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More Platitudes
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Thu Aug 5 21:05:04 2010
 More Platitudes
 A few more great rules of thumb for personal finance...


Something changed, Ben: have you been working out?
Image courtesy of TerraFrost (wiki)
 
Way back in December I gave my list of Personal Finance Platitudes. Today, Yahoo! Finance had their own list of rules, which I thought was pretty good.  
 
I had often noticed what I called the "Rule of Threes", whereby I would prefer to buy cars that cost at most 1/3 of my yearly income, and houses at most 3 times my income. It is a handy rule to keep in mind when shopping for cars or houses! But I wasn't sure why those particular numbers worked.  
 
The Yahoo! article gives the math behind the numbers.  
 
That article also mentions the high cost of kids (at least $220K per child up to age 18, not counting private education or college!). And it has a good rule of thumb for education loans: don't take on more college debt than you expect to earn per year when you get out. Again, a simple rule, and they break down why.  
 
And finally, they had a rule for retirement: target a total retirement savings of 25 times what you make now (!).  
 
Here is their list in short:
  1. Don't spend more than 1/3 your yearly income on a car.
  2. Don't spend more than 3 times your yearly income on a house.
  3. Kids are expensive.
  4. Limit your total college loan amount to what you expect as an initial yearly salary.
  5. Target 25x your current income for retirement.

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