5 financial behaviors to boost your financial health

Vanguard research shows that emergency savings are the strongest predictor of financial well-being.¹ Our findings show that having at least $2,000 in emergency savings is associated with a 21% higher level of financial well-being versus not having any emergency savings.

Ideally, you want to be prepared for the kind of spending shock that can happen to any of us without warning—such as a car repair, appliance breakdown, or medical bill.

Since these unexpected events can occur at any time, investments that offer safety and liquidity are most appropriate for emergency savings. These can be checking and savings accounts, money market funds, or cash management accounts, such as the Vanguard Cash Plus Account.

Having 3–6 months of expenses invested in an accessible long-term account, such as a taxable account or Roth IRA may help with unexpected income changes, like the loss of a job. With a Roth IRA, your contributions can be withdrawn anytime, with no taxes or penalties. However, any earnings you've made in a Roth IRA would be subject to a 10% tax if withdrawn before you reach age 59½ and meet the 5-year holding requirement.

Learn more about our approach to emergency savings.   

82% of Americans are saving for at least one financial goal.²

Sticking to a budget is an important step if you're planning to put your money toward multiple goals. Over the past 3 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. With this approach, you'd allocate up to 50% of your budget to necessities and up to 30% for nonessential spending, leaving you around 20% for savings or debt repayment. 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.   

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.  

Investors are actively seeking tax-efficient strategies to minimize their tax liability. This includes using tax-advantaged accounts such as IRAs and 401(k) plans to shelter their retirement savings from the regular pinch of taxes through tax-deferred growth.³

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 (exchange-traded funds) or mutual 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 markets.
• 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. 

If choosing investments, planning for long-term goals, and balancing other aspects of your financial life feels overwhelming, you might consider professional advice. Vanguard offers a range of advice services that offer personalized financial planning and ongoing guidance to track your progress.