these caps, your ISP may charge you extra for usage (or slow down your speeds significantly).

If your bill regularly has fees for exceeding your data cap, you might want to switch to a provider with unlimited data (this may cost more as a monthly fee) or focus on reducing internet usage at home.

Recommended: How to Financially Downsize

The Takeaway

Knowing how to lower your internet bill without sacrificing quality is important. If you’re willing to do some research and make some phone calls to customer service, you might be surprised by how much money you can save — and use elsewhere in your monthly budget.

3 Money Tips

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

2.    If you’re creating a budget, try the 50/30/20 budget rule. Allocate 50% of your after-tax income to the “needs” of life, like living expenses and debt. Spend 30% on wants, and then save the remaining 20% towards saving for your long-term goals.

3.    When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How much is a good amount to spend on the internet?

The average household spends $64 monthly on broadband internet services. You may be able to spend less for slower internet or by bundling with another service; often, you can also find promotional deals, too. Ultimately, you’ll know if you’re spending a fair amount on the internet by comparing rates from other services and asking your friends and neighbors what they’re paying.

How can you lower your internet bill?

Wondering how to decrease your internet bill? You can try several tactics, including switching providers, negotiating for a better rate, using your own equipment, setting up auto pay, and even looking for low-income plans. Using a combination of strategies may help you get the best internet deal possible.

How much will your budget improve when you save money on your internet bill?

How much your budget improves when you save money on your internet bill depends on how much you’re able to reduce your internet bill by. For example, many people save $5 or $10 by setting up auto pay on their internet bill; this means they have between $60 and $120 extra a year to use elsewhere. Others earn cash back by using a rewards credit card to pay the bill; the earnings might be as little as 1% cash back, but every cent saved helps.

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Photo credit: iStock/urbazon

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

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® 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 https://www.sofi.com/legal/banking-rate-sheet.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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If you’re like many Americans, you swipe and tap your way through your day, using your credit card for everything from that morning latte to that late-night movie download. And, of course, for other purchases and services, from plane tickets to Pilates classes. That spending can add up, but using a rewards credit card can help make those expenditures pay off.

How rewards credit cards work: They pay the cardholder back with bonuses based on a small percentage of the amount spent. You’ll find different offers from credit card issuers in terms of how you can earn and redeem rewards, so you may want to review a variety of programs to see which ones best suit your style and needs.
In this guide, you can get a good grounding in how these programs work, including:

•   What are different types of credit card rewards?

•   How can you make the most of credit card rewards?

•   How do you redeem credit card rewards?

Types of Credit Card Rewards

What credit card rewards are, specifically, depends on the type of rewards your specific credit card pays out. The credits earned for making purchases can come in the form of cash back, points, or airline miles.

By reviewing the options below, you can better understand what kind of rewards might suit you best. This can help you get ready to apply for a new credit card.

Cash Back

For cash back rewards cards, reward earnings are based on a percentage of the amount charged to the card. The rate of earnings can typically range from 1% to 5%. In some cases, you’ll earn a higher rate for an introductory period or on a particular category of spending for a specific period of time.

Calculating what the rewards rate equals as money back can be simple for cash rewards: Just apply the cash-back percentage to total spending on the card.

•   Example: If you had a credit card that offered 2% cash back on all purchases, you’d earn $2 back for every $100 you spent using your card.

In some cases, cardholders will earn a flat rate across all purchases made with the card. But a rewards credit card may offer tiered earnings, as briefly noted above. This means the percentage back will vary depending on the category of purchases or the total amount spent during the year.

Recommended: What is a Charge Card

Travel Miles

As the name suggests, this type of rewards credit card allows you to earn airline miles in exchange for your spending responsibly with a credit card. You can either get a card affiliated with a specific airline or a more general travel rewards credit card.

It’s possible to earn a fixed rate of miles for every dollar spent, or you might earn more miles through spending in certain categories.

•   For instance, you might earn a mile per every dollar spent. Or you could get one mile per $1 in all purchase categories with the exception of travel costs, where you’d earn three miles per every dollar spent.

While they’re called miles, these rewards don’t necessarily translate to airline miles traveled. Rather, you typically redeem the miles you’ve earned to help cover the cost of flights or other travel-related expenses, such as hotel stays.

