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Some good news about budgeting: According to a 2020 Debt.com survey, as many as 80 percent of Americans are now doing some form of budgeting. The top reasons for using a budget, according to the survey, include increasing wealth and savings and managing debt.

While not everyone loves the idea of budgeting, taking a moment to assess and prioritize your spending can yield some real rewards. Even a basic monthly budget can help you reach your financial goals, whether it’s to have a financial cushion, put a downpayment on a new home, go on your dream vacation, or all of the above.

The most common reason cited for not budgeting in Debt.com’s survey was making too little money. But the truth is that you don’t have to make a lot to benefit from having a budget. Indeed, budgeting can be particularly helpful when money is tight.

Whether you’re brand new to budgeting or looking to improve your budgeting skills, read on. Below are some simple steps that can help you keep better tabs on your cash flow and improve your financial life.

Gathering All of Your Financial Information

While estimating your income and monthly costs can work in a pinch, to make your budget as complete (and accurate) as possible, you’ll want to start by gathering up at least three months worth of financial documents and receipts.

Here are some documents that may be helpful:

•   Pay stubs
•   Bank statements
•   Credit card statements
•   Rent/Mortgage bill
•   HOA
•   Electricity bill
•   Water bill
•   Internet bill
•   Cable bill
•   Childcare/School Tuition statements
•   Monthly public transportation passes
•   Recurring healthcare costs like deductibles or prescriptions
•   Student loan statements
•   Insurance statements

Figuring Out Your Monthly Take-Home Income

Although you may be able to rattle off your annual income without thinking, when creating a budget you’ll want to look more closely at your pay stub to determine your take-home pay. That’s how much is left after all of the deductions (such as federal, state, and local taxes, retirement savings, and insurance) are taken out.

If you’re self-employed, you’ll need to subtract your self-employment income tax before calculating your net monthly income.

Determining your take-home pay is important because if you use your annual income to make your budget, you might end up thinking that you have more money available to you every month than actually shows up in your checking account.

If you’re budgeting with another person, you’ll also want to tally up that person’s take-home pay as well. It’s a good idea to also include any additional household income, such as that from investments or social security.
All together, these will give you a good idea of how much actual cash you have to budget with each month.

Tallying Up Monthly Expenses

Once you’ve nailed down how much money you’re bringing in each month, it’s time to look at how much money you’re sending out into the world each month. This is where all the paperwork you gathered can really come in handy.

A simple way to start is to write down how much you’re paying for all your fixed (or recurring) monthly bills, such as rent/mortgage, car payments, insurance, health care expenses, utilities, subscriptions.

Once you’ve got your regular bills accounted for, you can look at variable expenses, such as groceries, entertainment, and other discretionary expenses. With variable expenses, it’s helpful to look back at your bank statement, as well as receipts from the previous few weeks or months, and calculate an average.

If you tend not to save receipts, it can be useful to actually track your spending (by carrying a notebook, using a app, or collecting receipts and recording them later) for a week or more in order to better assess your daily spending.

Below are some sample budget categories and expenses that you may want to include:

Housing
•   Rent
•   Utilities
•   HOA
•   Maintenance costs
•   Home/renter’s insurance

Transportation
•   Gas
•   Tolls
•   Maintenance costs
•   Car Loan
•   Public transportation tickets or passes
•   Taxis or ride shares
•   Parking pass
•   Insurance payments

Children
•   Childcare expenses
•   After-school care costs
•   Tuition
•   Tutoring
•   Babysitting

Education
•   Tuition
•   Books
•   Student loans
•   Student fees

Food
•   Groceries
•   Take-out
•   Eating out

Financial
•   Bank fees
•   Service fees
•   Credit card payments
•   Life insurance
•   Disability insurance
•   Retirement fund
•   Investments
•   Emergency fund

Healthcare
•   Doctor appointment co-pays
•   Prescription costs
•   Over-the-counter medication costs

Entertainment
•   Movie tickets
•   Special events
•   Concerts
•   Streaming media services
•   Books
•   Nonbusiness travel

Pets
•   Pet insurance
•   Food and treats
•   Flea and tick preventative
•   Medications
•   Vet bills

Shopping/Personal Care
•   Clothing
•   Shoes
•   Accessories
•   Toiletries/Cosmetics
•   Haircuts/styling
•   Shaves/Manicures
•   Gym membership

When it comes to expenses that only occur in certain months, such as tuition for summer camp, you can divide the total by 12 in order to figure out how much you should be saving each month to cover these seasonal costs.

