Finances are a big part of life. Some rules can help you be successful in your financial journey. Here are the 10 financial rules of thumb everyone should know.
Save Your Money
You need to spend money to live. However, there should be a certain amount of money you set aside each month for saving. We’ll get into exactly how much in a second.
But How Much Should Be Saved?
Depending on where you are financially, there are a couple of different amounts you should save. If you are newer in your career, then it is good to save about 10 percent of your income post-taxes. When your income increases, then you can go to 15%. Then it should go up slowly from there. By your 40s you should be saving about 35 percent.
Follow the 50-20-30 Rule
You might be sitting there thinking, what does the 50-20-30 rule even mean? Well, here is some education! This rule means 50 percent of your money needs to go towards your living expenses. Then 20 percent of the money goes towards some of your goals, and 30 percent goes towards your spending, like going out to eat or to the movies. This rule isn’t set in stone, so you can adjust them however you would like.
Follow the 20/4/10 Rule
When buying a car, it is good to follow the 20/4/10 rule. The 20 stands for 20 percent which should be the down payment for your car. The 4 stands for the number of years you should finance your car. And the 10 stands for the percentage that you should put towards your car loan’s equated monthly installments.
Always Have an Emergency Fund
It is important to always have an emergency fund on hand in case something goes wrong. You should have at least 3 to 6 months’ worth of living expenses saved. This will save you from a catastrophe in the future and the money will be there if you need it.
Have Life Insurance
Life insurance is an important thing to have. It makes sure that your loved ones are taken care of if something should happen to you. How much life insurance you need depends entirely on you and your lifestyle, such as wealth, age, dependents, etc.
Save for Retirement
To prepare for your future, you must start saving now! Saving for your retirement can come in the form of a 401(k) or an IRA. The most important thing is to have money in those accounts before you retire. This will help make sure you will have your expenses paid when you don’t have any income coming in.
How Much Home Loan Should You Take?
The monthly equated monthly installments (or EMIs) should be less than 30 percent of your monthly income when it comes to taking out a home loan. The combination of your home loans and other loans should be no more than 50 percent of your monthly income. You should always make sure this is the case so you have the money you can allot for your living expenses.
You Should Invest in Equity
There seems to be a rule when it comes to equity where you do 100 minus your age. That answer is the amount of money that should be put into equities and the rest should go towards your debt. As you get older, your money towards equities should be lower.
Read More: What Is the 50/30/20 Rule?
Diversify Your Portfolio
It is important to diversify your portfolio. You don’t have to have an investment in every single category there is though. You should only have a couple to six different schemes (this just depends on how much money you are investing). Diversifying your portfolio is not only smart but it also brings you in the most money in the end.
Read More: How Much Money Do You Need to Retire?
