Reshaping financial rules of thumb

Good Morning CT at Nine

(WTNH) — When it comes to achieving our financial goals, general rules of thumb can be useful tools to help us get on track.  But oftentimes, they can also discourage us, make us feel inadequate and cause us to give up on seemingly unattainable goals. 

Chartered Financial Consultant John Caserta explains some problems you see with using general rules of thumb when it comes to personal finances:

  • Financial goals – like any other goals – should be SMART (specific, measurable, achievable, realistic, and timely. And when it comes to these general rules of thumb, they may not be achievable or realistic for some people, and it can lead to frustration and ultimately giving up).
  • We hear these rules of thumb all the time, but they shouldn’t be treated as gospel – they have to be adjusted to your specific situation to make sure that you can stick with them and that they’re right for you.

Caserta says here some rules to reconsider:

  • Saving 10-15% for retirement.
  • Many reasons why you might want to start with a lower amount.
  • Immediate cash needs, paying off very high-interest loans.
  • It might be more realistic to start with a lower amount and slowly increase it.
  • You want to make sure you’re at least taking advantage of any matching contributions from your employer.
  • Some plans will offer automatic increases in contribution rates on an annual basis.
  • Having a 20% down payment on a home.
  • 3-6 months of expenses in a rainy-day fund.

Some people need more; some people need less depending on their household circumstances and they should consider:

  • Is it a single or dual-income household?
  • How big is the household?
  • What are those “must pay” expenses? Rent, food, car, etc.?
  • Student loans and your first-year salary.
  • Don’t take out more in student loans than you anticipate making during your first year of work..

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