I enjoy some of the traditional money rules out there. While I believe everyone’s situation will be different, some are fun to use while building on your financial plan. These rules are supposed to be used as a basic benchmark, not as an actual measure of your progress. Rather, it's supposed to provide some basic guidelines when you need something easy and quick to use. Eventually, it's best to use a custom approach that works for your situation. With that in mind, let's explore some of the rules that we normally hear about:

#1 The 3-6-9 Rule

An emergency fund is such a vital component of financial planning. It allows people to access short-term funds while allowing long-term funds to continue growing and avoid hefty costs. The quick rule people can use is the 3-6-9 Rule, which is laid out by how many months of savings should be targeted. 3 months' worth is for those who are at the amount of risk of needing it such as those who don't have dependents, are not homeowners, have two sources of income, and more. 6 months' worth would be ideal for those who have kids, own a home, only have one source of income, and more. 9 + months' worth would include those who have much riskier streams of income such as being a self-employed owner or simply a job with unsustainable income. The amount you need will hinge on how much you need it when those streams of income are shut off completely. A nice rule to get an amount going.

#2 50/30/20 Rule

The rule says this: 50% towards spending needs (essential), 30% towards spending wants (discretionary), and 20% towards your savings strategy. Pretty simple. In reality, it may not be that simple depending on what your expenses look like. However, I am a fan of the 20% number (or more if you can). It's important to set a sizable amount for your future, especially during your beginning years. If you can do more? You're opening the door to a ton of possibilities.

#3 10X Rule

Life insurance is a touchy topic because it involves a death benefit that isn't used in the policy owner's lifetime. However, it does provide peace of mind to ensure your loved ones aren’t vulnerable to financial ruin after death. There are good ways to calculate the amount needed, but 10x your income is a solid benchmark to target for total coverage while young and healthy. Other factors usually determine this number from expenses like funeral costs, debt, education goals, retirement, etc. But for many households, this is a strong target to work with.

#4 28/36 Rule

When mortgage lenders determine the loan size issued, they almost always look at your gross income. They like to use a rule where the mortgage balance is based on payments that match the monthly gross income of around 28%. They also like using another rule to determine that your total monthly debt payments don't exceed 36% of your income. These two numbers may sometimes be too generous given how high housing prices have risen relative to income in recent years, but it’s good to monitor as you build savings for a downpayment and pay down debt.

#5 Rule of 72

How long will it take for your money to double? Try this rule. Take the number 72 and divide it by an ROI number. For example, if I wanted to see how long it would take an investment with an ROI of 8%? 72 / 8 = 9 years. So it would take nine years assuming an average return of 8%. Don’t ask me how the math works because I’d just bore you. But it's mathematically proven and it works like a charm as a fun quick calculation!

#6 4% Rule

Running out of money is always a cause of concern for someone who is in retirement. But experts have agreed on a formula investors can use to liquidate their assets without running the risk of running out of funds. They say drawing 4% of your balance size can sustain this concern as a benchmark. Recently experts are now saying that the number should be 3.3% or even more conservative numbers. Remember, you might have other sources of income to account for (Ex. Social security, real estate income, job income). Like the other rules, this can certainly help give you quick direction but be sure to run the numbers!

#7 Rule of 120

Risk is an interesting word because how it’s used is incredibly important. The most examined form of risk with investing is relative to the market. But how much exposure does one need? As a quick calculation, people like the Rule of 120. The rule says to take 120 and subtract your age and that gives people an idea of the weight percentage in a portfolio should be in equities with the remainder in fixed income. For example, I’m 30 years old so 120 - 30 = 90% equities while the rest is in fixed income (10%). Admittedly, this rule is a little too simple depending on one's time horizon and risk appetite with the market. However, it's helpful to illustrate what traditional exposure to the market can be seen by age. Generally, younger investors have a high-risk tolerance, and older ones have a lower risk tolerance. Be sure to analyze what the right amount of risk works for you with factors including your time horizon, risk tolerance, risk capacity, and more.

#8 10-Year Rule

For the fun of it, this is a rule that was inspired by the GOAT himself, Warren Buffet, when it came to individual stocks:

"If you aren't thinking about owning a stock for ten years, don't even think about owning it for ten minutes"

Remember. These rules are benchmarks and may not be the right number for you. But you don't have to figure it out on your own. Ready to find out what yours are? Schedule a complimentary consultation and we'll find yours out together.

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