6 FINANCE RULES(Everyone Should Know By 30)
50/30/20 RULE
- Needs (food, rent, etc.)
- Wants (vacations, new cars, etc.)
- Goals (savings, extra debt
payments, etc.)
- Needs = 50% of income
- Wants = 30% of income
- Goals = 20% of income
300 RULE
Take your current monthly expenses & multiply that amount by 300.
The result is a rough guideline on how much money you need to save (and invest) to keep the same lifestyle you have now, during retirement.
RULE OF 72
Find out how long it will take your investment to DOUBLE.
- Divide 72 by the growth rate of
your investment (expressed as a percent). - Example: How long will it take to double your investment at 10% interest?
- 72 divided by 10 = 7.2 years
20/4/10 RULE
If you have to take a loan to buy a car then follow the 20/4/10 rule:
- 20%– min down payment
- 4 yrs – max # of years the car should be financed
- 10% – max amount of your gross income that should go toward car
Remember: Most cars depreciate with time.
3X TO 6X EF RULE
Save 3 to 6 months’ worth of living expenses in an emergency fund. Only use this fund for emergencies:
- Vet bill
- Flat tire
- Medical bill
It’ll save you from taking on bad debt to cover any surprise expenses.
3X RENT RULE
The 3x rent rule says rent should not exceed 3x a person’s gross monthly income.
The idea behind this rule is that housing shouldn’t consume more than a third of a person’s income.
Why? So you have money left over for expenses, savings, and investments.
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