Unlike cash back rewards, where the value is pretty straightforward, the valuation of airline miles can vary by card. This is worth evaluating when deciding between credit card miles or cash-back rewards. The value of an airline mile can usually range from just under one cent per mile up to around two cents.

Points

Another way to earn credit card rewards is by getting a certain number of points for every dollar spent using the card. You can then redeem those points in a variety of ways, such as in the form of cash back, merchandise, travel purchases, gift cards, and even events.

Credit cards that reward cardholders through credit card points will pay out a certain number of points for every dollar spent on the card. Some considerations:

•   They might offer bonus categories, where cardholders can earn more points for every dollar spent in that particular category.

•   For some cards, earned rewards points may have a set redemption value — for example, every 10,000 points might be worth $100 in flight or merchandise redemptions. However, redemption rates can depend on the type of reward you choose. For instance, there might be different points requirements for flights as opposed to merchandise.

Given these scenarios, cardholders may have to be strategic. They may want to consider the type of reward they select and the actual cost of their selections to get the best bang for their buck.

How to Optimize Credit Card Rewards

It’s clear that the returns you can earn when using a rewards credit card can vary tremendously. But in addition to choosing a rewards card with the best earnings rate, there are other ways to take maximum advantage of credit card rewards.

Find the Best Card Based on Individual Spending Habits

Some rewards cards accrue points on a flat-rate basis. This means points or miles are awarded at the same rate regardless of what an individual charges to their credit card.

Others, however, offer higher levels of earning for different spending categories. For instance:

•   Some cards may offer more points per dollar spent on groceries or gas.

•   Other rewards credit cards may provide more miles back when an individual spends on flights or hotels.

For people who tend to concentrate spending on specific categories, some cards may offer added value back. Before signing up, it’s worth taking the time to assess the different types of credit cards you may qualify for and which will be most valuable given your spending habits and the kind of rewards that would be most beneficial.

Max Out Available Promotions

Some rewards credit cards offer higher introductory earning rates, as noted above. This means you can earn more points than usual for a set amount of time or up to a specific spending threshold.

Other promotions may be offered as well, such as greater earnings during a specified time period. Enjoying credit card bonuses like these is key to making the most of credit card rewards.

For instance, you may want to time big-ticket items and other purchases to take advantage of those greater returns.

One important caveat: While offers to earn more rewards certainly seem attractive, it’s wise to ensure that spending is within your budget. That’s because carrying a credit card balance may incur interest and/or penalties that can cancel out the value of any increased earnings. Avoiding interest on credit cards requires paying off your balance in full.

Be Strategic About Redemptions

Given the variability in the value of rewards points, it’s a good idea to crunch the numbers before redeeming. This is especially true because fluctuating prices and redemption promotions can help to stretch earned rewards further. And who doesn’t want to squeeze as much value as possible from their rewards?

•   Get the timing right for your needs. For example, using points to book a $200 short-haul flight may not optimize the value of your reward. But booking that same route at the last minute may be considerably more expensive. In such a case, if you have to travel ASAP, using those points may yield considerably more value.

•   You might also use points for a statement credit redemption. This means the points can be translated into cash that is applied to your credit card balance.

This can be especially helpful if there’s a month where money is tight and you are concerned about meeting your minimum payment. Applying your rewards could help you keep your account in good standing.

•   Be aware that rewards programs may have redemption minimums. This could mean that, say, you need to accrue a certain dollar amount or number of points so you can use your reward. For instance, maybe you have $20 in rewards that you want to use to help meet your credit card statement’s minimum payment. If your card only allows you to redeem rewards when you reach a threshold of $25 or 2,500 points available, you will be out of luck. You’ll need to earn more rewards before you can use them.

•   Also look for redemption promotions or opportunities to redeem for the highest-value choices. This can help you get the most out of a rewards credit card.

Redeeming Credit Card Rewards

Once you’ve racked up some credit card rewards, it’s time to redeem them. Here’s how:

1.    Log into your credit card app or portal. You can usually find your rewards listed somewhere on the main page, though the exact placement depends on your credit card issuer.

