Small steps make a big difference. Start making better financial decisions today with these five tips.
1. Track, then curb discretionary spending. For one or two months, record your spending, then settle on a realistic amount you can stick to.
Tip: Use no more than 30% of your income for “fun" money—movies, meals out, happy hours, etc.6
2. Make a budget. It's hard to make smart choices with your money if you don't know where it's going. Gather all your regular bills, take stock of your expenses, and cut back where you can.
Tip: Can you consolidate your subscription services? Try to limit streaming costs for movies, TV shows, and music to $40/month.
3. Create an emergency fund. If you had an unexpected medical bill or lost your job, what would you do? Aim to eventually build up a cushion to cover living expenses for three to six months.
Tip: Set up an automatic deposit from your paycheck into a savings account. Just 2% of your income each pay period adds up!
4. Manage your debt. Because of compound interest, debts that appear small could take longer to pay off than you expect. Pay more than the minimum each month, especially if it has a high interest rate.
Tip: About 20% of your income should go toward paying down debt beyond your required minimum loan payments.7
5. Start early to save for retirement. Make compound interest work for you by stashing money in a 401(k) or IRA as early as possible. This gives your nest egg more time to grow.
Tip: Strive to put 12–15% of your total savings toward your retirement.
Learn more about budgeting and download our customizable worksheet:
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
FINRA Investor Education Foundation, National Financial Capability Study, "U.S. Survey Data at a Glance," http://www.usfinancialcapability.org/results.php?region=US, accessed August 25, 2019.
Gallup, "One in Three Americans Prepare a Detailed Household Budget," https://news.gallup.com/poll/162872/one-three-americans-prepare-detailed-household-budget.aspx, published June 3, 2013, accessed August 25, 2019.
Board of Governors of the Federal Reserve System, "Federal Reserve Board Issues Report on the Economic Well-Being of U.S. Households," https://www.federalreserve.gov/newsevents/pressreleases/other20180522a.htm, published May 22, 2018, accessed August 25, 2019.
ValuePenguin, "Average Credit Card Debt in America: August 2019," https://www.valuepenguin.com/average-credit-card-debt, accessed August 25, 2019. The average interest rate is 15.09%. Alina Comoreanu, "Historical Credit Card Interest Rates," WalletHub, https://wallethub.com/edu/historical-credit-card-interest-rates/25577/, published March 9, 2019, accessed August 25, 2019.
Board of Governors of the Federal Reserve System, "Report on the Economic Well-Being of US Households in 2018," https://www.federalreserve.gov/publications/report-economic-well-being-us-households.htm, published May 2019 [PDF], accessed August 25, 2019.
Laura Agadoni, "What Percent of Your Take-Home Pay Should Be Discretionary Income?" https://budgeting.thenest.com/percent-takehome-pay-should-discretionary-income-26839.html, The Nest, published April 5, 2019, accessed August 25, 2019.
Paula Pant, "The 50/30/20 Rule of Thumb for Budgeting," https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922, The Balance, published March 12, 2019, accessed August 25, 2019.
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