Tuesday, August 21, 2012

Money Rules

RulerPhoto by Sterlic
Watching the mortgage mess movies this past weekend made me think back to when we bought our first home. We lucked out by not buying at the peak, but things still went a long way down. One of the things I think helped us come out of it in a not horrible place is that we followed the 28% housing rule. That of course got me wondering what other money rules are out there. Without further ado, I give you some generally accepted random money rules...

28% Housing Rule

This rule states that your monthly housing expenses should not exceed 28% of your gross income. Note expenses, not expense. This includes property taxes and insurance. Some people even include utilities in their expenses. If you can add that high, then more power to you. The more you add in, the better off you'll be. Using the median household income of $51,413, that would be about $1,200 to spend on housing a month.

36% Debt Rule

Same idea as above except this includes all of your debt obligations. Student loans, credit card bills, car payments, mortgage (yes it counts here too, you don't get off that easily). This would be about $1,542/month in the median income household.

10% Vehicle Rule

I'm guessing by now you get the pattern here. This is the same thing, only applied to your car loan. Median household would be $428/month. I'm to the point where I would drive something old rather than take out a loan for something new. I wasn't always this way. I did take out a loan on a new car once when I was young and foolish. Now that I'm a little older and foolish, I've learned not to do that again. That's why the car that I took out the loan on is still in my garage. However, I love cars and understand how much you want a new one. Just keep it under 10% of your income if you need a loan on it.

10% Retirement Rule

This is sort of the minimum number for a full retirement age retirement, if that makes sense. I believe right now that age is 66 and by the time I retire it will be 106 or so. Now if you want to retire early, you're looking at something closer to 15%. Minimum here for the median household is $428/month.

25x Retirement Rule

This was an interesting rule I just came across the other day. Apparently having 25x your annual income in retirement savings is a good guesstimate of how much you'll need to retire comfortably. I've also seen 20x, but it's best to aim high. On second thought, after looking at my number, this seems a little crazy. I think I'd be more keen to a number based on my expenses instead of on my income. Median household income would have a retirement goal of around 1.3 million dollars.

These are all general rules to get an idea of what you should strive for, or against, depending on which one you're looking at. Granted everyone has a different situation and there are many different factors that go into it. However, if you're looking for something to compare to or just for a general idea of where to start, this list should get you started on that path.

What do you think about these money rules? Do you have any others that you follow? Where do you fit in on the poll question?

Refrigerator Update: IT'S ALIVE. Finally, a week and one day after it suffered a heat stroke my fridge is back. Why did it take so long? Well, there was a "technical issue" with the parts website which led me to believe they had same-day shipping. Turns out it wasn't even same week shipping. So after discussing my lack of enthusiasm for not having a fridge for a week with customer service, I got free shipping. Long story short, or short story long, we got the forty dollar part, hooked it up and we were back in business. +1 appliance repair skill. For now...


  1. Those are good rules! We just try to keep our expenses low as possible and hope for the best! I definitely agree with the 28% housing rule. If you spend too much, you end up house poor.

    1. That's pretty much what we do now too. We used the 28% housing rule when we were looking for our first house since we had no idea what was appropriate.