Wealth Creation
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Good Financial Rules of Thumb
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Rules of thumb can be a good approximate guideline for decisions, and there are tons of money rules that aim to get your finances on track. While everyone's situation is different, these serve as a good starting point.
Budgeting
The 50/30/20 Rule1
This is a popular rule for breaking down your budget. The 50-30-20 rule puts 50 percent of your income toward necessities, like housing and bills. Twenty percent should then go toward financial goals, like paying off debt or saving for retirement. Finally, thirty percent of your income can be allocated to wants, like dining or entertainment.
There are also variations to this rule, like the 80-20 rule, in which you use 20 percent of your income for financial goals, then spend 80 percent on everything else.
Why It Works: If you're not sure where to start with a budget, breaking it up into these basic categories can be really helpful. Those percentages help create a balance between obligations, goals and splurges.
When It Doesn't: You might have trouble with this if you have a hard time separating needs from wants, even with something like housing. If you live in a low-cost area, 50 percent toward housing and bills might be a lot. On the other hand, if you're not earning much, you might not have the luxury of only spending half your income on necessities.
These rules of thumb are good starting points for your spending. But maybe you want to adjust them, or make a budget that's more tailored to your situation. In that case, start from scratch, follow a few budgeting steps and design something that works best for you.
http://twocents.lifehacker.com/10-g...rce=lifehacker_facebook&utm_medium=socialflow
Rules of thumb can be a good approximate guideline for decisions, and there are tons of money rules that aim to get your finances on track. While everyone's situation is different, these serve as a good starting point.
Budgeting
The 50/30/20 Rule1
This is a popular rule for breaking down your budget. The 50-30-20 rule puts 50 percent of your income toward necessities, like housing and bills. Twenty percent should then go toward financial goals, like paying off debt or saving for retirement. Finally, thirty percent of your income can be allocated to wants, like dining or entertainment.
There are also variations to this rule, like the 80-20 rule, in which you use 20 percent of your income for financial goals, then spend 80 percent on everything else.
Why It Works: If you're not sure where to start with a budget, breaking it up into these basic categories can be really helpful. Those percentages help create a balance between obligations, goals and splurges.
When It Doesn't: You might have trouble with this if you have a hard time separating needs from wants, even with something like housing. If you live in a low-cost area, 50 percent toward housing and bills might be a lot. On the other hand, if you're not earning much, you might not have the luxury of only spending half your income on necessities.
These rules of thumb are good starting points for your spending. But maybe you want to adjust them, or make a budget that's more tailored to your situation. In that case, start from scratch, follow a few budgeting steps and design something that works best for you.
Buying a Vehicle
The 20/4/10 rule
When buying a car, you should put down at least 20 percent. You should finance the car for no more than four years and spend no more than ten percent of your gross income on transportation costs.
Why It Works: It keeps you from buying more vehicle than you can afford. It also takes your ongoing budget into consideration by calculating total transportation costs. These costs include not only your car payment, but also your gas and insurance, which can vary by vehicle type.
When It Doesn't: Depending on your situation, these numbers might not be realistic for you. For example, you may have a long, gas-guzzling commute at a low-paying job, making your transportation costs more than 10 percent. On the other hand, if you've got the cash, you might choose to pay for your car upfront rather than take on a loan with interest. In that case, the rule wouldn't apply to you.
The 10-Year Rule
This rule has to do with the decision to buy new vs. used. If you want to maximize your car's value, you should either buy used, or buy new and drive the car for ten years.
Why It Works: The rule minimizes your depreciation hit. If you buy a car that's a few years old, the depreciation will have already been sucked out of the vehicle. If you buy a new car and keep it for a decade, you'll have optimized its value and the depreciation won't matter as much.
When It Doesn't: Rather than put a timeline on it, some people prefer to drive their cars into the ground, whether they're new or used. The rule also doesn't consider the type of car. Some cars may last well beyond ten years; some may become a financial and maintenance headache after six years. Make sure your maintenance costs are worth it once you get near the end of the car's life.
