Updated: Five Do’s and Don’ts That Can Help You Achieve Greater Financial Security
Drawing on the findings of the FINRA Investor Education Foundation's National Financial Capability Study of more than 25,000 American adults, the FINRA Foundation has developed five tips to help consumers both manage their day-to-day financial challenges and build a brighter financial future.
Do Take Advantage of Tax Breaks When Saving for College and Retirement. If you have financially dependent children, try to save for college using tax-advantaged savings accounts such as a 529 plan or Coverdell Education Savings Account. The FINRA Foundation's Study revealed that 41 percent of respondents with financially dependent children are setting aside money for their children's college education.
While many Americans are not prepared for retirement, and only 58 percent of non-retired respondents have some kind of retirement account, workers should use tax advantaged savings accounts like 401(k)s to save money on taxes and boost their retirement security. Contributions to a traditional 401(k) are not subject to income tax withholding and are not included in your taxable wages—and earnings on Roth 401(k) contributions are tax-free. In 2017, you can contribute up to $18,000 to your 401(k)—and if you're aged 50 or over, you can contribute an additional $6,000 for a total of $24,000 (see Annual Contribution Limits for most current limits). FINRA tools and resources help consumers save for college or retirement.
Do Your Best to Bust Your Debt. Two out of five Americans (40 percent) we surveyed felt that they have too much debt—regardless of their income. The best way to avoid an endless cycle of credit card debt is to try to pay your credit cards in full and on time. If you have racked up credit card debt, pay it off as quickly as possible. Even if you are unable to pay your whole monthly bill, always pay more than the minimum due, which will reduce the amount of interest you will pay. Millennials should take extra care when using credit cards. [The FINRA Foundation's Study found that 52 percent of Americans aged 18-34 reported engaging in expensive credit card behaviors—for example, they made a late payment or exceeded their credit limit—compared with the national average of 39 percent.] FINRA Foundation resources can help you avoid the debt trap.
Don't Chase Yield. Investors face a difficult investing environment, with low yields on fixed-income investments and an economy on the mend. Some investors may opt to "chase return," meaning they put their assets into riskier and sometimes esoteric products that promise higher yields and returns than they can obtain in more traditional investments. Investors should realize that they could be taking on more risk if they invest in products with higher returns. FINRA helps investors make smarter investing decisions.
Don't be Part of the 34%. We asked Americans if they would be able to come up with $2,000 if an unexpected need arose in the next month, and nearly two in five respondents (34 percent) said they probably or certainly could not. If your finances are unable to withstand an unexpected challenge (if the transmission in your car fails, for example, or a tree limb crashes through your roof) you are financially fragile. The best way to avoid being financially fragile is to build up rainy day savings in a federally insured savings account. Even if you have no savings at all, if you can set aside $40 every week in an account you otherwise do not touch, then by this time next year you will have saved over $2,000 and won't be a part of the 34 percent.
Do Check Your Credit Report and Score. You need to do both. To obtain credit when needed and avoid identity theft, it is critical to verify whether your credit history is accurate and correct any discrepancies immediately. For your free credit report, call (877) 322-8228 or visit www.AnnualCreditReport.com. And while a majority of FINRA Foundation study respondents (60 percent) believe they have above average credit, it’s important to see whether self-assessment is in line with credit scores kept by credit bureaus and other sources. Learn more about how you can obtain your credit score and what helps and hurts your credit score.