Once you have a list of all your monthly expenses, you may be alerted to trends you might not have noticed before (like $75 a month on morning coffees).

You’ll also be able to add it all up to see what your overall average monthly spending is. Ideally, this number is less than the amount of take-home pay you calculated above.

Planning and Creating a Budget

Now that you’ve got a grip on how much money you have coming in, and how much is going out, it’s time to actually create a plan for how you want to spend your money–in other words a budget–rather than spending haphazardly.

You can create a budget using pen and paper or a spreadsheet on your computer. There are also a number of budgeting apps, such as SoFi Relay, that can simplify the process.

There are several different ways to approach spending targets and savings goals in your budget.

One commonly recommended guideline it the 50/20/30 budget, which breaks up your spending and saving like this:

•  50 percent on “needs” or essential expenses (such as housing, utilities, auto payments, insurance, repairs, healthcare, childcare, minimum payments on debts, and education).
•  30 percent on “wants” or discretionary expenses (e.g., shopping, entertainment, personal care, travel).
•  20 percent towards savings (such as an emergency fund, paying more than the minimum on debts, retirement, and other savings).

These percentages are guidelines, however, and you may decide to re-jigger them based on your financial situation, current expenses, and goals.

If the cost of housing is high in your area, for example, you may need to allot more to the “needs” bucket. Or, if you have a big expense or a trip you want to take in six months, you may want to bump up savings, at least temporarily.

If you find that your spending is currently higher than your income, or doesn’t allow for monthly savings or debt reduction, you may need to find places where you can cut back.

It’s often simplest to do this in the “wants” category. For example, you might decide you can cook more and eat out less often, ditch that pricy cable bill, use the library instead of buying digital and audio books, or cut back on clothing purchases.

Once you’ve set up your spending and saving targets, you’ll want to track your progress, either by manually tracking your spending or using an app. Along the way, you may find that you have to adjust your spending to stay better aligned with your budget, or you might find that you need to adjust your budget to make it work better for you.

The Takeaway

A budget can help you achieve your financial goals, whether it’s knocking down debt, saving up for something fun, or funding your retirement.

While the process may sound intimidating, budgeting is really just a matter of figuring out what your current income and expenses are, seeing how they line up (or don’t), and then deciding how you may want to shift your spending in order to reach your goals.

It can also be helpful to remember that even if you have a budget, it will only be useful if you periodically track and update it to reflect any changes in your income, expenses, or financial goals.

If you need help tracking your spending, a checking and savings account with SoFi might be a great choice for you. With SoFi Checking and Savings, you can easily see your weekly spending (and make sure you’re on track with your budget) in your dashboard in the app.

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SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC . SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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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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.

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We all want to improve our money-management habits, but sometimes the path on how to achieve this goal is a little unclear.

If someone is looking to take their financial health to the next level, they can follow these seven steps to gain control of their spending and money.

Tips for Evaluating Your Personal Finances

1. Determine Your Net Worth

A net worth gives an overarching view of someone’s personal finances. Sitting down and taking time to calculate their net worth each year can help consumers adjust their financial plans as needed. A net worth takes into account everything someone owns and everything that they owe.

To calculate a net worth, take out a pen and paper (or computer document) and make a list with two sides. On one side, they will list the assets that they own. On the other side, they will list liabilities or debts, which is what they owe. Then they’ll subtract their liabilities from their assets.

Assets can include money in savings, checking, investing, or retirement accounts; real estate like one’s home; cars; as well as stakes in businesses; or valuable personal goods like jewelry or art. Liabilities can include student loans, automobile debt, mortgages, or credit card balances.

If someone finds that their assets are greater than their liabilities, that means they have a “positive” net worth. On the flip side, if they owe more than they own, they have a “negative” net worth. If the net worth is negative, they shouldn’t feel bad. They just need to adjust their financial plans in a way that will help them work towards paying off debt and then working to build up more assets.

2. Plan a Budget

One way consumers can improve their financial health is by following a budget that takes their financial goals into account. A budget is a plan that someone can follow that will help determine how much money they spend each month.

Budgeting properly can lead to saving money each month to invest or put towards a large financial goal, like a down payment. A budget should illustrate how much someone makes and how they spend their money.

Budgets come in handy if someone needs help guiding how they spend their money. While some expenses are fixed — like rent — others can be tempting to overspend on — like entertainment, eating out or daily lattes — without a budget in place.

