Save enough money for three months of living costs in case of an emergency.
It seems unlikely that the “emergency fund” rule will ever go away for good. Some people think the “three months’ worth” plan is unrealistic, while others think it’s too low.
Phillip Braun, a clinical professor of finance at Northwestern University’s Kellogg School of Management, says to aim for six months’ worth. “The pandemic showed us that these emergencies can last for a long time,” Braun said.
Many people were already scared of the three-month plan.
“In case of an emergency, you should have at least enough money saved to cover your living costs for three months,” McCreary said. “If there’s one thing the pandemic showed us, it’s that you can’t know what’s going to happen, and you never know when your money will suddenly stop coming in.
“In a dream world, I’d love to tell everyone to save enough money for six months or more of living costs in case of an emergency. However, I know that for many Americans who live paycheck to paycheck, this isn’t possible. The best rule of thumb is to put money into savings before putting money into your own pocket when you get paid.”
The best way to save money is to not buy nice things for yourself that you don’t need.
There are times to cut back on things that aren’t necessary, but experts say that the “suck it up and tighten your belt” approach has been replaced in part by a focus on mental health and just being nicer to ourselves, especially when there is a pandemic.
“I’ll never tell someone to skip their latte,” McCreary said. “I think it’s just as important for people to save their money as it is to spend it on things that make them happy. You deserve it. So, if you’re trying to save money, don’t forget to add an area for spending money you don’t need to. So, you can reward yourself for your hard work with a set amount of money.”
Moore warns about the dangers of “mindless” buying and says that you should put things that make you happy and add value to your life at the top of your list. Moore said, “That $5 latte might be the only 30-minute break you get all day.” “It might be a good use of money.”
Only 30% of your monthly income should go to housing.
With rent and other living costs going up, fewer people are following this usual rule of thumb. Also, because more people are working from home, many of us are looking for bigger (and more expensive) places to live.
“I think people are starting to push it up to 40%,” said Braun. “If you do that, you might be able to get a better place to live. But it will cost you in other ways, such as your savings for retirement.”
Spend no more than 4% of your retirement funds each year when you retire.
This number, like most financial rules of thumb, can change depending on your position. Braun says that 4% is often too high now because people live longer and their money doesn’t go as far.
His new suggestion? From 3 to 3.5 % “The pandemic hurt investment returns very much,” Braun said. “That’s also what inflation does.”
Stay away from Credit Cards or Never Carry a balance.
The latest Quarterly Report on Household Debt and Credit from The Federal Reserve Bank of New York’s Center for Microeconomic Data shows that U.S. credit card amounts went up by 15% in the third quarter of 2022.
Moore said, “It’s hard to tell someone, ‘Don’t do that,’ when everyone else is doing it.” “There are often things that make things worse.”
McCreary says that credit cards are a “necessary evil” and points out that most people start building credit by getting a credit card. You just need to be smart about how you use them.
McCreary said, “If you can’t pay off your balance in full every month, pay what you can and keep chipping away at it over time.” “When it comes to how much of your credit you’re using, 30% is usually the magic amount. Try to keep your amounts at less than 30%.”
Courtesy: www.gobankingrates.com