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Some Financial Rules of Thumb Thumbnail

Some Financial Rules of Thumb

In our industry, there are no shortage of ‘rules of thumb’. And while these “rules” are much closer to guidelines or suggestions, they can often still provide helpful starting points for us as we think about investing and financial planning. To that end, please find a few of the “rules” we find most helpful included below: 

Emergency Fund Target 

  • Aim to have 3 to 6 months' worth of living expenses saved in an easily accessible emergency fund (bank savings, money market funds, etc.

4% Withdrawal Rate 

  • Withdraw 4% of your retirement savings annually to help ensure your money lasts for at least 30 years (accounting for inflation

Rule of 72 

  • Divide 72 by your expected annual investment returns to estimate how many years it will take for your portfolio to double 

The 10% Retirement Savings Rule 

  • Save at least 10%-15% of your pre-tax income for retirement throughout your working years 

Timing of Market Corrections 

  • Markets tend to experience a correction (a decline of 10% or more) approximately every 2 years – regular corrections are a normal part of healthy market cycles 

The 28/36 Rule for Home Buying 

  • 28%: Your monthly housing costs (mortgage, taxes, insurance) should not exceed 28% of your gross monthly income 
  • 36%: Your total debt payments (housing, credit cards, student loans, etc.) should not exceed 36% of your gross monthly income

Investing involves risk. No investment strategy can guarantee positive results. Loss, including loss of principal, may occur. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results. Diversification is an investment strategy that can help manage risk within a portfolio, but it does not guarantee profits or protect against loss in declining markets.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. (C) Twenty Over Ten