2.    Click on your rewards balance. You should be able to see your total available rewards, as well as your options for redemption.

3.    Choose how you want to redeem your rewards. Options for redemption may include a statement credit, a check, merchandise, gift cards, or travel, depending on your specific credit card.

4.    Move ahead with redeeming your rewards. Once you select the option to redeem your rewards, that amount will get deducted from your balance. How long it takes to receive your rewards will depend on how you chose to redeem them.

Do Credit Card Rewards Expire?

It is possible for credit card rewards to expire. However, whether your rewards will expire — and how soon their expiration date will arrive — depends on the type of credit card rewards and your credit card issuer.

•   Airline miles and hotel points often expire (though not always).

•   Points or cash back earned through your issuer’s program are less likely to expire.

•   In some cases, your rewards might even get automatically credited to your account if you forget to redeem them or haven’t used your account in a while.

Check your credit card’s terms and conditions to find out how your credit card works and what the rules are for your credit card rewards.

Once you know the details, you will likely want to stay aware of any expiration date, just as you probably pay attention to when your credit card payments are due.

The Takeaway

Getting rewards — whether in the form of cash back, points, or travel miles — when you spend money is an attractive proposition. However, when it comes to how to take advantage of credit card rewards, you’ll need to do more than just swipe your card. You’ll want to be strategic about earning and redeeming your points to get the most benefit. You’ll also likely want to make sure to max out any promotions that are available.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

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

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Student loans don’t just help you pay for your college education. They also allow you to build a credit history, which can be useful when it comes time to get a mortgage or take out a car loan. The key, though, is to make regular on-time payment – or you may wind up with the sort of credit history that negatively impacts your ability to borrow money in the future.

Here’s a look at how student loans can affect your credit score.

How Is My Credit Score Calculated?

First, it can be helpful to know how your credit score is calculated. There are several types of credit scores, but FICO scores are the most commonly used by top lenders.

Your FICO score is calculated using five categories of data found in your credit reports, which each category weighted differently.

Category	Weight in Scoring
Payment History	35%
Amounts Owed	30%
Length of Credit History	15%
New Credit	10%
Credit Mix	10%

Based on these calculations, there are a few ways you can build good credit and maintain a good credit score. Paying your bills on time is a big one, since your payment history is the most heavily weighted factor. Paying down existing debt and keeping credit card balances low will also have a big effect. Less impactful, but important strategies, also include diversifying the types of credit you have, avoiding opening too many new accounts at once, and keeping accounts open to lengthen the average age of your credit history.

What Student Loan Factors Affect My Credit Score?

Now that you know how credit scores generally work, you might be wondering how your student loans specifically impact your score.

Again, one of the biggest ways your student loans can affect your credit is whether or not you pay them on time. If you’re a responsible borrower who continually makes on-time student loan payments, you will see positive shifts in your credit score over time.

But if you fail to repay a loan or continually make late payments, your credit score will likely see a dip. If you default on your student loan, your credit score could drop significantly. The lender may also send your account to a collections agency, and you may have a more difficult time securing credit in the future.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

How Does a Late Student Loan Payment Affect My Credit Score?

Making payments on time is important, but what you might not realize is exactly how damaging late payments can be. Even if your credit history is pristine, it only takes one report of 30 days past due to change your score. Once a late payment is reported to the credit bureaus, it could remain on your credit report for up to seven years.

To help ensure your payments are on time, you might want to set up an automatic payment plan. Most lenders will even give you a small discount on your interest rate for doing so. If you know you can’t make a payment on time, talk to your lender or loan servicer right away. The Department of Education, which is the lender for four types of Direct Loans, and even some private lenders, offer loan deferment or forbearance. These options allow a borrower to temporarily suspend payments, which will minimize the impact on their credit score.

Does It Hurt to Pay Off Student Loans Quickly?

Repaying student loans quickly will always improve your credit score, right? Not necessarily. In fact, you could even see a small, temporary dip in your credit score right after paying off a loan. There are several reasons for this. If student loans are your primary source of open credit, closing those accounts means you’re no longer building payment history. Prematurely paying off a loan can also change your credit mix or credit utilization.