To create a budget, start by gathering all bills and pay stubs. Alternatively, there are now many mobile apps, such as SoFi Relay(R), which can keep track of your spending and income. Such apps can analyze your financial trends for you and will be easily accessible in your pocket always, but make sure to research the mobile app’s safety and security features since they’ll be holding your personal information.

Subtract any expenses from income to discover how much room if left in a budget. From there, it gets easier to determine what consistent expenses to cut and how much to spend on variable expenses (like clothing or travel). Don’t forget to budget for less visible expenses like saving for retirement, an emergency fund or paying down debt.

Recommended: Are you financially healthy? Take this 2 minute quiz.💊

3. Evaluate Housing Costs

After creating a budget, housing costs are likely top of mind since they tend to be one of our largest monthly expenses. Taking a hard look at how much your rent or mortgage payments are taking a bite out of your monthly budget can be helpful.

A general rule of thumb in personal finance is that you shouldn’t spend more than 30% of income on housing costs. This allows individuals to be able to afford other discretionary costs.

If someone is spending more than that on housing, they may want to consider finding a more affordable option so they can make room in their budget to pay down student loan debt or to work towards other financial goals.

4. Determine Your Debt to Income Ratio

Speaking of debt, determining a debt to income ratio can give consumers a better idea of their financial health. A debt-to-income ratio takes monthly debt payments and divides them by gross monthly income.

Lenders often use a debt-to-income ratio to determine if a borrower will be able to make their monthly payments. If someone is planning on buying a home or taking out an auto loan, they’ll want to keep their debt-to-income ratio on the lower side. Working debt payments into a budget is a good way to stay on track towards lowering this ratio.

5. Refine Your Investment Strategy

Investing can be intimidating, which is why it’s important to gain a clear understanding of how it can help you work towards financial goals in a comfortable way. Investing inherently carries some risky because there’s a chance of losing some money rather than simply saving money in an FDIC-insured savings account.

However, those who stash cash away in savings accounts should remember that the value of their money is actually depreciating due to inflation, the tendency for the price of goods to rise over time.

Investments like securities and mutual funds aren’t federally insured and losing the principal amount invested is possible. It’s also possible to profit off investments, and diversifying investments can help mitigate risk. By spreading investments across multiple assets, if one investment loses money it can sting a bit less because a more successful investment may very well make up for that loss.

Recommended: Why Portfolio Diversification Matters

Diversification can’t guarantee success and if the market drops as a whole, all of a consumer’s investments can suffer as a result, but it can improve the chances of not losing a lot of money or all of it at once.

6. Determine Your Risk Tolerance

To determine which saving and investment products are a good fit, consumers need to understand what their risk tolerance is. For example, if someone is young and has 35 years of working left before they retire, they may feel more comfortable making a riskier investment, such as stocks, that can lead to bigger gains down the road.

Those who are 60 may feel differently and may want to go for a safer bet, such as in the bond market. Generally, if someone is pursuing a short term goal, it’s better not to choose a risky investment as the chances of profiting during a short period of time are not gauranteed.

Consumers can familiarize themselves with their investment options to help determine which they’ll be most comfortable with. There are plenty of investment products to choose from like:

•  Stocks
•  Mutual funds
•  Corporate and municipal bonds
•  Annuities
•  Exchange-traded funds (ETFs)
•  Money market funds
•  U.S. Treasury securities

Before making any type of investment, it’s also important to understand what kinds of fees are associated with holding the investment or buying or selling as part of the investment strategy (like when investing in the stock market).

Having a solid investing strategy can make it easier to save for retirement or college and to make hard earned money grow.

7. Set Financial Goals

Once someone has evaluated their personal finances, they’ll have the insight they need to set clear financial goals.

After considering what they want their money to help them achieve (pay for a wedding, vanquish credit card debt, retire early, etc.), they can create a financial plan for reaching those goals by listing their goals by which are most important to them.

They can then put together a timeline, like a monthly savings plan, that will help them meet those goals.

The Takeaway

From mortgages, tuition bills, utility costs to taxes, modern life throws at individuals all sorts of financial obligations that they need to juggle. This has made evaluating one’s personal finances to often be a tricky task.

Individuals can, however, wrestle control over their financial future by tracking spending habits, changing them if necessary, and making thoughtful, realistic budgets.

If overspending is getting in the way of reaching important financial goals, SoFi Relay can help make staying on track easier. Users can work one-on-one with a financial planner to set goals for their money and track their financial habits to make sure they’re on their way to achieving those goals. It also offers free credit monitoring in a way that won’t impact your credit score.

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

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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