If you’re in search of straightforward financial strategies for the upcoming year, consider these three key principles focusing on budgeting, investing, and withdrawals from retirement plans.

These are broad principles and may not fit all individual circumstances. However, they can serve as a solid foundation for addressing the financial challenges many face.

Budgeting with the 50-30-20 Principle

This strategy helps you allocate your income effectively. According to NerdWallet, you would set aside 50% of your post-tax earnings for essential expenses such as groceries, housing, utilities, transportation, insurance, and minimum payments on loans and credit cards.

Next, you should allocate 30% for your “wants,” which can include dining out, gifts, travel, and entertainment. The final 20% should be directed toward paying off debt, building an emergency savings fund, and investing for the future.

NerdWallet notes that adhering to this framework can lead to manageable debt, some ability to enjoy life, and savings for unexpected costs and retirement. However, the implementation of this guideline may be challenging; setting aside 50% for needs can be tough for many, and distinguishing between “needs” and “wants” is often not clear-cut. NerdWallet advises that minimum payments on credit cards are necessities, while paying more could fall into the 20% category for savings and debt repayment.

If sticking to these percentages proves difficult, consider adjusting them—maybe try a 60-30-10 distribution. Tweaking your budget is preferable to abandoning it entirely. Where possible, set up automatic deposits and payments to minimize manual decision-making.

Investing with the 60-40 Strategy

A significant challenge in investing lies in determining how to diversify your portfolio. Though historically, a balanced stock market portfolio consistently outperforms bonds, navigating the volatility can be stressful.

The 60-40 rule suggests that you commit 60% of your long-term investments to stocks and other higher-risk options, with the remaining 40% focused on bonds, bond funds, and safer, conservative investments.

This strategy typically operates under the assumption that you will reassess your portfolio at least once a year to maintain the 60-40 balance. Alternatively, as you age, you might gradually reduce your stock holdings and increase your fixed-income investments to lessen risk exposure.

Historically, this 60-40 strategy has been effective. Between 1950 and 2023, this approach would have yielded an average annual return of 9.3%, according to J.P. Morgan Asset Management. In comparison, stocks alone provided an annual return of 11.4%, while bonds offered a 5.3% return during the same timeframe.

While stocks, particularly those in the S&P 500, have outpaced this mix, the 60-40 strategy generally ensures a steadier investment experience without significantly sacrificing growth potential.

The Withdrawal Strategy of About 4%

When preparing for retirement, a critical concern is how much you can safely withdraw from your savings each year without jeopardizing your future security. A commonly accepted guideline is that a withdrawal rate of about 4% is generally considered stable. However, recent studies from Morningstar suggest a more conservative rate of 3.7%.

The reasoning behind this adjustment relates to lower yields on bonds and savings tools alongside rising stock valuations, which hint at reduced future returns, as noted by Morningstar. It’s essential to remember that analysis can change depending on market conditions and personal financial situations.

Morningstar presents a straightforward option to consider—a ladder of Treasury Inflation-Protected Securities (TIPS) with varying yields and maturities. This approach could support a withdrawal rate near 4.4% in current markets, yet it may deplete the portfolio within 30 years.

Other strategies from Morningstar include postponing Social Security benefits to maximize payments during retirement and employing a “guardrail” method to avoid significant withdrawals in downturn years, particularly when stock values rally. This strategy could involve adjusting withdrawals based on portfolio performance rather than sticking to a fixed percentage. For instance, in a downturn, you might only withdraw around 3%, possibly necessitating some part-time work or alternative income sources to compensate for the shortfall.