Financial Rules You Need to Know
If you’re in your 20s, learn these Financial Rules to become a millionaire in your 30s:
3 Principles Rule
This is the foundation of it all:
1. Increase earnings
2. Decrease your spend
3. Invest everything left over
Ensure your investments include an emergency fund and you’re prepared for the unexpected.
The Pay Yourself First Rule
Too many people get paid, spend on their lifestyle, and then invest.
You need to invest at least 20% of your pay FIRST and then spend what’s left.
Make your investment a priority.
Do it first, and live off the rest.
The Automation Rule
You make 35,000 decisions a day.
This leads to decision fatigue and bad decisions.
Automate good decisions to prevent mistakes:
• get paid
• auto-transfer to savings
• auto-transfer to investments
• set up auto-bill pay for your bills
The 50-30-20 Rule
The average American household saves 10%.
Some have proposed the following:
50% – needs
30% – wants
20% – investing
To be a millionaire, flip the script:
50% – investment
30% – needs
20% – wants
The closer you can get to this, the better.
The Big 3 Rule
The big three expenses for you are:
• transportation
• housing
• food
A certain amount of each expense is a need, the bare necessity.
The remaining portion you can control, the want.
The first step in reducing spend is to know: need versus want.
The 20-40-10 Rule
If you’re buying a car, use the 20 – 40 – 10 Rule.
• 20% down payment
• loan term no more than 4 years
• Spend less than 10% of monthly income
This keeps your car expenses reasonable.
$27.40 Rule
If you save $27.40 every day, you’ll save $10,000 per year.
If you start investing $10,000 per year at 8% at 20, you’ll have $2 million at 55.
I wish I’d started investing $10,000 per year sooner – don’t make this mistake.
Rule of 72
Compounding is the 8th wonder of the world and has the power to make or break you.
Rule of 72 indicates how long it’ll take your money to double taking compounding into account.
If an investment earns 18% per year, it will double roughly every four years.
Rule of 114
The Rule of 114 is comparable to the Rule of 72, but it tells you how long it will take for your money to triple.
I only learned this one in the last 6 months and am fascinated by it.
I’m looking forward to some triples.
The Subtract 100 Rule
Subtract your age from 100 and put that percentage of assets into stocks.
If you’re 20, you should have 80% stocks and 20% bonds.
Some argue, given longevity and retirement horizons that you should put more into stocks.
Consider your risk tolerance.
The 4% Rule
The 4% rule is the safe withdrawal rate and indicates what you can withdraw from your investments without drawing down your principal.
Said differently:
1. Calculate monthly expenses
2. Multiply by 12 to annualize it
3. Multiply by 25 (4% safe withdrawal rate)
Personal finance is one of the most important subjects you need to know.
If you want to learn more, I’m here to help you with it.
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