6 Money Rules of Thumb to Live By

This week, organizations nationwide are participating in the annual America Saves Week! It’s easy to think of savings in super simple terms—put some money in a retirement fund or a savings account and you’re good to go, right? Not so fast! Saving money and making smart financial decisions goes beyond cost cutting, budgets and putting money away for a rainy day.

Instead, think of saving in terms of your complete financial profile. Here are some of our favorite ways to make smart money choices. Let these edicts rule your wallet—and your finances are likely to stay in tip-top shape.

Save at least 8 times your pre-retirement salary for your Golden Years.

Most people typically need about 85% of their pre-retirement income to live comfortably during retirement. To help consumers work towards their savings goal, the mutual-fund company Fidelity recently created this guideline so it’s easy to figure how much money you need in your company-sponsored 401(k) or 403(b), IRA, and other savings before you hand in that resignation letter to your boss. So if you’re making $85,000 annually, for example, aim to bank at least $680,000.

Don’t make any car repairs that cost more than the value of your car or one year’s worth of car payments.

Otherwise, you’ll be sinking money into a set of wheels that aren’t worth it. To find out your car’s current value, click here.

Build an emergency fund that will cover at least six month’s worth of basic living expenses.

Keep the money in a liquid savings account (try the one at SmartyPig, which helps you achieve financial goals) so you can easily access it to pay for things such as your mortgage or rent, utilities, groceries, and any necessary transportation costs in the case of job loss or other unforeseen financial tragedy.

Calculate the percentage of your portfolio that should be invested in stocks by subtracting your age from 120.

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When you’re young, your earnings potential is high since you have numerous years that you can be a member of the workforce, so you can risk investing aggressively and put a large portion of your portfolio in stocks. So if you’re 35 years old, say, you should have 85% of your portfolio invested in stocks. But as you near age 65, you want to move away from uncertain investments into safer, more stable ones—like bonds and cash.

Don’t allocate more than 28% of your pretax income to housing costs.

More than three years after the recent recession, we’re still seeing the disastrous effects of people buying houses that they couldn’t afford. Keeping the cost of your mortgage, homeowner’s insurance, and real estate taxes below this benchmark means that housing expenses won’t eat up the bulk of your household budget.

Never use more than 30% of your available credit.

The percentage of credit you’re using in relation to how much credit you have access to is called your credit utilization ratio. (If you have a balance of $2,000 and your credit limit is $4,000, your credit utilization ratio is 50%.) It’s one of the factors used to calculate your credit score; use too much credit and your score will be negatively impacted. Not to mention that high credit card bills means you’re more likely to carry a balance and as a result, pay more in interest.