1. Pay yourself first
As soon as you get paid, put money into savings. Automating this is even better.
2. Keep a 6-month emergency fund
If you have multiple streams of income, you can go as low as 3 months. If starting out on your own, you would need as much as 12 months.
3. Budget using the 50/30/20 rule
- 50% for needs - 30% for wants - 20% towards saving/ investing This is the bare minimum!
4. Divide your bonus into thirds
- 1/3 for fun - 1/3 for retirement - 1/3 for debt paydown (add to retirement if only low-interest debt)
5. Put all or a large percentage of your raises into saving & investing
This helps avoid lifestyle inflation and moves up your retirement date.
6. Avoid high-interest debt
If you have it, use the avalanche or snowball method to pay it off (Google them).
7. Always take an employer 401k match
Many employers will match a percentage of your paycheck. This money is getting an immediate 100% return. If you turn this down, it's the same as turning down a raise.
8. Your home payment
Morgage, interest, insurance should cost less than 25% of your monthly income.
9. When buying a car use the 20/4/10 rule
- 20% down payment - 4-year loan - <10% of your monthly income
11. Your age subtracted from 100
It represents the percentage of stocks you should have in your portfolio. Some are now using the number 120.
12. Learn Stock Market
It has a long-term average return of 10%. To calculate the returns, it's common to use 6-8% to capture the effects of inflation.
13. The rule of 72
It tells you how long it will take your investments to double. Example: The stock market returns 10%, so 72/10 = 7.2 years to double your money.
14. The 4-percent rule
It says you can safely withdraw 4% of your starting investment balance each year (adjust for inflation in subsequent years) and not run out of money.
15. Your Net Worth
It should be equal to Your Age X Pre-Tax income/10 Example: if you are 35 years old and have $100,000 in annual income then your net worth should be $350,000
17. Before spending money
Wait 24 hours and ask: - do I want it? If you do, go ahead and buy it. This will save you from a lot of impulse purchases.
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