Get Your Financial Life in Order: 6 (Not Hard!) Habits to Adopt Now

The Squeeze

• Getting and keeping your finances in good order isn’t hard but does require good habits, like monitoring your credit score and directing part of your paycheck toward retirement savings.
• Minimizing high-interest debt is a vital step for most Americans; it will improve your finances, your credit score, and generational wealth.
• Saving and budgeting can be automated with tech tools that nudge you along towards your goals.

“Adulting” is a term that gets used a lot these days, and there’s nothing more grown-up than taking charge of your finances.

Doing so is a uniquely rewarding pursuit, both in terms of dollars and cents and peace of mind. Adopting good money habits can help you build wealth, for sure. And it can squash that sense of impending doom every time you check your bank balance or someone says those three triggering little words: “saving for retirement.” 

Let us show you some smart strategies to shape up your financial life and keep it performing at peak levels.

Stash it before you spend it. 

You know that flush feeling on payday when you see your checking account balance and think it would be a good time to go shopping/buy your gang a round or two of drinks/plan another weekend getaway this year? Not meaning to be a killjoy, but that is exactly how debt happens.

Instead of quickly making plans for what to do with your hard-earned funds, set up an automatic transfer for payday that whisks away a set amount of cash into a savings account where it’s less likely to entice you. Try for 20%, if you can. You may have heard of the 50/30/20 Rule, in which half your take-home pay goes toward needs (rent, utilities, and the like), 30% toward wants (that’s where those drinks with pals comes in), and 20% toward debt and/or savings. The point is, get a chunk of your pay away from an easy spending access point — hello, debit card — so you have a chance to save it and build on those savings month after month.

Deal with debt.

According to Bankrate, the average American has $92,727 in debt, which includes credit card balances, student loans, mortgages and more. It’s an astounding figure, perhaps, but — if you’ll allow us to be a bit judge-y — there is good debt and bad debt. “Good” debt is low-interest, like many student loans, or part of how you accumulate wealth, like a mortgage on a home, which is a major asset.

And then, there’s bad debt: high-interest and hard to get rid of. For most people, we’re talking about credit card debt. Americans on average have $8,006 in credit card debt with an interest rate of about 16%. Paying the minimum on this kind of debt will keep you burdened for a long time. Instead, prioritize paying this down and not accruing more. “Valid strategies include paying off high-interest, unsecured debt by refinancing secured debt, like a vehicle loans. You may be able to ‘cash out’ a portion of the equity to pay off debt,” says Jason J. Krueger, a certified financial planner and an adviser with Ameriprise Financial Services in Madison, WI. “This is especially attractive given the comparably high values vehicles have right now.”

Another idea is to do a 0% balance transfer to a new card. However, proceed with caution and work hard to pay the debt off before the promotional period ends, says Krueger.

Understand and elevate your credit score. 

All of us have a credit score courtesy of the three reporting agencies – TransUnion, Equifax, and Experian. The top number is 850, and 720-plus is excellent, 690 to 719 is good; 630 to 689 is fair, and 629 or lower is bad (sorry!). Here’s why you should sweat this number: your credit score determines whether lenders consider you a good risk, and it can be the reason why you’ll pay a higher rate on a loan than your pal who has a loftier number on their record.

You’ll want to review your score, and push back against any errors (like a debt turning up as “in collection” when you paid it in full years ago). Aim to use less than 30% of the available credit on revolving loans like credit cards. So if your credit limit is $30,000, you want to have no more than $10,000 in charges at the very most. “The higher your ‘utilization ratio,’ the worse it is for credit scores,” says Krueger.

Also, “aim never to miss a payment or make a late payment,” says Krueger. “And keep your oldest credit card indefinitely as it boosts the length of credit history,” which is a good thing. 

Build a budget. 

What is it about the word “budget” that makes so many of us recoil? A budget is simply a framework that helps you manage your finances well. We mentioned the 50/30/20 plan above; that’s a starting point. But maybe you need a tool at your fingertips that does some of the work for you. That’s where our Firstly app comes in: you can sign up here to try it. Or try options like Mint, YNAB (You Need a Budget), EveryDollar, and GoodBudget. There are different angles on your money — some apps simply show you where your money is going, others use what’s known as an envelope system, where you portion out your dinero into different “envelopes,” or buckets. There’s also the zero-based budgeting system, which has you account for every dollar you earn and where it’s spent. Check them out and find one that works for you to get on a good spending and saving path. (Want more on budgets? You’ll want to read this article.)

Save for the future. Whether it’s the down payment for a house or your retirement, most of us want to be stashing some cash for tomorrow. With a budget set up (ahem, see directly above), you next need to figure out where your savings should go. For short-term savings (money you want to tap in a year or two for, say, a down-payment or a big trip), look for a high-yield savings account, or HYSA, says Jay Zigmont, PhD, a certified financial planner and founder of the financial planning firm Live, Learn, Plan. For longer-term goals – a few to several years out – you can explore investing.

Retirement is a biggie. “For most of my clients, I recommend saving in a Roth unless they only have the option for a Traditional 401(k) (pre-tax), maximizing any employer match you may have,” says Zigmont. “Remember, a 401(k) or IRA is a retirement account that holds your money; you then need to invest it. Take the time to learn what your options are, what the fees are, and if they fit your retirement plan.”

Another tip: put any raise toward retirement. Whenever you get a salary bump, funnel that increase into  your retirement savings. Let’s say you get a 3% raise; increase your retirement savings by 3%. “You've been living without the raise this past year, so you can make it without it next year,” says Zigmont. “This is a way to force retirement savings and to prevent ‘lifestyle creep,’” a.k.a. continually upgrading your lifestyle (and potentially finding yourself living beyond your means).

Protect yourself. 

One of the big lessons of the pandemic is that really, really unexpected events can occur in your lifetime. And, not to pile on, many of us are woefully unprepared for hard times. About 40% of Americans would not be able to come up with $400 for an emergency expense, according to a recent Federal Reserve survey. That’s why the rule about having three to six months’ worth of monthly expenses socked away feels especially urgent these days. It’s also something that lenders will look for when you need to borrow funds. Start a savings account and siphon off some of your earnings — even $25 a pay period is a fine start! Or sell the ugly gold jewelry your aunt left you, or get a side hustle going (dog-walking on weekends, perhaps?) to fund that cushion. This is really a must!

Rely on tech to grow your money. 

You know that technology has brought you the joys of DMing, TikTok and telemedicine. Why not also let it help you enhance your wealth? Whether you use an app like Acorns (which rounds up your credit-card charges and lets you invest the extra funds) or Chime (similar, but it scoots the extra amount into savings) help you out? They’ll assist as you painlessly grow your wealth.