Financial Education Resources

Minimizing debt, maximizing savings, prioritizing needs, and knowing when to get help are key tenets of financial health. Start saving for retirement as soon as possible so your money has more time to grow.

If you feel overwhelmed by your finances, you’re not alone. In fact, nearly half of all Americans live paycheck to paycheck, struggling to pay bills or save for the future. By adopting healthy financial habits, you can help reduce financial stress, increase financial security, and enhance peace of mind.

We’ve compiled eight important financial habits that can help you master your money. Try to embrace those that will best fit your needs.

1. Embrace Living Within Your Means

Spending less than you make is the most important financial habit to develop. If you live within your means, your monthly expenses won’t exceed your net monthly income (your take-home pay after taxes and deductions), so you can avoid debt and build savings.

To determine if you’re truly living within your means, you need to track your spending:

• Record every purchase or expense over the course of a month. To get a more accurate picture of your spending habits, do this for a few months.
• Add your expenses, then subtract that amount from your monthly net income. If your expenses are less than your income, you’re living within your means. If they aren’t, move to the next step.
• Analyze your spending. If you’re spending more than you’re earning, examine those spending habits to identify where you could cut back.

2. Budget Responsibly

Many approaches can help you determine what your spending should look like each month so that you successfully live within your means. One of the simplest is the 60-20-20 rule, which recommends how to divide your income:

• Allocate 60% for living expenses, including housing, transportation, and food – any costs associated with daily living and health. If you have necessary expenses like insurance that you pay annually, divide those costs into monthly increments and include them in your living expenses.
• Allocate 20% for savings, such as an emergency fund, investments, or future goals, like a down payment for a home or vehicle.
• Allocate 20% for fun, like eating out, traveling, attending concerts, and going on dates – discretionary expenses that you enjoy but can live without.
  
  

3. Adjust Your Expenses & Earnings

If there’s ever a time you don’t make enough to cover your expenses, you might need to borrow money to make ends meet. Accumulating debt can be stressful and make it difficult to feel financially secure. If you can relate, consider the following ideas to free up funds:

• Reduce expenses. Look for ways to cut costs, starting with your discretionary expenses. How much do you spend on things like streaming services, fast food, and games? Identify opportunities to reduce those expenses, like canceling subscriptions you don’t use often. Next, see if you can reduce other expenses. Would couponing or meal planning shrink your grocery costs? When was the last time you shopped for better insurance rates?
• Optimize earnings. Reflect on your current employment status, skill set, and the job market for your industry and area. Are you being compensated fairly? Could you learn a new skill or earn a certification? Do some research into career and learning opportunities to raise your earning potential.

4. Create an Emergency Fund

Even if you’re able to cover your expenses each month, you haven’t achieved true financial health if you don’t have an emergency fund. Emergency savings help preserve your finances when events like a medical emergency, job loss, or car accident threaten them. These tips can help you prepare:

• Make sure saved funds aren’t too easy to access. Keep your savings somewhere that lets you access them when needed but won’t tempt you to dip into them unnecessarily. (Think: a separate savings or money market account.)
• Set goals. Work toward saving enough to cover three to six months of living expenses. Anything else you want to save for, like a car, should be in addition to your emergency savings.
• Make saving simple. Arrange automatic transfers into your savings account for effortless, consistent progress.
• Earn interest. Speak with your financial institution to explore opportunities to earn interest on money you save and get assistance with opening an appropriate account.
• Stay positive! Each penny saved is a step in the right direction. Don’t get discouraged if you can’t save much immediately. Even saving just $60 a month means you’ll have over $700 in a year.

5. Keep Debt to a Minimum

The majority of Americans have debt, but how much debt you have determines if it impacts your financial health. Many financial institutions assess if you have too much debt by calculating your debt-to-income (DTI) ratio, which is your total monthly debt obligations divided by your monthly income. Lenders may have different considerations when analyzing DTI ratio, but generally:

• Below 36% is ideal.
• Between 36% and 43% is safe.
• Above 43% is considered risky.

6. Manage Debt Wisely

The interest and fees that come with borrowing money can be costly. A single loan can burden your finances for years. Minimizing your debt is essential to staying financially healthy. If you’re struggling, consider these options:

• Downsize. If you’re in debt for items that don’t truly fit your budget, like a luxury car or expensive home, consider downsizing.
• Negotiate. Did you know that lenders aren’t required to offer you the lowest interest rate you qualify for? Try negotiating with your lender to secure a lower rate.
• Consolidate. If you have multiple debts, consider consolidating them. Consolidation means you take out one large loan to pay off multiple smaller debts, potentially reducing your monthly payment or interest rate. This may be especially helpful if you have credit cards, as personal loan interest rates are typically lower than credit card rates.

7. Plan for Your Golden Years

Experts say you should have half of your annual income saved for retirement by the time you turn 30 – and double that amount by age 40. It may seem impossible to save for retirement when money is tight, but Social Security alone likely won’t be enough to cover your needs in retirement. The rest is up to you. Here’s how you can efficiently save for retirement:

• Open a retirement account. If your employer doesn’t offer retirement benefits, explore options with your financial institution or an investment company.
• Max out employer matching. Some employers match their employees’ retirement contributions up to a certain percentage. If yours does, contribute the maximum amount your employer will match.
• Start early. Generally, the longer your money is in a retirement account, the more it will earn over time. Start saving now, even small amounts, to maximize earnings.

8. Work With a Professional

Sometimes, the effort we put into managing our finances just isn’t enough to get ahead. If this happens, it’s important to know when – and how – to get help. Beyond asking loved ones, you can:

• Contact your financial institution. If they’re unable to help, they might be able to connect you with an organization that can.
• Look local. Your city, county, or state may offer low- or no-cost financial counseling services or debt management assistance from certified professionals. Check with local organizations to see if this is offered in your area.
• Consider if you need legal assistance. If you’re struggling, consider consulting a reputable attorney specializing in debt. If you hire a debt settlement company, use extreme caution. Often, these companies are fronts for fraud or will cause additional headaches, even if they seem legitimate.

Work Toward a Healthier Financial Future

From minimizing debt to preparing for emergencies, adopting healthy financial habits can help you transform your financial challenges into financial opportunities.

If you’d like additional guidance, speak with one of our Fidelity bankers about short- and long-term savings opportunities and financial planning services.