Financial rules of thumb. We all know several, and have based our decisions off of them for most of our financial lives. But how much truth is behind the common wisdom?
This post will serve as a table of contents for this series as I write and publish the content for you. View the list below, and please suggest other rules of thumb in the comments that you’d like to see addressed. I’ll link each new post back to this one and write one post per week until the series is complete. If you want to be sure you get all of them, please subscribe to my blog and you can get them as they’re published either by email or in your RSS reader.
One last note – I don’t agree with some most of these the way they’re written. The problem with general advice is that as my friend Tim Maruer likes to say, “Personal finance is more personal than finance.”
- “Spend no more than 1.5% of your gross income on the holidays, including gifts and travel”
- “All vehicle payments should not exceed 15% of your take home pay.“
Investing
- “100 – your age = the amount you should have invested in stocks“
- “Invest no more than 10% of your total savings in your employer’s stock“
- “Always take the match on your 401(k)“
- “The Rule of 72”
- “You can’t lose money investing in bonds“
Home Ownership
- “A new mortgage should be less than 2x annual household income”
- “Refinance your home when interest rates have dropped by 1%“
- “Buying a home is always better than renting“
Retirement
- “Save for retirement before you save for a child’s college education“
- “In retirement, you’ll need to replace 80% of your pre-retirement income”
- “A safe portfolio withdrawal rate in retirement is 4%”
Insurance
- “Life insurance should equal 5 times your income (or 8 or 12 times)”
What other Financial Rules of Thumb should I address? Please let me know in the comments!
