To calculate a restaurant server’s tip, double the first number on the bill. A $62.47 tab gets a $12 tip. If the bill is more than $100, double the first two digits.
That’s an example of a money rule of thumb that is imperfect but useful, which is the idea — inexact starting points for goals, conversations and calculations.
Americans apparently could use the help. Many are winging it through their financial lives without confidence in their ability to afford retirement, an emergency expense or even daily living costs, according to a survey by The Associated Press-NORC Center for Public Affairs Research.
Money-related benchmarks can help and are especially timely as we turn to a fresh decade and make money resolutions anew. Still, finances need regular monitoring for budgeting, assessing progress toward goals and evaluating debt reduction, said Paul Golden, spokesman for the National Endowment for Financial Education.
“As you condition yourself, you can build on more time [to review finances], but use a half-hour a week as a starting point.”
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Try to save 15% of income for retirement. Aim to replace about 70% of your preretirement income. And when you tap the nest egg, drain just 4% per year.
Start an emergency fund with $500 and eventually build it to three to six months of essential living expenses.
Other rules address specific situations:
Limit student loan borrowing to the amount you expect to earn in your first year working.
Full-time hourly workers can double their wage rate and tack on three zeroes to approximate their annual earnings. Making $15 per hour yields about $30,000 per year.
Professional advice and online calculators will provide more accurate and detailed answers, especially for people who have unusual money situations. But here are some handy rules of thumb to get started.
50/30/20 budget. Figure half of your take-home pay should go toward “needs,” such as housing, food and transportation. Then 30% goes to wants, and 20% funnels to savings and debt repayment.
Rule of 10. For big discretionary purchases, reflect on how it will make you feel in 10 days, 10 weeks and 10 years. Perspective can calm buying urges for purchases you later regret. Related: Give yourself cooling-off time equal to one day for every $100 the purchase costs.
Term life insurance. Buy a policy worth 10 times your gross annual income only if somebody else depends on your income.
Kid allowance. Give $3 weekly per grade level in school. A fourth-grader gets $12. The overall average is $30 per week, according to a survey by the American Institute of CPAs.
Windfall. Do responsible things with cash infusions, like a tax return or inheritance. But set aside 2% to blow on something fun, so you don’t feel deprived.
Housing
House payment. Your mortgage, including taxes and insurance, should not exceed 30% of your gross monthly income.
Cars
Car payment. Limit payments to 10% of your monthly take-home pay, so you can keep your total car costs — gas, insurance, repairs and maintenance — below 20% of your income. Also, put 20% down and limit the loan term to four years.
Repair or replace.Replace your car if a repair costs more than your car is worth — as determined by, say, Kelley Blue Book — or exceeds one year’s worth of monthly payments.
Net worth. Net worth is the number that sums up your money life. One measuring stick: All you own minus all you owe should equal your age times your gross income divided by 10, according to the book, “The Millionaire Next Door.”
Rule of 72. Divide 72 by your expected annual rate of return to estimate how many years it will take for an initial investment to double. At 6%, the investment replicates in 12 years.
Financial freedom. Achieved when savings are at least 25 times your annual expenses.
Credit and debt
Total debt. All debt payments, including mortgage, should be less than 36% of monthly gross income.
Credit card bonus. On rewards credit cards with an annual fee, look for a sign-up bonus value equal to three years or more of its annual fee unless it has especially valuable rewards or benefits.
Card use. Keep credit card balances at 30% or less of their limits to avoid hurting your credit scores.
This article was written by NerdWallet and was originally published by The Associated Press.
Figure half of your take-home pay should go toward “needs,” such as housing, food and transportation.Then 30% goes to wants, and 20% funnels to savings and debt repayment. Rule of 10. For big discretionary purchases, reflect on how it will make you feel in 10 days, 10 weeks and 10 years.
The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).
The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
1 thumb rule of investing? Allocate 30% of your monthly salary to dividend investments for the benefit of future generations. Following that, distribute 30% equally between equity and debt components. Invest 30% of your retirement funds in debt schemes that generate income.
When your bank balance is looking healthy after payday, it's easy to overspend and not be as careful. However, there are several issues at play that result in people relying on borrowing money, racking up debt and living way beyond their means.
This might seem like a no-brainer because what investor sets out with the intention of losing their hard-earned cash? But, in fact, events can transpire that can cause an investor to forget this rule.
According to the Ramsey Solutions post, the recommendation is to invest 15% of your household income for retirement. The article uses the example of a household income which is $80,000 annually. Based on these earnings, each year you need to invest $12,000 towards your retirement savings.
In his free webinar last week, Market Briefs CEO Jaspreet Singh alerted me to a variation: the popular 75-15-10 rule. Singh called it leading your money. This iteration calls for you to put 75% of after-tax income to daily expenses, 15% to investing and 10% to savings.
So the average 30-year-old should have $50,000 to $60,000 saved by Fidelity's standards. Assuming that your income stays at $50,000 over time, here are financial milestones by decade. These goals aren't set in stone. Other financial planners suggest slightly different targets.
“There are clear and distinctive categories - 50% for needs, 30% for wants and 20% to put aside as savings.” For example, if £1,500 comes into your account each month, £750 would go towards your 'needs' - rent, council tax, energy bill, food and transport to and from work.
Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment. Find out how this budgeting approach applies to your money.
Rule of 72. Divide 72 by your expected annual rate of return to estimate how many years it will take for an initial investment to double. At 6%, the investment replicates in 12 years.
Wife-beating has been officially outlawed in England and the United States for centuries, but enforcement of the law was inconsistent, and wife-beating did continue. However, a rule of thumb permitting wife-beating was never codified in law.
The basic principle of the golden rule of saving money is to save at least 20% of your income. This includes any form of income, such as salary, bonuses, or freelance earnings. By consistently saving a significant portion of your income, you can build a strong financial foundation and achieve your financial goals.
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
The 50/30/20 rule is a budgeting technique that involves dividing your money into three primary categories based on your after-tax income (i.e., your take-home pay): 50% to needs, 30% to wants and 20% to savings and debt payments.
The 80/20 budget is a simpler version of it. Using the 80/20 budgeting method, 80% of your income goes toward monthly expenses and spending, while the other 20% goes toward savings and investments.
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