Handy Money Rules of Thumb for a Quick Financial Checkup
BY GREGORY KARP
To calculate a restaurant server’s tip, double the first number on the bill. A $62.47 tab gets a $12 tip. If the bill is more than $100, double the first two digits. That’s an example of a money rule of thumb that is imperfect but useful, which is the idea — inexact starting points for goals, conversations and calculations. Americans apparently could use the help. Many are winging it through their financial lives without confidence in their ability to afford retirement, an emergency expense or even daily living costs, 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 turn to a fresh decade and make money resolutions anew. Still, finances need regular monitoring for budgeting, assessing progress toward goals and evaluating debt reduction, said Paul Golden, spokesman for the National Endowment for Financial Education. “As you condition yourself, you can build on more time [to review finances], but use a half-hour a week as a starting point.”
• Try to save 15% of income for retirement. Aim to replace about 70% of your preretirement income. And when you tap the nest egg, drain just 4% per year. Other rules address specific situations: • Limit student loan borrowing to the amount you expect to earn in your first year working.
• Start an emergency fund with $500 and eventually build it to three to six months of essential living expenses.
• Full-time hourly workers can double their wage rate and tack on three zeroes to approximate their annual earnings. Making $15 per hour yields about $30,000 per year.
Professional advice and online calculators will provide more accurate and detailed answers, especially for people who have unusual money situations. But here are some handy rules of thumb to get started.
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