SPENDING 50/30/20 BUDGET. Figure half of your take-home pay should go toward “needs,” such as housing, food and transportation. Then 30% goes to wants, and 20% funnels to savings and debt repayment.
RULE OF 10. For big discretionary purchases, reflect on how it will make you feel in 10 days, 10 weeks and 10 years. Perspective can calm buying urges for purchases you later regret. Related: Give yourself cooling-off time equal to one day for every $100 the purchase costs. TERM LIFE INSURANCE. Buy a policy worth 10 times your gross annual income only if somebody else depends on your income. KID ALLOWANCE. Give $3 weekly per grade level in school. A fourth-grader gets $12. The overall average is $30 per week, according to a survey by the American Institute of CPAs. WINDFALL. Do responsible things with cash infusions, like a tax return or inheritance. But set aside 2% to blow on something fun, so you don’t feel deprived.
Money-related benchmarks can help and are especially timely as we turn to a fresh decade and make money resolutions anew
HOUSING
HOUSE PAYMENT. Your mortgage, including taxes and insurance, should not exceed 30% of your gross monthly income.
CARS CAR PAYMENT. Limit payments to 10% of your monthly take-home pay, so you can keep your total car costs — gas, insurance, repairs and maintenance — below 20% of your income. Also, put 20% down and limit the loan term to four years. REPAIR OR REPLACE. Replace your car if a repair costs more than your car is worth — as determined by, say, Kelley Blue Book — or exceeds one year’s worth of monthly payments. SAVING AND INVESTING NET WORTH. Net worth is the number that sums up your money life. One measuring stick: All you own minus all you owe should equal your age times 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.
(continued)
9
Powered by FlippingBook