Do you want to increase your net worth and looking for some solid rule of thumb for saving money?
Are you looking to gain greater control over your finances?
A mental shortcut is known as a “Rule of Thumb.”
It’s merely a heuristic.
It isn’t always true, but it is most of the time. It saves you both time and mental energy. A good rule of thumb for saving money allows you to apply the wisdom from the past to reach quick solutions rather than reinventing the wheel for every money problem you face.
|Personal finance thumb rules for saving money can help you assess the situation and make the best financial decisions. Otherwise, even if you earn a decent salary, you run the risk of falling into a debt trap.|
Today, I’m going to give you a list of the top 9 rules of thumb for saving money in the style of Buzzfeed. Some are useful advice packets, while others are mathematical shortcuts to free up mental space.
9 Best Secret Rule of Thumb For Saving Money
Personal financial rules of thumb for saving money can help you understand where to start and what basic target figures or percentages to know.
1. Pay Yourself First
In terms of personal finance, you have a golden rule: ‘Pay yourself first.’ It implies that you must set aside a certain percentage of your income before spending it on other things. Specify your financial goals and the amount of money you’ll need to achieve them.
When you receive your paycheck, you may choose to direct a specific amount to a savings or investment account. After deducting funds from your salary, you may want to consider managing your household expenses with the remaining funds. To put it another way, you must pay for your financial goals first before spending on other things.
2. Save Your Raise
Don’t raise your salary significantly above the level that allows you to maintain a lifestyle you’re satisfied with. If you receive a raise, instead of spending it, put it into savings.
The problem of lifestyle inflation is avoided, and your savings account grows significantly as a result of this strategy.
3. Save at Least 10% of Your Income
At the beginning of your career, you may be able to save approximately 10% of your after-tax income.
For example, you are 24 years old and earn $1000 per month.
Considering setting aside at least $200 per month for your future financial needs is a good idea.
If your financial goals are more ambitious, you may be able to save more money. As your income increases, you may be able to increase the amount you save.
If you have any unforeseen expenses, you can consider setting aside a portion of your savings as an emergency fund.
4. Follow 50/30/20 Budgeting Rule
If you are not familiar with the budget, try to spend 50% of your take-home pay on necessities (food, shelter, utilities, clothing, etc.), 30% on lifestyle choices (vacations, gym fees, hobbies, cell phone plans, and so on), and 20% to financial goals and priorities if you’re just getting started with budgeting (extra debt payments, savings, etc.).
There are some flaws in this spending plan, but it can serve as a good rule of thumb for saving money.
5. If an Appliance Breaks, Replace it if it is 8 Years Old or Older
This is the most effective rule of thumb for saving money and it applies to appliances like refrigerators, TV, dishwasher etc. Get an estimate for the cost of repairs.
If the repair cost is 50% or more of the replacement cost, it’s usually better to simply replace the broken appliance rather than repairing it.
Additionally, even if the repair costs are lower for older appliances, you should consider doing the same.
It is more likely that older appliances will experience subsequent problems with other components.
6. Maintain an Emergency Fund with 3 to 6 Months’ Worth of Living Expenses
How much money should you put aside in case of an emergency? An emergency fund should be three to six months’ worth of living expenses, according to financial experts. If you have a stable job with a consistent salary, you can put three months’ worth of living expenses aside in the fund.
If you’re self-employed, you should set aside six to twelve months’ worth of living expenses. You should set aside money in your emergency fund to cover all of your daily expenses, insurance premiums, and loan EMIs.
7. Have a Life Insurance Policy that is Worth 10 Times Your Gross Annual Salary
Ideally, you should have a life insurance policy with a face value equal to at least ten times your annual income. It is possible that the actual requirement will vary depending on one’s age, goals to be achieved, financial dependents, accumulated wealth, and other factors.
When it comes to purchasing life insurance, a pure term insurance plan is the most cost-effective option. Essentially, it is a low-cost, high-coverage protection plan in which the premium is entirely dedicated to risk coverage, i.e., to paying for the risk of death.
If one survives the term, there is no money refunded to them because there is no savings portion of the premium. It should not, however, deter someone from purchasing a term plan as risk protection through life insurance, as it is one of the most fundamental requirements in one’s overall financial strategy.
8. Spend Less Than 30% of Your Income
As a long-term assessment of housing affordability, it can still be used today as an approximate estimate of the borrowing limit when applying for a housing loan. The guide has been used for many purposes for many years.
Of course, this is not a hard and fast rule, and the lender may consider various other criteria when determining your borrowing ability. In addition to your income and expenses, lenders also consider your debt level and personal credit history when determining the amount they are willing to provide you.
Given the current economic environment, it may be difficult to maintain a 30% mortgage interest rate in today’s environment of rapidly rising housing prices and growing rental expenditures. Therefore, this suggestion will not work for everyone. However, this is a wise guideline to ensure that you do not over-expand so that any unexpected costs may cause your financial collapse.
Finally, don’t overlook the minor points when looking for the best ways to have passive income or save money. Every dollar counts in this endeavour.
There are many ways and rules, such as bringing your own lunch instead of eating out, choosing a cheap regular coffee over a more expensive speciality drink, or using your cell phone as your primary phone.
Record your expenses to help you find out where your money is going unused and where you can make savings. As a result, if you’re serious about saving for the future, you’ll need a high level of accountability.
Now is the time to begin saving money!
There is no “one size fits all” approach. Your financial situation must be adjusted according to your risk profile, current situation and other factors.
The majority of these rules are fairly sound, tried-and-true approaches to financial planning. However, personal finance is, as the name implies, personal. Consider these guidelines as a starting point—research and personalised planning are required to truly stay on top of your finances.
Once you start using the rule of thumb for saving money, you must regularly check your progress and make any necessary adjustments to your strategy as needed.