Building Your Financial Health and Wealth with Cardinal Rules of Money

Building Your Financial Health and Wealth with Cardinal Rules of Money

Simple guidelines can help anyone gain greater control over their finances and work towards meaningful goals like saving for retirement, a home, or their children's education. Below are a few cardinal rules of money that provide a framework for responsible spending, saving, and borrowing habits.

Spending Rules

Spending serves as a go-between your financial discipline and savings. The 50/30/20 Rule for budget, first broached by Senator Elizabeth Warren, directs half of your income after tax to your needs like utilities, food, and housing, while 30% goes to your wants and discretionary expenses.

The remaining 20% should be allocated to debt payments and savings. Below are other baseline rules for spending your money:

• Rule of 10 - Avoid buying a new car that costs more than 10% of your annual income. Prioritize used vehicles and consider the long-term costs of ownership.
• Term Life Insurance Rule - Get enough coverage to replace your income and support your family for at least 10-20 years.
• Windfall Rule - Allocate a windfall strategically: pay off debt, invest a portion, and set aside an emergency fund.
• Kids Allowance Rule - Use an allowance to teach financial responsibility. Start with a small amount and gradually increase it as they age.

Housing Rule

Keep your housing costs, including mortgage, taxes, and insurance, to no more than 30% of your monthly income to avoid overextending your budget.

Rule of 72 for Saving and Investing

The Rule of 72 effectively estimates how long it will take savings to double at a given interest rate. Dividing 72 by the rate provides the number of years. At a 6% return, savings will double approximately every 12 years through the power of compound interest. The Rule of 72 works well in tandem with the financial freedom and net worth rules.

Rules for Managing Credit and Debt

Total debt obligations, including housing payments, should not exceed 36% of gross monthly income. Managing credit card balances below 30% of limits helps credit scores, as does making on-time payments in full each month.

Wrapping up

Unlock the keys to financial health and wealth with the cardinal rules of money. Explore these simple yet effective guidelines on Fairlyeven, a platform dedicated to providing valuable insights for business owners. Join our community to discover responsible spending, saving, and borrowing habits.