Getting a hang of your personal finance is not an easy thing, but you have to do it. It is not just something that can give you a lot of benefits. It is an essential step. Not knowing how to handle your personal finances, it would not matter if you are earning a lot of money. You would still be having money problems. To help you get a firm grasp of your personal finance, here are a few rules of thumb that you should follow.
Amount of Debt
One of the first things that you should know in connection with your finances is the amount of debt that you can safely have. Ideally you should not have any debt at all, but we all know that it is impossible for that to happen. The next best thing then is to not have more than 36% of what you are earning on a monthly basis as debt. You should also gradually lower that percentage by paying off some of your debt or by earning more.
How Much for Your House
If you are like most people then your home is the most expensive thing that you would be buying in your lifetime. You would probably have to borrow money in order to be able to buy a house. So how much monthly mortgage can you afford? You should use the rule that we have given before. Your monthly debt payment should not exceed 36% of your income. You can take out the other debts that you have from the 36%, and that is how much your mortgage should be.
How Much Should You Save?
The usual answer when it comes to the ideal amount of savings should be 10% of your income. That is if you have some other retirement plan. The 10% should just go to the unexpected expenses that you might have.
An emergency fund is used in case a family loses its source of income. This can be a very huge safety net for any family and it should be on top of your actual savings. Experts suggest that families should have three to six months’ worth of income set aside as emergency funds. That would help the family get through while waiting for new income sources to come in.
How Much for Your Retirement
This is a very touchy issue, with so many elderly losing their retirement money because of the financial crisis. Most experts suggest that you should have at least 1 million dollars in savings when you go retire. That would ensure that you will have a comfortable retirement. Not everyone will have that kind of money during their retirement. In fact some would be lucky just to have tenth of that amount.
These are just some of the rules of thumb that you should keep in mind when you want to start you start your personal finances. Maybe it is about time that you started working on it.