During financial literacy month, take some time to check in on your finances and see how crucial areas of your finances stack up against industry rules of thumb.

Everyone’s financial situation and goals differ, so your ideal breakdown may not look exactly like the guidelines described here! However, these are a great place to start as you plan for the year ahead. 




Having a budget is a must for good money management, and there are many types of budgets. We will focus on the widely recommended 50/30/20 budget, which is helpful for day-to-day financial management. 

Using your take-home pay, calculate the following:


50% — assign this money to needs and essential expenses (that is, the things you need to live your life)

  • Housing
  • Food
  • Bills
  • Insurance
  • Gas/Transportation

30% — assign this money to wants and lifestyle expenses (those things you don’t necessarily need but that make life more fun)

  • Dining out
  • Entertainment
  • Sporting events
  • Nonessential items and experiences

20% — assign this money to savings (your future self will thank you!)

  • Long-term and retirement savings
  • Short-term goals (like travel funds)

Emergency Savings

Setting aside money for emergencies is essential to getting your financial house in order. As of January 2023, most Americans could not cover a $1,000 emergency from cash or savings!1

A good rule is building up enough money in your emergency fund to cover three to six months of your essential expenses (the things in the 50% category above, for example). You can use this money to cover costs if you unexpectedly get laid off, need to make a costly car repair, or end up with medical expenses.

If your monthly expenses are low and you don’t have other financial pressures (like childcare or supporting an aging relative), building a three-month emergency fund is a good start! If you pay higher monthly costs, have variable income, or are the primary earner for your family, a six-month emergency fund is a better target. 

Experts recommend using the 5% rule to budget for emergency savings: set aside 5% of your take-home pay in an emergency fund—ideally in a high-yield savings account, which earns monthly interest! 

If you need to start slower, that’s okay! Every little bit helps, and beginning to build your safety net now can pay off in the future. 


Debt isn’t always bad! Some types, like student loans and investing in a home, can help you achieve your personal, professional, and financial goals over the long term. Regardless of your debt type, you should know your debt-to-income (DTI) ratio. 

Your DTI ratio tells you (and potential lenders) how likely you are to make or miss monthly debt payments. You can calculate your DTI ratio by adding up all your debt payments and dividing that amount by your gross income. 

The suggested DTI ratio is 36% of your pre-tax income and includes the following debt payments:
  • Mortgage
  • Credit card
  • Student loan
  • Auto loan
  • Any other forms of debt
Lenders use your DTI ratio to determine whether you’re eligible for additional loans or credit. Staying under 36% can increase your odds of approval and secure a lower interest rate. 

Saving for Retirement

Saving for retirement can feel daunting, but the sooner you get started—and the more consistently you save—the better off you’ll be when you reach retirement age. 

A general rule is to save 15% of your income for retirement. If you’re following the 50/30/20 rule above, that leaves you with another 5% to save for short-term goals and other priorities. 

Additionally, if you have an employer-sponsored retirement plan that includes a match, take advantage of it! That money can factor into your 15%, freeing up more cash for other short-term savings. 

Here are a few ways to increase your retirement savings:
  • Increase your retirement contribution percentage when you get a raise
  • Set up a small monthly automatic transfer into a retirement investment account
  • Put windfall money (like bonuses or cash gifts) into retirement savings
Insurance Coverage

Insurance coverage is essential—and often required by law. Good insurance can make an enormous financial difference if you’re in a car accident, your house gets damaged in a storm, or you need medical treatment. 

There are a few different guidelines for the varying types of insurance.

When considering car insurance, keep the 20/4/10 rule in mind. The 20/4/10 rule works like this:
  • You make a 20% down payment on the car
  • You sign a loan for four years
  • You spend no more than 10% of your monthly income on car expenses—including insurance
Life insurance should cover five to ten times your annual income. Financial experts recommend this amount to ensure your loved ones can cover funeral expenses and have some financial peace of mind while planning their next steps without your income.

Your homeowner’s insurance should follow the 1% rule, meaning your deductible is 1% of your home’s value. If your home is insured for $250,000, 1% is $2,500—that’s the amount you would expect to pay out-of-pocket if you had to file an insurance claim. 

Take the Next Step

Your financial situation might not fit perfectly into these guidelines, but each of them offers an excellent starting point to help you understand your finances and make a plan for the future. 

Use these guidelines to see whether you’re on track, and then decide how you want to tailor your finances based on your needs and goals. The most important thing is being mindful of your finances and working toward a solid financial foundation!


Prepared by a third-party. 


1. Pino, I. (2023, Jan. 25). "57% of Americans can’t afford a $1,000 emergency expense, says new report. A look at why Americans are saving less and how you can boost your emergency fund." https://fortune.com/recommends/banking/57-percent-of-americans-cant-afford-a-1000-emergency-expense/




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