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    Your Money Cheat Sheet

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    Naow
    The article provides 12 simple money rules of thumb for personal finance, including building an emergency fund of 3 months' expenses, saving 15% of income for retirement, not withdrawing retirement funds early, saving $25/month for college starting at birth of a child, and buying used cars to save on depreciation costs. The rules advise planning student loan repayment to keep payments below 10% of income and choosing the right type of mortgage and rate based on plans to stay in the home.

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    Your Money Cheat Sheet

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    Naow
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    The article provides 12 simple money rules of thumb for personal finance, including building an emergency fund of 3 months' expenses, saving 15% of income for retirement, not withdrawing retirement funds early, saving $25/month for college starting at birth of a child, and buying used cars to save on depreciation costs. The rules advise planning student loan repayment to keep payments below 10% of income and choosing the right type of mortgage and rate based on plans to stay in the home.

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    The article provides 12 simple money rules of thumb for personal finance, including building an emergency fund of 3 months' expenses, saving 15% of income for retirement, not withdrawing retirement funds early, saving $25/month for college starting at birth of a child, and buying used cars to save on depreciation costs. The rules advise planning student loan repayment to keep payments below 10% of income and choosing the right type of mortgage and rate based on plans to stay in the home.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    191 views3 pages

    Your Money Cheat Sheet

    Uploaded by

    Naow
    The article provides 12 simple money rules of thumb for personal finance, including building an emergency fund of 3 months' expenses, saving 15% of income for retirement, not withdrawing retirement funds early, saving $25/month for college starting at birth of a child, and buying used cars to save on depreciation costs. The rules advise planning student loan repayment to keep payments below 10% of income and choosing the right type of mortgage and rate based on plans to stay in the home.

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    The key takeaways are a dozen simple money rules of thumb for personal finance such as building an emergency fund, saving 15% for retirement, paying off student loans affordably, and buying used cars.

    The main rules of thumb for personal finance according to the article are to build an emergency fund, save 15% for retirement, leave retirement money for retirement, save for college, plan and manage student loans affordably, buy used cars and keep them for 10 years, use credit cards responsibly, and insure yourself adequately.

    Some recommendations for saving for retirement include saving 15% including any company match, starting to save even if you can't save as much as you should, and not touching retirement money until retirement.

    Your Money Cheat Sheet

    The best financial advice tends to apply to pretty much everyone. You don’t need a spreadsheet of pros and
    cons and complex scenarios. What you need is a rule of thumb.

    There’s no shame in using one-size-fits-all advice. A study of West Point cadets, for example, found teaching
    rules of thumb was at least as effective as standard personal finance training in increasing students’ knowledge
    and confidence as well as their willingness to take financial risks. Researchers found money rules of thumb
    were more effective than teaching accounting principles to small-business owners in the Dominican Republic.

    Here are a dozen shamelessly simple money rules of thumb I’ve collected over the years. (These address how
    you borrow and save. If you just want to know how you’re doing with money, we’ve got a quick way to
    score your financial health, too.)

    1. Build up emergency savings


    You need to be able to get your hands on cash or credit equal to three months’ worth of expenses. The classic
    emergency fund advice — that you need three to six months of expenses saved — is great, but it can take years
    to save that much and you have other more important priorities (see “retirement,” below). While you build up
    your cash stash, make sure you have a Plan B for a true emergency. That could be money in a Roth IRA (you
    can pull out your contributions at any time without paying taxes or penalties), space on your credit cards or an
    unused home equity line of credit.

    2. Save 15% for retirement…


    If you got a late start or want to retire early, you may need to save more. Run the numbers on your retirement
    plan. For most people, 15% including any company match is a good place to start. Even if you can’t save as
    much as you should, start somewhere and kick up your savings rate regularly. Retirement should be your top
    financial priority. You can’t get back lost company matches, lost tax breaks and the lost years when your
    money isn’t earning tax-deferred returns.

    3. …and don’t touch that money


    Leave retirement money for retirement. When your retirement fund is small, you may feel like spending it
    doesn’t really matter. It does. Taxes and penalties will cost you at least 25% and likely more of what you
    withdraw. Plus, every $1 you take out costs you $10 to $20 in lost future retirement income. Once your
    retirement fund is larger, it may be easy to convince yourself there are good reasons to borrow or withdraw the
    money. There really aren’t. Leave the money alone so it’s there when you need it. (See “How to Write a
    Retirement Plan.”)

