If you’re feeling a bit anxious about the economy and your personal finances, you’re not alone. With inflation still high and recession fears rising, it’s no wonder half of Americans say they are anxious about their finances.1 Credit card debt is at a record high2 and nearly a third, 31% of people, have saved less over the past 12 months because of high prices, according to recent Fidelity research.3 Meanwhile, “retirement” is the single word creating the most anxiety.
But fear is not a strategy. Circumstances beyond your control can easily sweep away the best-laid plans. Fortunately, money management skills are like muscles—once you have a routine, getting back on track becomes easier and easier.
Here are 5 tips to help build (or rebuild) your financial muscles now.
1. Check your spending—aim to spend less than you earn
Inflation is cooling from the recent high set in 2022 but Americans may find that their budgets are still slightly out of whack. You may be paying more now to buy the same goods and services that you were buying at this time last year—and much more than in 2021.
Spending and debt could have crept up over time, so it can be a good idea to make sure you have a handle on your expenses. Knowing how much you spend on essentials and how much goes to discretionary purchases can help you cut unnecessary expenses if needed.
Fidelity’s Full View® is one way to monitor your financial information in one place. Track your net worth, income, expenses, and your investments in one spot—all for free.
2. Build or maintain your emergency fund
Fidelity suggests saving at least 3 to 6 months’ worth of essential expenses, like food, housing, and medical care, in an emergency fund. If you’re just getting started, or restarting, consider aiming for an initial cash buffer of $1,000 or one month’s worth of essential expenses, whichever is greater. Then keep going until you hit your savings goal.
If you don’t have an emergency fund, using automation to help build up your savings can make it easier. That simply means setting up an automatic transfer to your savings account so you never have to think about it. If it’s available, you can use direct deposit to transfer a portion of your paycheck to a designated savings account—or you can set up recurring transfers to whisk the money out of your spending account and into savings on the same day that you’re paid.
Another idea: Have cash back earned on your credit card swept into your emergency savings account. One option to consider is the Fidelity® Rewards Visa Signature® Credit Card.
3. Pay down high-interest debt
Credit card debt has gotten more expensive as interest rates have gone up. In May, the average interest rate on an existing credit card account was about 20% and, for new offers, the average was over 22%. Just one year ago, the average annual interest rate on an existing account stood at 15.13% and 18.89% for new offers.4
If you’re carrying a credit card balance from month to month (it happens to the best of us), now may be a great time to investigate your options for getting rid of that debt. First, check your credit card statement to see your current interest rates. Rank your debts from highest rate to lowest.
- Decide on a strategy for paying off debt. If you have more than one credit card debt or loan, it can be a good idea to aggressively pay down one debt at a time while making the minimum required payment on your other loans. Starting with the highest-rate debt first and focusing your efforts there is the most efficient way to tackle multiple loans.
- Consider if refinancing that debt makes sense. If you have more than one card or loan, you may even want to consolidate them into one lower rate loan. Though balance transfers often come with a fee, a zero-interest rate balance transfer could help you whittle down the balance without interest piling on each month.
- If you are a homeowner, consider consolidating high-cost credit card debt into a home equity loan or line of credit.
4. Review your retirement savings
If you’re saving for retirement, congratulations! That is a powerful step to take for your future. Now that the middle of the year is close, take a look at your contributions to your workplace retirement savings plan, if you have one, to make sure you’re on track to save as much as you want to this year.
If other financial priorities have kept you from saving as much as you’d like, that is understandable—we all have a limited amount of money but seemingly endless expenses. When you’re able to, consider contributing 1% more to your retirement account to start ramping up. If it’s possible, consider saving at least enough to get the full match offered by your employer (if there is one offered).
If you don’t have a workplace savings plan, consider contributing to an IRA. Read Viewpoints on Fidelity.com: 3 reasons to contribute to an IRA
5. Check your investment mix
The stock and bond markets have been rocky recently—the S&P 500® ended 2022 down about 20%.5 (Fortunately, as of May 9, the index was up more than 8% for 2023.) Big moves in stocks or bonds held in your account could have put your investment mix askew—for example, an investor may have intended to hold 60% in stocks but, after market moves, has just 54% in stocks. Or you may have had second thoughts about your exposure to risky investments.
It could make sense to review your investment mix (e.g., stocks, bonds, and short-term investments) and confirm that it is aligned to your investment time frame, financial needs, and comfort with volatility.
If it’s not, it may be time to rebalance. The goal of rebalancing is to reset your asset mix to bring it back to an appropriate risk level for you. Sometimes that means reducing risk by increasing the portion of a portfolio in more conservative options like bonds and cash, but other times it means adding more risk through stocks and stock funds to get back to your target mix.
Investing in a mix that you can stick with through good markets and bad that also provides growth potential is one of the best ways to help ensure success. If you need help picking a diversified investment mix that will work for you, Fidelity offers a range of managed accounts for a variety of goals and needs. If you need extra support, a managed account could help you stay on track to meet your goals.
Financial basics aren’t just for beginners
It’s never a bad time to strengthen your finances and take control of your spending, saving, and investing. If you’re not already confident about your money skills, practicing these 5 steps can help you get there.