FDIC-Insured - Backed by the full faith and credit of the U.S. Government
We’ve created a list of eight financial habits that can help you to live a more comfortable financial lifestyle. You can read through each of the habits in order or skip around, focusing on those that best fit your needs.
Live within your means
If you “live within your means,” your monthly expenses should not be more than your net monthly income, which is the amount you earn each month after taxes. Doing so can help keep you out of debt and allow you to save for the future.
Record everything you spend your income on over the course of a month. Add up all of your expenses and subtract this from your monthly net income. If your overall expenses are more than what you’re bringing in as income, you aren’t living within your means. If you aren’t living within your means, examine your expenses more closely and try to figure out why.
Spend wisely
While there are many tactics you can use to determine how much you should be spending on a monthly basis, one simple way to evaluate your spending is the 50-30-20 rule. This rule recommends that you spend 50% of income on needs, 30% on wants, and 20% on savings or debts.
Free up funds to cover expenses
Sometimes we don’t make enough to cover our expenses. If this sounds familiar, take a good look at how much you spend on things like eating out, going to the movies, or paying for cable, and cut where you can. If making these changes isn’t enough, look at your other expenses. Can you reduce your grocery bill by meal planning or switching grocery stores? Do you ever look for coupons to help with purchases? Have you compared auto insurance rates recently?
Think about your current employment status, your skill set, and the job market. Are you in a position to earn a raise at your current job? Could you earn more working somewhere else? Is there something you could do to increase your marketability (like taking a class or learning a new skill)? This isn’t an option for everyone, but many people have found that a second job with flexible hours can help bring in extra funds.
Selling items that you don’t need or use is a great way to free up some funds—and reduce unwanted clutter. Big ticket items like old game consoles, furniture, and sports equipment can be sold online.
Build emergency savings
What if your car breaks down, you lose your job, or you have unexpected medical bills? Set a goal to save enough to cover three months of living expenses in case of an emergency. Any other savings goals, such as a vacation or new home, should be in addition to this.
- Put your savings someplace where it’s easy enough to access in an emergency (like a savings account), but not too easy to get to on a whim (like under your bed at home).
- Keep a savings account that’s separate from the account you use to pay your bills (like your checking account or a prepaid card).
- Set-up automatic transfers from your checking account or paycheck into a savings account.
Avoid too much debt
You can have debt and still be financially healthy. The key is not having more debt than you can manage. One strategy used by financial institutions to assess whether you have too much debt is to determine your debt-to-income (or DTI) ratio. Your DTI ratio is your total monthly debt payments divided by your gross monthly income. Use our debt-to-income calculator to determine your DTI ratio.
Manage existing debt
Minimizing debt as much as possible is so important for our financial well-being. If you’re struggling with the high price of debt, you have options.
Many Americans are in debt for items they really can’t afford (such as big houses, fancy cards, and daily trips to the coffee shop). If this sounds like you, consider ways to downsize and reduce your expenses
If you have multiple debts, consider a loan consolidation service. You’ll be issued a new, larger loan to cover your multiple smaller loans, which may reduce your monthly bill or even your interest rate.
Save for retirement
Some employers will match what their employees contribute to a retirement account up to a certain percentage. Take advantage of this free money by contributing the maximum allowed!
If your employer doesn’t offer retirement benefits, contact your financial institution or an investment company to explore your options.
Either way, start investing early. You can earn compound interest on your retirement funds. Generally, the longer your money is in a retirement account, the more money it will earn over time. To really take advantage of this interest, start saving even a little bit as early as you can.
Know when to get help
The Financial Counseling Association of America is a professional organization devoted to helping people who are struggling financially. You can learn more by visiting fcaa.org.
Outside of your family and friends, your financial institution may be able to offer you assistance. If they can’t help, they may be able to suggest someone who can.
Look for a credit counselor who is certified by the National Foundation of Credit Counseling. Learn more by visiting nfcc.org. Be careful about hiring a debt settlement company to help you deal with your debts. Many companies offering these services are not reputable and will cause you more harm than good.