But credit score is just one factor to consider when deciding how quickly to pay off a student loan. You may want to think about how much extra interest you’d pay by leaving the account open. Carrying a high loan balance could also make it harder to qualify for new loans, which is something to keep in mind when it comes time to buy a home or car.

Notorious Big Bad D’s: Delinquent and in Default

Student loans affect credit scores in a variety of ways, but the worst thing you can do is ignore your monthly loan payment. If you’re even one day late with a payment, you’ll be considered delinquent and may be charged a penalty.

Once a missed payment is more than 90 days delinquent, your loan servicer will report it to the three major national credit bureaus. This could lower your credit score and hurt your ability to get a new credit card or qualify for a car loan or mortgage.

After 270 days of a missed student loan payment, your status changes to default and your student loans are due in full along with any accrued interest, fines, and penalties.

(Note that the on-ramp that’s in place for federal student loan repayment from October 2023 through September 2024 temporarily shields borrowers from the most immediate consequences of delinquency and default.)

Will Rate Shopping Different Student Loan Lenders Hurt My Credit?

When you’re shopping around for the best interest rate possible on a private student loan, lenders may pull your credit file. This is called a hard inquiry, and each one could temporarily knock a few points off your credit score.

To help protect your FICO score, try to finish shopping for rates and finalizing your loan within 30 days. Researching rates and getting quotes ahead of time can give you a good idea of whether you’ll qualify for a loan before you formally apply.

You may also want to ask lenders if they can tell you the interest rate you would receive without doing a “hard” credit pull, which might affect your score. You can’t get a loan without an eventual hard inquiry, but getting prequalified allows you to compare interest rates without impacting your credit score.

Will Refinancing Student Loans Help My Credit?

Because refinancing involves taking out a new loan with new terms to pay off existing debt, refinancing student loans affects your credit score—both positively and negatively.

In the short-term, refinancing will involve a hard credit inquiry and may cause a temporary ding to your credit. Again, as long as you keep your loan shopping to a short period, multiple inquiries will be treated as one, and should have a minimal impact on your score.

In the long-run, refinancing student loans at a lower interest rate can have an indirect positive effect on your credit. For example, if refinancing lowers the amount you pay each month, you may be more likely to make payments on time. You may also pay off your loans faster, which can help you reduce your overall debt and improve your score. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

If you refinance federal loans with a private lender — in effect, turning your federal loans into a private loan — rest assured that credit bureaus don’t view these two types of loans any differently. However, when you refinance your federal loans, you will lose certain federal protections, such as income-driven repayment plans, deferment or forbearance, and loan forgiveness programs.

Do I Need a Good Credit Score to Take Out a Student Loan?

Your credit score may be a factor when you’re applying for a student loan. It all depends on the type of loan you’re planning to take out. Most federal loans don’t have a minimum credit requirement, which is why nearly every borrower gets the same interest rate regardless of their financial profile. However, federal PLUS loans for parents require that borrowers do not have an adverse credit history.

Credit scores are typically more of a factor with private student loans. Lenders often consider your score when determining student loan approval and interest rate. In general, the better your score, the better your rate will be.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

Which Credit Scores Do Private Lenders Use?

When considering your student loan application, most private lenders look at your FICO® score. This score, which ranges from 300 to 850, helps lenders determine whether to extend credit and at what interest rate.

Because FICO is used widely throughout the lending industry, including by mortgage lenders and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.

The Takeaway

Student loans can help borrowers establish a solid credit history, which can ease the way for future borrowing opportunities and attractive interest rates. The key is to pay what you owe on time, every time.

Paying a loan off early or shopping around for rates could cause a small, temporary dip in credit scores. Being late with a payment — or stopping payment altogether — may lower your credit score and hurt your ability to qualify for another loan.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do student loans help build credit?

Student loans are an opportunity for borrowers to build credit and establish a solid credit history, which can help when it’s time to get a mortgage or take out a car loan. The key is to make regular, on-time payments.

How can I improve my credit score if I have student loans?

Payment history is one factor of your overall credit score, so making regular, on-time payments on your student loans can help you build credit.

How is my credit score determined?

Your credit score is calculated using five different categories of data. These include payment history, amounts owed, length of credit history, new credit, and credit mix.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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