5 Essential Financial Rules of Thumb You Need to Know

Discover the financial rules of thumb that can help you make wise money decisions and achieve your financial goals. Managing your finances can be a daunting task, especially if you’re not a financial expert. However, there are some financial rules of thumb that can help you make smart money decisions and stay on track towards your financial goals.  In this article, we’ll go over some of the most important financial rules of thumb that everyone should know.

 

5 Essential Financial Rules of Thumb You Need to Know

Rule 1 of thumb financial : The 50/30/20 Rule

One of the most popular financial rules of thumb is the 50/30/20 rule. This rule suggests dividing your income into three categories:

  • 50% for essential expenses (such as rent, utilities, and groceries)
  • 30% for discretionary expenses (such as dining out, entertainment, and hobbies)
  • 20% for savings and debt repayment

This rule is a great way to balance your spending and savings goals while ensuring you’re not overspending in any particular area. In addition, it’s important to note that the percentages can be adjusted based on your individual circumstances. For example, if you have high student loan debt, you may need to allocate more than 20% towards debt repayment.

Rule 2 of thumb financial: The 3-6 Month Emergency Fund

Life is unpredictable, and unexpected expenses can arise at any time. Therefore, there is an emergency fund is crucial for financial stability. The general rule of thumb is to save enough money to cover 3-6 months of essential expenses. This includes things like rent, utilities, food, and transportation.

Having an emergency fund can help you avoid going into debt or relying on credit cards in case of a job loss, medical emergency, or other unexpected event. So, we should set aside a small amount each month until you reach your goal.

See also  Is the American Express Platinum card worth?

Rule 3 of thumb financial: The 28/36 Rule

When it comes to buying a house, the 28/36 rule is a good guideline to follow. This rule suggests that your housing expenses (including mortgage, property taxes, and insurance) should not exceed 28% of your gross monthly income. Additionally, your total debt payments (including housing, credit card debt, car loans, and other loans) should not exceed 36% of your gross monthly income.

This rule can help you determine how much house you can afford and avoid taking on too much debt. On the other hand, keep in mind that this is just a guideline, and your individual circumstances may require a different approach.

Rule 4 of financials: The Rule of 72

If you’re interested in investing, you should use the Rule of 72 as a tool for estimating how long it will take for your money to double. Simply divide 72 by the annual rate of return to get the number of years it will take for your investment to double in value.

For example, if you have an investment that earns 8% per year, it will take approximately 9 years for your money to double (72 divided by 8 equals 9). So,  this rule can help you compare different investment options and make informed decisions about where to put your money.

Rule 5 of thumb financial: The 10% Rule

Saving for retirement is a long-term goal that requires consistent effort. The 10% rule suggests that you should aim to save at least 10% of your gross income for retirement. This can include contributions to a 401(k), IRA, or other retirement accounts.

See also  How to Ping iPhone from Apple Watch

Therefore, starting early and consistently contributing to your retirement savings can help you reach your retirement goals and enjoy financial security in your golden years. If 10% seems unattainable, start with a smaller percentage and gradually increase it over time.

Rule 6 of thumb financial: The Debt-to-Income Ratio

As you get closer to retirement, you may want to adjust your allocation to be more conservative. Although, this rule is not a one-size-fits-all solution. But it can be a helpful starting point for determining your investment strategy.

Rule 7 of thumb financial: The Rule of 20

Investing can be a complex and intimidating process. But the Rule of 20 can help simplify things. This rule suggests subtracting your age from 100 to determine the percentage of your portfolio. It should be invested in stocks. For example, if you’re 30 years old, you should aim to have 70% of your portfolio in stocks (100 minus 30 equals 70).

On the other hand, If you get closer to retirement, you may want to adjust your allocation to be more conservative. Although, this rule is not a one-size-fits-all solution. But it can be a helpful starting point for determining your investment strategy.

 

Conclusion

5 Essential Financial Rules of Thumb You Need to Know

Managing your finances can be challenging. However, these financial rules of thumb can help simplify the process and guide you towards smart money decisions. Moreover, these rules can be applied to different areas of your financial life. You can achieve your goals and improve your financial stability from budgeting and saving to investing and debt management. Beside, remember, these rules are just guidelines, and your individual circumstances may require a different approach. However, by following these rules, you’ll be on your way to a healthier financial future.

See also  The Old Dollar Bill Values

Read more:http://3sblog.com

Related Posts

American Express Platinum card

Is the American Express Platinum card worth?

The American Express Platinum Card offers eight main statement credits that can reduce the effective cost of the annual fee. If used fully, these credits amount to nearly $1,600 in value per…

Read more

How to Tell If You Have a Pell Grant

Are you wondering if you have a Pell Grant? Read this article to find out how to check for one and what to do if you have one. Introduction: A…

Read more
Can you use iMessage on android

Can you use iMessage on android

 Can You Use iMessage on Android? Here’s What You Need to Know Wondering if you can use iMessage on your Android device? Read on to discover the answer and alternatives…

Read more

The Old Dollar Bill Values

Are you wondering if that old dollar bill you found in your grandpa’s attic is worth anything? Are you interested in collecting old currency as a hobby or investment? If…

Read more
how to ping iPhone from Apple Watch?

How to Ping iPhone from Apple Watch

Do you frequently misplace where you’ve put your iPhone? You’re not alone, but your Apple Watch can help you find it quickly. If you often ping iPhone from Apple Watch,…

Read more

How to form an LLC in Louisiana

Starting a business in Louisiana? Learn how to form an LLC in Louisiana with our step-by-step guide, complete with tips, FAQs, and helpful resources. Introduction how to form an llc…

Read more

Leave a Reply

Your email address will not be published. Required fields are marked *