8 Healthy Financial Habits You Should Develop

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 to help you.

1. Embrace Living Within Your Means

Spending less than you make is the most important financial habit to develop. 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.
• Add your expenses, then subtract that amount from your monthly net income. If your expenses are less than your income, you’re on the right track. If they aren’t, move to the next step.
• Analyze your spending. If you spend more than you earn, 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 so that you can successfully live within your means. One of the simplest recommendations is the 60-20-20 rule:

• 60% for living expenses, including housing, transportation, and food – any costs associated with daily living and health. Divide annual necessary expenses, like insurance, into monthly increments and include them in your living expenses.
• 20% for savings, such as an emergency fund, investments, or future goals, like a down payment for a home or vehicle.
• 20% for fun, like eating out, traveling and shopping – 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, consider the following ideas to free up funds:

• Reduce expenses. Start with your discretionary expenses, like canceling subscriptions you don’t use often. Next, see if you can decrease other expenses. For example, you could coupon to minimize your grocery bill or shop 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? Research career and learning opportunities to raise your earning potential.

4. Create an Emergency Fund

Emergency savings help preserve your finances when events like a medical emergency, job loss, or car accidents happen. These tips can help you prepare:

• Make sure saved funds aren’t too easy to access. Keep your savings somewhere you can access when needed, but won’t tempt you. (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 should be in addition to your emergency savings.
• Make saving simple. Arrange automatic transfers for effortless, consistent progress.
• Earn interest. Speak with us to explore opportunities to earn interest on money you save.
• Stay positive! Each penny saved is a step in the right direction. Don’t get discouraged if you can’t save much immediately.

5. Keep Debt to a Minimum

Your debt-to-income (DTI) ratio is your total monthly debt obligations divided by your monthly income. Lenders may have different considerations when analyzing DTI ratio, but generally:

Below 36% Ideal

Between 36% and 43% Safe

Above 43% Risky

 

6. Manage Debt Wisely

The interest and fees that come with borrowing money can be costly. If you’re struggling, consider these options:

• If you’re in debt for items that don’t truly fit your budget, downsize.
• Try negotiating with your lender to secure a lower rate.
• Consolidate multiple smaller debts into one large loan, this can potentially reduce your monthly payment or interest rate.

7. Plan for Your Golden Years

Experts say to 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. Here’s how you can efficiently save for retirement:

• Open a retirement account. If your employer doesn’t offer retirement benefits, explore options with us or an investment company.
• Max out employer matching. Some employers match their employees’ retirement contributions up to a certain percentage.
• Start early. Generally, the longer your money is in a retirement account, the more it will earn over time.

8. Work With a Professional

Sometimes the effort we put into managing our finances just isn’t enough to get ahead. It’s important to know when – and how – to get help.

• Contact your local branch. We have resources available to you. We can also connect you with other local organizations that can help with financial counseling and debt management.

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 a representative at your local Pinnacle Bank branch about short- and long-term savings opportunities.