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Do You Know the 50-30-20 Rule?
This is a good general rule of budgeting that states that no more than 50% of your total monthly income should go toward your NEEDS like groceries, housing, utilities, and insurance; no more than 30% should go toward your WANTS or other discretionary spending such as eating out, clothing, entertainment, travel, and charitable giving; and finally, 20% or more should go toward SAVINGS and/or debt reduction. Again, this is just a general rule and you should adapt this to your particular situation. Whenever possible, though, spend less and save more!
Doubling Your Money: The Rule of 72
The Rule of 72 is a rule that can help you estimate about long it would take to double your money at any particular rate of return. Here is how it works: divide 72 by the rate of return on your money and the answer will be the number of years it will take to double your money.
Here are some examples:
- Say you believe you can average 3% on an investment over several years. Since 72 divided by 3 equals 24, the Rule of 72 says that it will take approximately 24 years to double your money if it is able to earn a steady 3% over that amount of time.
- Now assume an investment that is able to return 8%. In this case, you are now able to double your money in just 9 years (72 divided by 8).
Of course, this is just an approximation tool and the results of this formula can vary depending on factors such as tax rates, etc. But it certainly does illustrate the effect of compounded interest as well as the importance of earning the highest interest possible.
*IMPORTANT NOTE: information and tips included here are general in nature and should not be considered personal advice for your specific circumstances. Please consult with your tax advisor for information and advice concerning your personal tax situation.