The Dos and Don'ts of Financial Security

Great income doesn't necessarily translate to great financial security. Even those who make a lot of money can rack up the debt-people have a tendency to live up to their means and even beyond them.

Great income doesn’t necessarily translate to great financial security. Even those who make a lot of money can rack up the debt—people have a tendency to live up to their means and even beyond them.

So if you sometimes feel like you need help managing your financial challenges (whether they’re day to day, setting aside money for college or saving for retirement), these five tips from the FINRA Investor Education Foundation should help.

FINRA used the findings of its National Financial Capability Study of more than 25,000 Americans to develop five practical tips to help you build a bright financial future and achieve greater financial security in 2014.

"With an economy on the mend, many Americans are facing a healthier job market and trying to get their financial lives back on track," FINRA Foundation President Gerri Walsh said in a statement.

Don’t

Chase yield

There’s no such thing as an investment with low risk and high yield—that’s called a scam. So if you find yourself chasing returns, realized that it means you are putting assets into riskier investment. Make sure you feel comfortable with the amount of risk you are taking on—it’s different for every investor.

Be part of the 39%

How relaxed would you feel if there was a sudden financial emergency? Would you be able to come up with the money? According to FINRA, 39% of respondents said they probably or certainly could not come up with $2,000 if an unexpected need arose in the next month.

“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,” according to FINRA.

Creating an emergency fund will help you through financial trouble. Ideally, an emergency fund will keep you afloat for at least six months. That means having a fund to cover the necessities such as mortgage/rent, insurance premiums, food, tuition and utilities.

Go to the next page to see the dos.

Do

Bust your debt

Regardless of income, 42% of Americans told FINRA that they felt they have too much debt. Physicians know all about having too much debt—medical graduates starting their careers as face debt of roughly $160,000 from their student loans, according to the American Association of Medical College.

Luckily, it’s tax season, which means that many Americans will be getting a tax refund. Close to half (44%) typically expect to use their refunds to pay off debt.

Take advantage of tax breaks when saving for college and retirement

Physicians might despair of the idea of paying for someone else’s college after finally paying off their own, but if you have financially dependent children you can use tax-advantaged savings accounts. However, FINRA found that just a third of respondents are setting aside money for their children’s college education.

If you want to set something aside for your kids, consider the Utah Educational Savings Plan—it’s the best 529 in the country. And for the residents of 21 states, this 529 is the best option to use.

Americans are doing a little better when it comes to saving for retirement — FINRA found that 54% of non-retired respondents have some kind of retirement account. As Physician’s Money Digest has pointed out time and time again, Americans should definitely participate in a 401(k) if their company offers it, especially if the company matches some percentage. But remember there are other ways to save for retirement out there. Contributions to a traditional 401(k) are not subject to tax, while earnings on Roth 401(k) contributions are tax free.

Check your credit report and score

You should be doing both, not just one. FINRA found that just 42% of Americans have obtained a copy of their credit report and 41% had checked their credit score in the last year.