Favorite Financial Rules of Thumb

financial rules

These are the kinds of rules that you will want to follow. That is, assuming you’d like to grow your wealth and achieve financial freedom.

You don’t have to abide by each and every one, but these guidelines are designed to help you make better financial decisions, and the math is generally quite simple. Peruse the list and see which rules of thumb you’re following, and which rules you’ll willingly bend or break.

Buy vs. Rent (Price-to-Rent Ratio)

The price-to-rent ratio is often used to help make the decision of whether it’s better to rent or buy. You simply divide the rent you would pay in a comparable place into the sale price to get this ratio.

This rule states that your investment property should rent for 1% of the purchase price.

1% or 2% Rule for Buying Rental Property

50% Expense Rule

This rule states that expenses for a rental property apart from the mortgage will likely average to about 50% of the rent.It helps you to quickly estimate monthly cash flow.

The 70% Rule

This is a rule mainly for people trying to fix and flip. It states that the purchase price of the property plus the rehab should be at most 70% of the ARV or After Repair Value.

This is a simple rule to help you decide how to budget appropriately so you can ultimately make sure you’re spending your money in a balanced manner to live life today but also save for the future. It helps you decide how to allocate your spending.

Budgeting  – 50/30/20 Rule

Saving For Retirement – 10% or 20% of income

White Coat Investor says that saving 20% of your take-home income should be the mark for physicians and that will set you up nicely.

You’ll hear different rules for how big your emergency funds, but most likely you’ll hear that it should be between 3-6 months of your monthly expenses stored away in a very liquid, accessible place. Usually it’s in a savings account.

Emergency Fund – 3-6 Months

The 4% rule states that you can withdraw 4% of your savings each year and depending on your allocation, but it should last 30 years with over 95% certainty.

The 4% Rule

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