From how to manage debt, spend, save and invest, a guide to the personal finance ‘rules of thumb’ to live by.
- Don’t spend more than 28 per cent of monthly income on household expenses and less than 36 per cent on debt repayments, including any mortgage. Don’t use up more than 30 per cent of your credit card balances
- Allocate 30 per cent of your monthly income to living costs and try to save at least 15 per cent of your income for retirement
- Another way to do it is to stick to the 50/30/20 budget rule for ‘needs’, ‘wants’ and savings
- Use the rule of 10 for big purchases: For expensive, non-essential purchases, reflect on how buying that item makes you feel in 10 days, 10 weeks and 10 years and give yourself cooling-off time (roughly one day per $100)
- Buy a term life insurance policy worth 10 times your gross annual income
- With a windfall, spend half and save half
- Build an emergency fund to cover three to six months of living expenses
- Increase your savings by 1 per cent per month
- Follow the 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
- Adopt the 4 per cent rule – when you can draw that down safely every year from your savings (what is known as the safe withdrawal rate or SWR), you can retire. You can also calculate it as 300 times your monthly expenses
Read the story in full at The National, first published in January 2020.