9 months have passed since the publication of the first version of this list, and it’s time to make some adjustments. According to the programming tradition, an asterisk (*) will be marked with changes, and a plus sign (+) — additions.
Here are some interesting indicators that will help you understand how things are with your financial situation. For my old readers this article will seem like a potpourri from my old publications, but I sincerely hope that even they will appreciate the context in which the information is presented. If you have something to add, comments are waiting for you!
When talking about income we are talking about after-tax money, i.e. When taxes have already been deducted.
Savings and investments
- (*) 3-X months, where X is the percentage of unemployment in your region — your reserve fund should allow you to survive for 3 to X months (for competitive professions such as a programmer, doctor or accountant, I recommend a minimum of 3 months, but because of Crisis is better to be reinsured). «To exist» is to be able to carry out normal spending and payment of obligations (someone has expenses and liabilities that exceed the amount of income). For some reason, many people forget that the reserve fund is also used when you are forced to take unpaid leave because of health problems (or in the family).
- (*) 5-10% is the minimum allowable amount of your monthly savings or investments. First you accumulate money in a reserve fund, and then start to experiment with investments. Remember that your goal is not to accumulate the maximum possible amount, but to provide yourself with peace of mind about money. Nevertheless, if you have the opportunity to save 15% or even 20% of income, consider it a gift of fate.
- (+) 10% is the maximum permissible share of your employer’s shares in your portfolio (unless, of course, you are the Founder or at least the top manager in this company). Believe on the word: for a foreign investor, your company is one of many, and do not give loyalty or promising promises to the CEO on a quarterly presentation to employees to influence your investment decisions. Read the story of Enron, if I do not believe 🙂
72 — The 72-month rule states that your money will double through (72 / interest rate on deposit) for years. Those. At a rate of 12% per annum, your money will double after 6 years. (Taxes are not taken into account)
- (+) 90% — if you want to retire and not have a shortage of money, your pension should be somewhere around 80-90% of your expenditure + commitment during active work.
- (+) 100-your age is the percentage of shares to the entire size of your investment portfolio. Those. If you are 30 years old, in your portfolio should not be more than 100-30 = 70% of the shares. The rest is bonds, gold, deposits, etc. The logic is quite simple: the older you become, the less risks you can take (for some reason, many people forget that profitability is always directly dependent on risk).
- $ 1 million — the desire to own a million dollars excites the brain of a considerable number of people (Bill Gates we do not take into account). But there is one problem: if you live in a city with a population of 1M people or more, you understand that $ 1M will help you buy tolerable housing, but you will not be fed until the end of your life, so your choice is simple: either you are eating money (that Do oh as easy), or you are forced to continue working. Alternatively, you can decide whether to reinvest the received dividends, or spend them on entertainment (travel, restaurants, etc.).
Shopping and credit
- (+) 1% — learn how to spend 1% of your income on education and researching something new: sign up for a financial seminar, buy and read a smart book, skydive, etc. This will give you new sensations without creating a guilt complex about spending money.
- 2% — Your watch (if it’s not a gift) should not cost more than 2% of your personal annual income. For ladies — you can use the same rule for buying handbags and hats 🙂
- (+) 2 — the size of the mortgage should not exceed your family’s annual income multiplied by 2. For example, if your family earns $ 2,000 a month, borrowing more than $ 48k is not recommended. After that, you do not need to take out a loan in a currency other than the income currency.
- 4 — if you are conducting a family budget, and if some waste exceeds your 4-day budget (that is, the size of the envelope multiplied by 4/7), be sure to discuss spending with your spouse. All significant expenses should be discussed, and if you want to stop quarreling about spending, stick to this rule.
- (+) 8 years — it usually makes sense to change your TV or refrigerator not more often than once every 8 years.
- (+) 10% — the maximum allowable amount of car loan payments in relation to your monthly budget.
- (+) 10 years — if you buy a new car, plan not to change it for 10 years (and in case of a breakdown — to repair): in this way you will get the maximum benefit from the acquisition. Of course, to buy a 2-year car and use it for 8 years is even more profitable 🙂