Saving Your Money
The 5 Rules for Saving Money
1) Always spend less than you make
2) Always have emergence funds available
30-60 days expenses in cash, saving and checking (never more than 90, the rest should be invested)
6-12 months in liquid investments, or low interest loan / line of credit (like 401k)
1-3 years of accessible assets (these are typically your standard non-retirement investments)
3) Save 25% of your net income (15% or your gross income).
Most people need to save about if they average 6% ROI just to break even in retirement
Unless you have a detailed budget and plan this should be your minimum target
4) You may need to make a few changes in your lifestyle to save money but don’t overdo it.
Review your spending to trim waste
Keep things longer before replacing
Most importantly don’t increase your spending every time you get a raise
5) You must invest your money! If you do not invest you need to save 50% of all your income from age 18-65 to maintain the same living standard and you would likely still run out of money before the age of 90. Since most people don’t start saving at 18 nor is it reasonable to assume one will save 50% of their income one must invest to prevent falling into poverty.
Paying Off Your Debt
1) List all your debt in order of interest rate charged
2) Start paying the highest interest rate debt first (usually credit cards)
3) Pay off all high interest debt, >5% interest (based on return of investment grade bond funds)
4) Pay as much extra as possible.
5) Low interest debt (typically mortgages) with interest less than the bond rate should only make the minimum payment