Nowadays, financial tips are flowing fast about how to save money, stick to a budget and how to invest.
Facing this flood of information, many people ask from where I start.
For most of us about 50% of what we earn go to 4 areas.
So, this is the place you need to start with:
home, car, kids, education, retirement.
Here what you need to know about each area.
1. Don’t bite off more HOME than you can chew
How much house can you comfortable afford?
For most people no more than 3 times your annual income.
The price is not alone, you have 2-3% of the price as costs each year, tax insurance, maintenance. Assume 20% down payment, a 30 year mortgage and interest 5-6% range, the 3 times your income rule of thumb translate into roughly 30% of your gross income.
2. Don’t let your CAR drove you to poor house
Same logic applies to your car, you can afford third of your annual income.
If you make 60,000 you can afford 20,000.
If you make it more you will struggle because it has many costs other than the installment.
3. Don’t let your KIDS kick you in the wallet
The kid cost from the time born to 18 about 220,000$, before college.
Deciding to be parent is major financial obligation.
4. Don’t underestimate the need to feed your RETIREMENT nest egg
How much will you need to retire? A conservative rule of thumb (excluding social security) is to multiply your current income by 20.
If you make 50,000 a year you want to maintain that standard of living in retirement, you will need a nest egg of at least $1million.
Understanding early in your life what is your number will help you see just how important is to plan for this major goal.