Saving and Investing Rules of Thumb
Eileen St. Pierre, The Everyday Financial Planner
I’m always hesitant to rely on “rules of thumb” because they can oversimplify the issue. But on the flip side, it’s hard to save and invest. Many people just don’t know where to start. They are afraid they may make a mistake. So rules of thumb can be a good place to start. Just remember you can always adjust them depending on your situation.
I’ve already given you Three Retirement Rules of Thumb, so here are a few more:
The 50/30/20 Rule for Budgeting
Put 50% of your budget towards essentials like food, housing, transportation, utilities, and child care. Put 30% towards financial goals such as saving for retirement, building an emergency fund, and paying down debt. Then put the final 20% towards wants such as eating out, trips, and watching movies.
Two Rules for Buying a House
Rule #1 – Don’t buy a house worth more than 2-3 years of income.
This rule may be easy to follow in the Midwest but harder to achieve out in Silicon Valley.
Rule #2 – Put 20% down.
This way you avoid private mortgage insurance (PMI) and you get a better interest rate. But this can be hard to do. If you put less down, just remember to have the PMI removed from your payment once you accumulate 20% in equity.
The 20/4/10 Rule for Buying a Car
According to this rule, you should put at least 20% down. Do not finance the car for more than 4 years. Do not spend more than 10% of your gross income for transportation costs (car payment, insurance, gas, and repairs).
There is also the 10 Year Rule – if you plan on keeping your car for more than 10 years, then buy it new. Those of you who like to work on cars (or in my case, married someone who does) may choose not to follow this rule.
Want to learn more? Join us for a free 30-minute webinar Saving and Investing Rules of Thumb on November 17 at 3:30 Central Time. Click HERE to register.