Managing your money can be overwhelming, especially when faced with complex financial decisions. It’s easy to feel like you’re navigating a maze without a map. But what if you had a set of simple guidelines to help you make informed choices and achieve your financial goals? Financial rules of thumb offer a straightforward approach to managing your money, reducing stress, and securing a brighter financial future. Here are 15 essential rules of thumb to help you take control of your finances and start building the life you want.

Investment Strategies

1. Young and Bold, Old and Cautious: An investment rule of thumb designed to lessen risk-taking closer to retirement. An investment risk profile established according to your personal circumstances can ensure you are invested appropriately, now and into the future.
2. The 4% Withdrawal Rule: A simple withdrawal in retirement rule. This rule highlights that the transition from employment income to retirement income—and the need to spend accordingly—can assist in mitigating certain retirement-related risks, such as longevity.

Managing Windfalls and Debt

3. Windfalls: Hold windfalls for a period before spending to make better financial decisions. The initial excitement of a windfall will diminish, allowing you to make better financial decisions.
4. Debt Snowball: Paying off the first debt should motivate further debt repayment. This rule of thumb highlights that focusing your efforts on paying off your smallest debt first—while maintaining minimum repayments on all other debts—can be a beneficial debt management strategy.
5. Credit Caution: If you’re not willing to pay cash for it, don’t buy it on credit. Prevents unwise and/or unaffordable purchases (& avoid credit card debt).

Budgeting and Savings

6. 50/30/20 Budgeting: A budgeting rule comprising of needs (50% of income), wants (30% of income), and savings (20% of income). Budgeting is a foundational block to building and maintaining wealth.
7. Emergency Fund: Save 3-6 months’ living costs in a high-interest savings account or mortgage offset account. An emergency buffer can help you weather a financial emergency.
8. Pay Yourself First: Set a simple saving mechanism, making a longer-term future more immediate by framing saving as spending on your future self.

Homeownership and Retirement

9. Homeownership 20% Rule: A 20% deposit ensures you can afford the property and have manageable mortgage costs. When saving (and purchasing a home) an appropriate home deposit can typically represent a loan to value ratio (LVR) of ≤80%.
10. Plan for Retirement: Consider your future standard of living and plan accordingly. Be aware of your finances, think about what your future standard of living will be.

Additional Rules of Thumb

11. Spend Less Than You Earn: The simplest rule of thumb.
12. The Rule of 72: Calculate investment doubling time by dividing 72 by the rate of return on an investment.
13. Splurge on What Matters: Allow small rewards to maintain financial restraint. Abstinence leads to frugal fatigue, so some (small) reward can help with financial restraint.
14. Stop Comparing: Focus on personal financial goals and circumstances. Comparisons with imperfect information are flawed.
15. The Leaky Bucket Rule: Excessive fees can have a large negative effect on investment portfolio performance. Look to lower your fees.