Rule #1: Maintain Control Over Debt
There are some general rules that can help you measure your progress towards your financial goals. While following these rules does not guarantee success, they can set you on the right path if you are trying to pay off debt, increase wealth, or achieve a comfortable retirement.
Rule #2: Avoid Being Poor Because of Your Home
Calculating how much to spend on a home is an important rule for financial planning. You should calculate the debt-to-income ratio resulting from your total monthly debts and consider the amount you can spend on mortgage payments without exceeding these limits. It is also considered that you should buy a home that does not exceed 2.5 to 3 times your annual income.
Rule #3: Aim to Save at Least 10% of Your Income
One of the most widely used saving rules is to save at least 10% of your income. When it comes to the amount of money you should save for retirement, if your company offers a matching program, you should save enough to take advantage of it. That’s free money. These matching programs can range from 3% to 6% of your gross pay, but your retirement savings should not stop there.
Rule #4: Do Not Ignore Emergency Savings
An emergency fund is used to cover expenses in the event of a sudden loss of income or another financial emergency. Most experts suggest that a household should have between three and six months’ worth of expenses set aside in case of an emergency. For example, if your monthly obligations total $2,500, you should aim to keep between $7,500 and $15,000 in your emergency fund.
Rule #5: Be Realistic About Retirement
The general rule suggests that you should aim to maintain 75-80% of your pre-retirement income during retirement. However, this amount can be higher or lower depending on the type of lifestyle you plan to have in retirement, the amount of debt you still carry, and your overall health condition.
These rules are important steps for successful financial planning. If you are working with a financial advisor, they can guide you in fine-tuning your strategy. And if you do not have a financial advisor yet, be aware of how working with one can help you achieve your financial goals.
Source: https://www.thebalancemoney.com/financial-rules-of-thumb-1289721
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