Budget your income based on your:
The 4% Rule says you can take out 4% of your savings each year during retirement without running out of money.
Example:That means you can spend up to $3,333 per month in retirement.
Save 3 to 6 months' worth of living expenses in an emergency fund.
Only use this fund for emergencies (like a vet bill, flat tire or medical bill.
It'll save you from taking on debt to cover any surprise expenses.
For every dollar you splurge on a luxury item, invest the same amount.
Example:If you buy a $200 pair of heels, invest $200 into your investment account.
3x rent rule says rent should not exceed 1/3 of a person's gross monthly income.
The idea is that housing shouldn't consume more than a third of a person's income so you have money left over for expenses, savings and investments.
If you have to take a loan to buy a car then follow the 20/4/10 rule:
Remember: Most cars depreciate with time.
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
If the item is over 1% of your annual gross income, wait 3 days.
If you still want the item after 3 days, get it.
Why this works:
You'll often realize you don't actually want/need that thing.
Keep 3X - 6X your monthly income in an emergency fund.
When a rainy day comes, you'll weather the storm.
Many employers will match part of the money you put into retirement.
So maximize your 401(k) contribution at least up to the highest employer match offered.
This is free money.
Item In, Item Out Rule
Defaults are powerful because people are lazy. So make saving your default by automating it.
Lessons:
Check out our wealth dictionary to learn about every financial term you were afraid to ask about.