December 16, 2023 | Fairlyeven
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 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:
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.
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.