Thanks to the Internet (or the “interwebz,” if you will), personal finance advice is literally at your fingertips. In theory, that’s a good thing.
In practice, it means you’re overloaded with information, which is usually confusing and sometimes contradictory. This can make you run around in circles, trying to figure out the answers to questions like:
- How much of my income should I save?
- How much should I put down for that new car or house?
- Should I donate to charity?
Well, worry no more, dear friend.
Here, I’ve collected the 10 Rules of Personal Finance that will serve as the best rules of thumb in your daily life:
Save at Least 10 Percent of Your Income
There’s a popular budgeting rule that goes like this: Put 50 percent of your money into necessary expenses, 30 percent into optional ones and the remaining 20 percent into your savings account.
If you’re having trouble with the 20 percent thing, though, some experts say 10 to 15 percent will do. You can adjust the percentages in the 50-30-20 rule, as long as they make sense for your situation, and as long as they’re aligned with your savings goals.
Take Advantage of Company Benefits
You can only save so much on your own, given your after-tax income. That’s why you shouldn’t think twice about letting your company help you.
Get to know your company’s policies regarding 401(k)s, insurance and other benefits, and figure out how to maximize them to fill up your savings account.
Build an Emergency Fund Worth 6 Months
Regardless of your current financial situation, it helps to have an emergency fund. If you suddenly lose your job, for instance, this fund can sustain you for 6 months to 2 years, depending on how long it takes you to find another job, and how much you can decrease your expenses during that time. I’m in my early 20s, so I don’t have years worth of professional working experience in my industry yet – it would be tough for me to land another job if I get fired/laid off from my current one. A lot of people think that job security that is backed up by years worth of professional working experience. In any case, set aside as much as you can, when you can, for the rainy days.
Be Your Own Stock Picker
It might sound counterintuitive, but if you want to succeed in the stock market, stop paying attention to those tickers scrolling on the bottom of your TV screen. They’ll only rattle you, and encourage you to make the same mistakes every other stock investor makes.
You’re better off doing your own research on companies that interest you, and investing in them based on value a la Warren Buffett.
Follow the 3-Year Rule for Buying Houses
Thinking of buying your own house? If price is your primary concern at the moment, find a place worth no more than thrice your annual income. There are houses in the five-figure range, though they’re a bit on the small side.
Track Your Money
Follow the 20/4/10 Rule for Buying Cars
A car is considered a reasonable buy if you can afford to pay 20 percent down, finance for no more than 4 years, and keep transportation costs at or below 10 percent for it. Don’t forget the other factors to consider when you’re buying a car too.
Stay on the IRS’ Good Side
At some point, you might’ve been tempted to (ahem) get the better of the taxman. To this, I say: Don’t even think about it. On top of the usual penalties, tax evasion can cost you $250,000 and/or 5 years in prison. You can, however, legally reduce your taxes by taking advantage of the most updated tax benefits.
Set Money Aside for Charities You Believe In
When you think of investments, you think of money going in, not out. But charitable donations are investments too, in a way. Not only will you bring in a ton of good karma, but you’ll enjoy at least 6 other benefits of generosity.
Spend on Experiences, Not Material Goods
Splurge on things that enrich you as a person, not things that’ll eventually gather dust on your shelf. Drink a cup from that newly-opened coffee shop across the street. Treat that friend you haven’t seen in a long time. Travel outside the country. Plan your finances for the long-term, but don’t forget to enjoy yourself along the way.
I hope these rules will help you, just as they helped me. If you have any other interesting money rules in mind, please share them in the comments section.