You definitely don't want to spend more than you can end up paying for your car. And these rules help make sure you're on track with that. But research is important in considering all the variables. Edmund's has an affordability calculator, and we've written about the four questions you should ask when deciding on a new vs. used vehicle. These are also merely starting points, but they're a little more tailored to individual circumstances.
The 20/4/10 rule
When buying a car, you should put down at least 20 percent. You should finance the car for no more than four years and spend no more than ten percent of your gross income on transportation costs.
Why It Works: It keeps you from buying more vehicle than you can afford. It also takes your ongoing budget into consideration by calculating total transportation costs. These costs include not only your car payment, but also your gas and insurance, which can vary by vehicle type.
When It Doesn't: Depending on your situation, these numbers might not be realistic for you. For example, you may have a long, gas-guzzling commute at a low-paying job, making your transportation costs more than 10 percent. On the other hand, if you've got the cash, you might choose to pay for your car upfront rather than take on a loan with interest. In that case, the rule wouldn't apply to you.
The 10-Year Rule
This rule has to do with the decision to buy new vs. used. If you want to maximize your car's value, you should either buy used, or buy new and drive the car for ten years.
Why It Works: The rule minimizes your depreciation hit. If you buy a car that's a few years old, the depreciation will have already been sucked out of the vehicle. If you buy a new car and keep it for a decade, you'll have optimized its value and the depreciation won't matter as much.
When It Doesn't: Rather than put a timeline on it, some people prefer to drive their cars into the ground, whether they're new or used. The rule also doesn't consider the type of car. Some cars may last well beyond ten years; some may become a financial and maintenance headache after six years. Make sure your maintenance costs are worth it once you get near the end of the car's life.
You definitely don't want to spend more than you can end up paying for your car. And these rules help make sure you're on track with that. But research is important in considering all the variables. Edmund's has an affordability calculator, and we've written about the four questions you should ask when deciding on a new vs. used vehicle. These are also merely starting points, but they're a little more tailored to individual circumstances.
The formula for wealth is simple – spend less than you make and invest the difference wisely.
The mechanism to take action on the formula and produce results is equally simple – adopt wealth building habits.
Here’s how it looks in a different format…
[(Small, Smart Choices) * (Consistency) * (Time)] = Wealth
The mechanism to take action on the formula and produce results is equally simple – adopt wealth building habits.
Here’s how it looks in a different format…
[(Small, Smart Choices) * (Consistency) * (Time)] = Wealth
It is very unfortunate that we spend 8-10 hours every day in earning money....but we dont even spend 2-3 hours in a week to invest the money saved. Better investor has a better chance to come out ahead in a long timeframe than a better earner.
Spending 2-3 hours every week is necessary to take stock of our priorities in life,our goals, our investments, how they are performing, any new ideas .....
Smart_trade
Spending 2-3 hours every week is necessary to take stock of our priorities in life,our goals, our investments, how they are performing, any new ideas .....
Smart_trade
Habits of the Rich
Wealthy – defined as earning at least $160,000 annually and holding at least $3.2 million in assets
They Have a Routine:
Television Habits:
Watch 1 hour or less of TV everyday
They Set Goals:
*Based on Thomas C. Corley’s study of the daily habits of wealthy and poor people.
Wealthy – defined as earning at least $160,000 annually and holding at least $3.2 million in assets
They Have a Routine:
- Maintain a to-do list
- Wake up 3 hours before work
- Listen to audio books during commute
- Network 5 hours or more each month
- Read 30 minutes or more each day for education or career reasons
- Love to read
- Exercise aerobically 4 days a week
- Eat less than 300 junk food calories per day
- Teach good daily success habits to their children
- Make their children volunteer 10 hours or more a month
- Make their children read 2 or more non-fiction books a month
Television Habits:
Watch 1 hour or less of TV everyday
They Set Goals:
- Write down their goals
- Focused on accomplishing some single goal
- Believe in lifelong educational self-improvement
- Believe good habits create opportunity luck
- Believe bad habits create detrimental luck
*Based on Thomas C. Corley’s study of the daily habits of wealthy and poor people.
http://www.cafemutual.com/UploadPdf/635545862001818750_India-Wealth-Report-2014.pdf
Karvy Wealth report.
Smart_trade
Karvy Wealth report.
Smart_trade
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