Capital InsightsFinancial Planning

Healthy Financial Habits and Investment Plans

How to set yourself up for success by creating an investment plan and staying the course.

Creating an investment plan can seem like a daunting task, but getting started is the biggest hurdle. But once you take the first couple of steps, you can switch to a “set it and forget it” philosophy, which is as low effort as it sounds. In this article, we’ll walk through the initial steps to setting up healthy financial habits and planning for the future so you can develop a set-it-and-forget it investment plan, and explore why this approach can be valuable to you.

Creating a Budget

Before you can create an investment plan and build healthy financial habits to set yourself up for success, you first need to assess your current financial situation. Creating and analyzing your budget is the best first step you can take for yourself. While this can be overwhelming, the increasing availability of technology today makes it a little easier on us all. You can use apps and websites, like Mint, to help you get a sense of your average monthly spending.

Goal Setting: Short-Term vs. Long-Term

Once you have a budget, you can get a sense of what your income and expenses look like each month and identify monthly averages for discretionary spending and leftover funds. If in analyzing your budget you find that there aren’t any leftover funds, looking at your budget is a good starting point for identifying expenses you can lower or improve on.

The natural next step once you’ve identified your leftover funds is thinking about your goals and how much to allocate to each goal. You may have short-term goals, like saving a fixed amount of each paycheck for travel that year, medium-term goals such as buying a house in one to three years, and long-term goals like saving for retirement. You can group your goals into three different buckets using these timelines, which can help simplify your thinking about how to allocate your funds to each of your goals.

Luckily, there are some standard guidelines to help you think about how much to allocate to each goal. If we’re thinking about the short-term bucket, there’s a good 50/30/20 rule: 50% of your paycheck should go to necessities, 30% toward discretionary spending and 20% toward savings. We’re focusing on saving in this article, so we won’t dive into the 50/30 aspects of this rule.

The Importance of an Emergency Fund

In thinking about saving, the first thing you should make sure you have is an emergency fund. A typical emergency fund contains three to six months of emergency savings; that means three to six months’ worth of expenses you’d still need to cover if you lost your job during this period. It may make sense for you to “shop” around and look at different savings accounts and yields to see if you can capture some risk-free interest on these short-term funds.

Once you have a sufficient emergency fund set up for yourself, you can start thinking about medium- and long-term goals. The best way to approach these goals is by meeting with an investment professional to help identify your risk tolerance and investments appropriate for your timelines.

Saving For Retirement

If you’re just getting started in your career, your budget may be tight. If that’s the case, you should prioritize your retirement savings over your medium-term bucket. In a study of how prepared Americans are to retire, 55% of Americans are in danger of not fully covering even estimated essential expenses like housing, health care and food in retirement.

The good news is getting started early can make a huge difference thanks to the power of compound returns. To give you an idea of how much this can actually do for you, consider the following example: investing $250 each month with an 8% average annual return. If you start at age 25, you would accumulate $878,570 by age 65. If you start at age 35, you would accumulate $375,073 by age 65. Starting at age 45 gets you only $148,236 by 65.

Retirement savings and how much to contribute can be hard to conceptualize when it’s still a long time away. Fidelity’s research team provides a rule of thumb for retirement funds and milestones: you should have 1x your salary by age 30, 6x your salary by 50, and 10x your salary by 67.

Other things you’ll want to think about here is your contribution rate and employer match. In terms of retirement contributions, Fidelity’s guidance is to aim to save at least 15% of your pre-tax income each year for retirement, which includes any employer match.  If you are participating in an employer-sponsored 401(k) that does an employer match, you’ll want to make sure you’re contributing at least enough to capture the full match, otherwise you’re missing out on free money.

While the above constitute general rules of thumb that won’t apply to everyone, they can still provide some helpful guidance. For example, if you got a late start to building your retirement funds, you’ll likely need to contribute more than 15%. The main goal of the steps above is to make sure you’ve laid out your goals and decided appropriate amounts to allocate to each.

“Set It and Forget It” Plans

Once you get to this point in the process, you can set up automatic recurring contributions to the respective accounts/buckets to start your “set it and forget it” phase. Of course, you’ll want to check in regularly to make sure your goals are still appropriate and adjust contribution amounts as your life changes. Other changing factor to consider are retirement account contribution limits, so you’ll want to make sure to stay current on those as well. But aside from annual check-ins and life changes, your investment plan runs on its own.

There are many positives of set-it-and-forget-it investment plans. One that is perhaps most relevant today and in times of volatile markets is staying the course. There will always be headlines in the news and world events that might make investing seem scary. However, if you know you are investing amounts that are appropriate to your budget in vehicles that align with your risk tolerance, goals and timelines, it becomes a lot easier to stay the course. It minimizes the opportunities for you to panic sell or make other decisions about your investments that you may regret later.

Several studies have shown us that selling when things are scary is usually followed by buying back in when things have settled, which can be translated to selling low and buying high. Historically, staying the course has proved to be a successful strategy.



This article isn’t investment advice, but rather a guide to ensuring you’re set up for success. Once you’ve done the homework on your end, it’s a great idea to work with a professional to find investments and opportunities for earnings and growth that are appropriate for you.