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Personal finance

5 financial behaviors to boost your financial health

5 minute read
May 14, 2024
Personal finance
Financial wellness
Managing debt
Building an emergency fund
Investor goals
Market volatility

Going into 2024, Vanguard investors were brimming with confidence. Fresh memories of 2023's bull market left investors feeling optimistic about economic growth and stock market returns.

But despite optimism about stocks, many Americans are facing pressure to manage record-high household debt1 and the effects of high interest rates and inflation. The good news: With inflation expected to cool, there could be opportunities to save or invest more as your wage growth outpaces price increases.  

As you focus on reaching your goals, keep these behaviors top of mind to help improve your financial well-being. 

5 behaviors investors are prioritizing 

Balancing saving for multiple goals

57% of households are saving for 3+ goals.2

Sticking to a budget is an important step if you're planning to put your money toward multiple goals. Over the past 2 years, inflation has put a strain on budgets, making it harder to pay down debts and save. One technique that can work as a helpful budgeting guide is the 50/30/20 rule. Give it a try to ensure you're setting aside money to efficiently pay off debts and save.

Whether you're saving for a child's education, a down payment on a house, your retirement, or something else, it's important to turn your goals into an investment plan. A simple way to get started is to automate your savings by having money automatically transferred into your account on a set schedule.   

Taking advantage of debt-reduction strategies

Many investors are prioritizing strategies to efficiently pay off high-interest loans.

When inflation and interest rates are high, it's important to focus on paying off debts with high interest rates first. But for debt with a comparatively low interest rate, it's a good idea to compare the debt's interest rate against the rate of return you hope to achieve with your investments.

Here are some tips to help you:

  • Build an effective plan to tackle debt.
  • Determine a payoff strategy that works to minimize total interest paid or get some quick wins under your belt.  

Building an emergency fund

Creating a financial safety net for unexpected expenses has become a top priority for Americans. In fact, 52% of U.S. households prioritize building an emergency fund as their top goal, even as they juggle the demands of multiple goals.2

To maximize your long-term growth potential, consider splitting your savings between cash and investments. For example, investing a portion of your emergency savings in an accessible, broadly diversified ETF (exchange-traded fund) with minimal tax consequences can help you keep up with inflation. These supplemental savings could come in handy if you lose your job or experience a break in your income.3

Learn more about our approach to emergency savings.

Keeping taxes low

Investors are actively seeking tax-efficient strategies to minimize their tax liability. This includes using tax-advantaged accounts such as IRAs and 401(k)s to shelter their retirement savings from the regular pinch of taxes through tax-deferred growth.Automated tax-loss harvesting5 is an effective tax strategy that can help turn market volatility into a tax-savings opportunity. 

Managing volatility

Market volatility is a normal, expected part of investing. And it's a big reason why so many investors hold a balanced portfolio of stocks and bonds.  

While you can't predict when volatility will strike, there are things you can do to help stay on the path to long-term success. It's about focusing on things within your control like:

  • Diversifying your portfolio. Investing across different asset classes, sectors, and geographical regions can help reduce the impact of market risk on overall investment returns. ETFs or funds that seek to track broad market indexes offer a great way to get broad exposure to the entire U.S. and International stock and bond market.
  • Rebalancing your portfolio. When one asset class is doing better than others, your portfolio could become unaligned with your target asset allocation. To ensure your portfolio stays aligned with your risk tolerance and asset allocation, we recommend checking it at least once a year. And if your mix is off by at least 5 percentage points, consider rebalancing so you don't drift off course. 

Don't have the time or interest in managing your portfolio?

Digital Advisor can automatically rebalance your portfolio, so you can focus on other areas of your life. It includes tools and strategies to help you minimize debt and taxes and optimize emergency savings.6

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1Source: MarketWatch. Financial Trends To Watch in 2024 and What They Mean for You. February 2024.

2Source: Advisor Magazine. 7 Key Attitudinal Trends for Investing in 2024. December 2023.

3Source: Vanguard. In case of emergency, break glass: Managing household liquidity. May 2023.

4When taking withdrawals from a tax-deferred plan before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.

5Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you carefully review the terms of the consent and consult a tax advisor before taking action.

6Vanguard Digital Advisor's debt payoff calculator helps you project the impact of different fixed-rate debt payments over time. To analyze your debt payments, you'll use a third-party aggregation service. There are limitations to the aggregated information, including inability to carve out any escrow payments. There also could be missing or inaccurate information, such as taxes and insurance, which you'll need to closely review in using the calculator.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Vanguard Digital Advisor is provided by Vanguard Advisers, Inc. ("VAI"), a federally registered investment advisor. VAI is a subsidiary of The Vanguard Group, Inc., and an affiliate of Vanguard Marketing Corporation. Neither VAI nor its affiliates guarantee profits or protection from losses.