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We may earn money from links on this page, but commission does not influence what we write or the products we recommend. AOL upholds a rigorous editorial process to ensure what we publish is fair, accurate and trustworthy.
'You call that an emergency fund?' 5 money basics most adults are failing right now
Anna Serio-AliAugust 5, 2025 at 10:58 PM
'You call that an emergency fund?' 5 money basics most adults are failing right now (Westend61 via Getty Images)
The last time anyone tried to teach me money skills was my last semester of high school. Suffering a serious case of senioritis, I remember only that my teacher had a habit of buying makeup she didn't need on a nearly maxed-out credit card!
I'm lucky to know a lot more about managing money in my personal finance career. But here's the sobering reality: Only half of all Americans are financially literate, according to the World Economic Forum. And the kicker? Most think they are financially savvy. Make that math add up.
But no need to panic: By nailing down a few of these financial fundamentals — and teaming up with the right financial pros — you can join the half who have their money figured out.
1. Building a disaster-proof emergency fund
A healthy emergency cushion can mean the difference between "this sucks" and "this ruins everything." But what's healthy supposed to look like in your bank account? A lot of it comes down to your living situation, including your monthly costs, spending habits and people in your household.
Start by calculating your monthly expenses — not what you think you spend, but what you actually shell out on your mortgage or rent, groceries, insurance, credit cards or loans or anything else you can't cut from your budget.
If it's just you and your salary, shoot for enough to cover at least three to six months of expenses. If you live in a two-income household, shoot for at least three to six months of expenses. If you're flying solo, put away a little more — say, six to nine months of expenses — to sleep all the more soundly when life gets tight.
Automatic deposits and transfers to your emergency fund keep savings on autopilot with the magic of compounding.
🔍 Learn more: Life-proof your savings: How to build an emergency fund on any budget
2. Making debt work for (not against) you
Debt is a scary word, yet here's the plot twist: You need at least some debt for healthy finances and to grow your wealth. No debt, no credit history. And without a credit history, good luck buying a house, getting an affordable loan, scoring the lowest insurance rates or even landing a job, in some cases.
You build credit each time you pay down a student loan or credit card on time. But real wealth building means using debt to your advantage. After all, for most Americans, their most valuable asset — their home — exists only because they borrowed to buy it.
The secret lies in running the numbers: If you'll reasonably earn more than you'll pay in interest and fees, the debt could be worth it. If it's an investment with a significant chance of losing your shirt, potential high returns could backfire.
That's why financial pros encourage, say, taking on a mortgage to buy a house but not borrowing money to invest in crypto — one helps build financial stability while the other is expensive gambling.
🔍 Learn more: Can you use a home equity loan to buy a rental or investment property?
3. Getting the retirement math right
Only half of Americans think their retirement savings are on track. If you're wondering whether that's you, use these rules of thumb as a reality check:
The 15% rule — Earmark 15% of your income before taxes each working year for your golden years, including matching what your employer kicks in.
The 25x rule — You'll need 25 times your expected annual retirement spending saved up — and don't skip factoring in inevitable inflation.
The 4% rule — Aim to withdraw no more than 4% of your total savings in your first year of retirement, and adjust that amount each year to keep up with inflation.
If these rules make you want to run for the hills, relax: It doesn't mean you'll need to work into your 80s. But it might be time to meet with a financial advisor. A pro can help you find creative and practical ways to catch up and meet your retirement goals.
🔍 Learn more: The 4% rule for retirement: Is it time to rethink this popular withdrawal guideline?
4. Beating back inflation for the long game
Speaking of inflation, we've heard a lot about the price of groceries recently — especially eggs. But it's easy to forget that inflation can nip away at your money in "safe" savings or checking accounts to the tune of 3% or more a year.
Simply upgrading where you park your cash can help you earn higher rates and outpace inflation, making sure your cash actually grows:
High-yield savings accounts and money market accounts are still paying out interest that's higher than the inflation rate — and up to 10 times more than your traditional savings account. It won't make you rich, but your money's just as accessible and insured up to $250,000, thanks to the FDIC, making them ideal for stashing your emergency fund.
Certificates of deposit (CDs) pay out higher rates than traditional accounts with a guaranteed return, but there's a tradeoff: Your money's locked up through your term's maturity — anywhere from a few months to a few years. Touch it early, and you'll pay a penalty.
Investments in stocks, mutual funds, bonds and similar assets can crush your bank's returns over time. Yes, they're riskier than your everyday accounts, but they grow over years, rather than months, making them best for long-term goals like retirement.
🔍 Learn more: How much should you keep in a high-yield savings account?
5. Knowing when to call in the experts
Financial goals turn abstract money into an actual game plan, sharpening your money skills along the way. Want to be mortgage-free in 10 years rather than 30? Budget like a pro to make extra payments on time, and think twice about swiping credit cards or taking on other debt that can set you back.
You'll need to break down your goals by different timelines — a vacation fund this year, saving for college in the next few and eventually retiring from the 9-to-5 grind.
This is where the help of a trusted financial advisor is money well spent. Your first few sessions will be talking through your financial priorities before building a roadmap together to make sure you've got the steps to get there.
With the right professional in your corner, it doesn't matter how skilled you are at balancing a checkbook or spreadsheet. They can handle the strategy while you live your best life.
🔍 Learn more: 5 red flags to watch out for before choosing a financial advisor
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9 surprising factors that can damage your credit score (and how to fix them)
📩 Have thoughts or comments about this story — or ideas on topics you'd like us to cover? Reach out to our team at [email protected].
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