    4. Save for college


    Get in the habit of putting at least $25 a month aside for college soon as your child is born. Even small
    contributions to a 529 college savings plan can add up over time — perhaps the difference between choosing
    the best school and choosing a school based on its financial aid package. (But if you have to choose, retirement
    saving is more important. Your kids can always get student loans, but as you’ve probably heard, no one will
    lend you money for retirement.)
    5. Plan and manage your student loans
    Your total borrowing shouldn’t exceed what you expect to make your first year out of school. At today’s
    interest rates, this will ensure that you can pay off what you owe within 10 years while keeping payments
    below 10% of your income, which is considered an affordable repayment rate. What if you didn’t limit your
    borrowing and are now struggling? You have options. (See “Find the Best Student Loan Repayment Plan.”)

    6. Cars: Buy used and drive it for 10 years


    New cars are lovely, but they’re expensive and lose an astonishing amount of value in their first two years. Let
    someone else pay for that depreciation and take advantage of the fact that today’s better-built cars can run well
    for at least a decade if properly maintained. You can save hundreds of thousands of dollars over your driving
    lifetime this way. (See “How to Buy a Used Car.”)

    7. Car loans: Use the 20/4/10 rule


    Ideally, you wouldn’t borrow money to buy an asset that loses value, but you may not always be able to pay
    cash for a car. If you can’t, protect yourself from overspending by putting 20% down, limiting the loan to four
    years and capping your monthly payment at no more than 10% of your gross income. A big down payment
    keeps you from being “underwater,” or owing more on the car than it’s worth, as soon as you drive off the lot.
    Limiting the length of the loan helps you build equity faster and reduces the overall interest you pay. Finally,
    capping the size of the payments prevents your car from eating your budget. (See “How to Build a Budget.”)

    8. Make credit cards work for you


    If you carry a balance, look for a low-rate card so you can pay off your debt faster and don’t mess with rewards
    cards right now. If you pay in full each month (as you should), find a rewards card that returns at least 1.5% of
    what you spend. You should regularly review your rewards programs to make sure you’re getting enough
    value from them. The programs can change, as can your spending and the way you use rewards. (For a “lazy
    optimizer” approach, check out “Sean Talks Credit: How I Maximize My Rewards with Only a Few Credit
    Cards.”)

    9. Square away your insurance


    Cover yourself for catastrophic expenses, not the stuff you can pay out of pocket. Insurance should protect you
    against the big things — unexpected expenses that could wipe you out financially, such as your home burning
    down or a car accident that triggers a lawsuit. You want high limits on your policies — and high deductibles,
    too. Small claims don’t make financial sense in the long run. You may gain some small insurance payments,
    but you risk a rate increase that could more than cancel out your gains.

    10. Choose a reasonable mortgage amount


    If you can’t afford the payment on a 30-year, fixed-rate mortgage, you can’t afford the house. You may be able
    to save money by using another kind of mortgage, such as a hybrid loan that offers a lower initial rate. But if
    you’re using an alternative loan because that’s the only way you can buy the home you want, you may have set
    your sights too high. A budget-busting mortgage puts you at risk of spiraling into ever-deeper debt, especially
    when you add in all the other costs of homeownership. (Read “The Huge, Hidden Costs of Owning a Home.”)
    11. Choose the right mortgage rate
    Fix the rate for at least as long as you plan to be in the home. Plans can change, obviously, but you don’t want
    a big payment jump to force you out of a home you hoped to live in for years to come. If you’re pretty sure
    you’ll be moving in five years, a five-year hybrid could be a good option. If you think you may stay for 10
    years or more, though, consider opting for the certainty of a 30-year fixed rate. (Compare rates on different
    types of mortgages.)

    12. Back-burner those mortgage prepayments


    You have better things to do with your money than prepay a low-rate, potentially tax-deductible mortgage.
    Shaving years off your mortgage and saving money on interest sounds great. But before you consider making
    extra payments to reduce your mortgage principal, make sure more important priorities are covered. You
    should be saving enough for retirement. You should have paid off all other debt, since most other loans have
    higher rates and the interest isn’t deductible. It would be smart to have that emergency fund built up as well
    and to be adequately insured. If you’ve covered all of those bases and still want to pay down your mortgage,
    have at it.

    Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and
    author of “Your Credit Score.” Email:[email protected]. Twitter: @lizweston.

    Updated March 30, 2017.

    The article Your Money Cheat Sheet originally appeared on NerdWallet.

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