17 September 2020
While a pandemic the scale of COVID-19 (and its prolonged financial consequences) wasn’t anticipated, the reality is that there are personal finance rules you can live by to protect your finances from pretty much any eventuality.
It is still not too late to start living by these rules.
Save a portion of your income using the 50/30/20 rule
“Not earning enough money” is not really an excuse not to save. A good saving rule you should embrace is the 50/30/20 rule:
The rule states that a maximum of 50 percent of your income should go towards necessities, 30 percent should go towards discretionary items, and a minimum of 20 percent should be saved.
Following this rule can basically save your life and that of your loved ones in the near or long future.
Do not spend more than 10 percent of your income on a vehicle
Of course, you need to own a vehicle. So what do you do?
Follow the 1/10th rule for car buying: You shouldn’t spend more than 10 percent of your annual income on a car purchase.
The 20/10 rule of credit
In a world where you are being constantly pressured to borrow, it can be difficult to know exactly when to stop.
Following the 20/10 rule of credit will save you.
This rule states that your credit card debt should not exceed 20 percent of your total annual income after taxes and that you should not have more than 10 percent of monthly income in credit card payments. Not only does this rule prevent you from swimming in debt, but it helps your credit score.
Have an emergency fund
COVID-19 is a good reminder of why it’s good to have an emergency fund.
Emergency funds can also come in handy in several other emergency situations: a health emergency, a sudden job loss, or some other unanticipated crisis that you must respond to urgently.
Do not spend more than 30 percent of your income on housing
The majority of financial experts agree that you should not spend more than 30 percent of your income on housing.
While pretty much everyone wants to be a homeowner, it won’t be a good idea to go into debt to purchase a home or to go way above your budget to purchase a home to the detriment of every other expense.
Acknowledgement: Kirk Ridgway