Practical rules of thumb for fast financial control

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To calculate a restaurant waiter’s tip, double the first number on the bill. A tab of $ 62.47 gets a tip of $ 12. If the bill is over $ 100, double the first two digits.

This is an example of an imperfect but useful monetary rule, which is the idea – inaccurate starting points for goals, conversations, and calculations.

The Americans could apparently use the aid. Many go through their financial lives without confidence in their ability to pay for retirement, an emergency expense or even the expenses of daily living, according to a survey by the Associated Press-NORC Center for Public Affairs Research.

Money-related benchmarks can help and are especially timely as we look to a new decade and make new money resolutions. Still, finances need regular monitoring for budgeting, measuring progress towards goals and evaluating debt reduction, said Paul Golden, spokesperson for the National Endowment for Financial Education.

“By conditioning yourself, you can build over time [to review finances], but use half an hour a week as a starting point.

Some monetary rules are broad:

  • Try to save 15% of your income for retirement. Try to replace about 70% of your pre-retirement income. And when you hit the nest egg, drain only 4% per year.

  • Start a emergency fund with $ 500 and eventually build it to three to six months of essential living expenses.

Other rules concern specific situations:

  • Full-time hourly workers can double their rate of pay and add three zeros to approximate their annual earnings. Earning $ 15 an hour earns about $ 30,000 per year.

Professional advice and online calculators will provide more accurate and detailed answers, especially for people with unusual financial situations. But here are some practical rules to get started.

Expenses

  • Budget 50/30/20. Half of your take-home pay should be spent on “necessities,” such as accommodation, food, and transportation. Then 30% go to wants and 20% goes to saving and paying off debt.

  • Rule of 10. For large discretionary purchases, think about how you will feel in 10 days, 10 weeks, and 10 years. The prospect can calm down the buying urges for purchases that you will later regret. Related: Give yourself a cooling-off period of one day for every $ 100 in purchase fees.

  • Child allowance. Donate $ 3 per week per grade level at the school. A fourth grader receives $ 12. The overall average is $ 30 per week, according to a survey by the American Institute of CPAs.

  • Windfall. Do responsible things with injections of money, like filing taxes or inheriting. But reserve 2% to blow off something fun, so you don’t feel deprived.

Housing

Cars

  • Car payment. Limit payments to 10% of your net monthly salary, So you can keep your total car costs – gas, insurance, repairs, and maintenance – below 20% of your income. Too, put 20% off and limit the term of the loan to four years.

  • Repair or replace. Replace your car if a repair costs more than the value of your car – as determined by, say, Kelley Blue Book – or exceeds a year’s worth of monthly payments.

Save and invest

  • Net value. Net worth is the number that sums up your monetary life. A measuring stick: Everything you own minus everything you owe should equal your age multiplied by your gross income divided by 10, according to the book “The Millionaire Next Door”.

  • Rule of 72. Divide 72 by your expected annual rate of return to estimate how many years it will take for an initial investment to double. At 6%, the investment replicates in 12 years.

Credit and Debt

  • Total debt. All debt payments, including the mortgage, should be less than 36% monthly gross income.

  • Credit card bonus. On rewards credit cards with annual fees, look for a signup bonus value equal to three years or more of its annual fee, unless it has particularly valuable rewards or benefits.

This article was written by NerdWallet and was originally published by The Associated Press.

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