How to Use Financial Rules of Thumb

  • 13/10/2017
How to Use Financial Rules of Thumb
Do you find it difficult to sort through all the "expert opinions" and confidently know how much to save for retirement, how much debt is appropriate or how much to set aside in savings for emergencies?You are not alone. To make life easier,I created a list of benchmarks that can be useful for anyone looking for general guidance on whether or not they are on track financially.

Most of us need more specific direction than a set of arbitrary rules that say you have to save 10% in order to be successful in retirement. My experience with clients has shown that individuals and families often share a common thread when it comes to their types of goals, but the solution to their problems requires more customization. Why? The answer is simple. We are all human. Humans are very complicated creatures. And we frequently require specialized experts, like a doctor, to understand our problems, relate to our needs and translate complex issues in a way that allows us to make our lives better. (For more, see: 10 Bank-Breaking Money Myths.)

The reality is our emotions frequently drive the decisions we make and those decisions are sometimes not the most rational. That emotional complexity is further compounded by the fact we all have varying levels of access to financial resources, with differing ideas on how our resources should be used. Situations really begin to get overwhelming when our goals start competing for the same limited number of resources. The stress that follows is often what leads to irrational behavior.

Consequently, the further we drill down into our personal money issues, the problem solving required to meet our needs becomes a lot more complicated than any general guidelines can provide. The various financial trade offs that are at odds with each other might mean a person cannot afford to achieve every rule of thumb. Additionally, some of us may need more or less than what is generally prescribed.This is where an objective and competent financial expert will bring clarity. Such an expert, whether it be a friend or an advisor,increases your odds of successfully achieving financial independence.

Without further ado, scroll below to review the financial rules of thumb and use it as a way to benchmark your progress, but remember it's not the end all be all.

Save at least10% of income for retirement:

Total of all debt payments =36% or lessof monthly gross income:

100 minus your age= percentage of investments to allocate to stock:

Contribute at least up to thecompany matchin your 401(k) plan:

Limit concentratedstock ownership to 10% of investable assets, especially in retirement:

Retirement income should be 80%of your pre-retirement income:

4% of investments is a safe withdrawal rateto avoid running out of money:

It's always better todelay taking Social Security:

Long-term care insurance is an appropriate asset protection strategy for those with anet worth between $200,000 and $2 million:
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