Need a place to get started? Try these rough rules of thumb. As you read and learn more with us and elsewhere, you’ll start to hone these to fit your situation better. However, in a pinch, these are good general guidelines for most all of us!
- Save 20% of your gross annual income to put towards retirement.
- You’re ready to retire if you have 25-33x your annual spending needs.
- Have 3-12 months of your monthly spending requirements in a reasonably quickly accessible account in case of emergency.
- Get term life insurance equal to 10x your gross annual salary.
- Spend no more than 3x your gross annual income on the purchase price of a primary home. Spend no more than 28% of your gross income on monthly payments. (Lower is better.)
- Estimate annual housing maintenance costs as the average of “1% of purchase price” and “$1/sq ft.”
- If you are deciding whether to repair or replace a household appliance, replace if the repair would cost more than half what it would take to buy a replacement.
- Spend no more than 50% of your gross annual income on the purchase price of a car. Spend no more than 8% of your gross income on monthly payments. (Lower is obviously better.) Drive it for at least 10 years.