FINANCIAL RULES OF THUMB

There are some rules of thumb that can help you gauge your financial progress. The article informs us about five rules:

How much debt should you have?
Most experts agree that your total monthly debt payments shouldn’t exceed 36% of your gross monthly income and over time you have to reduce that number.

How much home should you buy?
You should start by calculating your debt-to-income ratio using the 36% guideline for the sum of your monthly debts. After subtracting your other debt, you are left with a monthly payment that should be appropriate.
Another rule of thumb for housing is that you should buy a house that costs no more than two and a half to three times your annual income.

How much money should you save?
One of the most widely used rules for saving is that you should save at least 10% of your income. This is typically assuming you are saving additional money into a retirement plan as well. This 10% rule applies to creating a savings cushion for unexpected expenses, a college education, or other goals.

How big should your emergency fund be?
Most experts suggest a household have between three and six months worth of expenses available in the event of an emergency.
example: monthly obligations = 1 729.75 EUR
emergency fund = between 4 844 EUR and 10 381.38 EUR

How much money will you need in retirement?
Many experts use the assumption that you will need to replace your pre-retirement income by 75-80%. If you make 55 361.15 EUR the year before you retire, you should expect to have a little over 41 519.93 EUR in income during retirement.

Everyone has a unique situation so I think it’s not really easy to keep up to this financial rules,
unexpected problems are never far away.

Jan

http://financialplan.about.com/od/personalfinance/a/rulesofthumb.htm?p=1