When it comes to managing money, there is no one-size-fits-all formula. There are, however, time-tested guidelines that can offer valuable perspective. These rules of thumb, while not perfect for every situation, have helped generations of investors and savers make more informed decisions. Whether you’re planning for retirement, buying a home, or deciding how much to invest, these benchmarks provide a helpful starting point.
10 Timeless Investing & Personal Finance Rules
Note that these are not strict rules – personal circumstances, goals, and market conditions all matter – but keeping them in mind can help bring clarity, discipline, and long-term focus to your financial strategy. Even if you eventually bend or break a rule, understanding it first is often the smartest move you can make.
1. The 4% Rule (Retirement Withdrawals)
What it is: Withdraw 4% of your retirement savings in your first year, then adjust that amount annually for inflation.
The Rationale: It offers a sustainable framework for drawing down retirement savings over a 30-year span. This rule helps retirees avoid the two most common risks: withdrawing too much too quickly and running out of money, or withdrawing too little and unnecessarily restricting their lifestyle. While it is based on historical market returns, it also encourages retirees to approach retirement income planning with a conservative and systematic mindset.
2. The Rule of 72 (Compound Growth Estimator)
What it is: Divide 72 by your annual rate of return to estimate how many years it will take for your money to double.
Example: At an 8% return, your investment will double in about 9 years (72 ÷ 8 = 9).
The Rationale: This rule illustrates the power of compounding over time, showing how small differences in return rates can make a big difference in long-term growth. It’s a simple mental shortcut that helps investors understand the time value of money and make better decisions about where and how early to invest. It also reinforces the importance of starting young, as time is one of the most powerful tools in wealth building.
3. The 100-Minus-Age Rule (Asset Allocation Guide)
What it is: Subtract your age from 100 (or 110/120 if you’re comfortable with more risk) to estimate the ideal percentage of stocks in your portfolio.
The Rationale: This rule helps individuals tailor their investment risk to their age and proximity to retirement. Younger investors can generally afford more volatility in exchange for higher potential returns, while older investors benefit from preserving capital. It provides a flexible and intuitive way to shift a portfolio’s asset mix as one moves through different life stages — from aggressive growth to income generation and preservation.
4. The 28/36 Rule (Mortgage Affordability)
What it is: No more than 28% of your gross monthly income should go toward housing costs / No more than 36% should go toward total monthly debt obligations.
The Rationale: This rule serves as a guardrail to prevent people from taking on more house than they can reasonably afford. It ensures there is still enough room in a budget for essentials, savings, and discretionary spending. Following this rule promotes financial stability, reduces stress, and lowers the risk of default or needing to make major lifestyle sacrifices during financial downturns.
5. The 15–20% Rule (Income Investment Guideline)
What it is: Aim to consistently invest 15–20% of your gross income toward retirement and long-term goals.
The Rationale: This rule creates a reliable and proactive approach to building wealth over time. By saving and investing a healthy portion of income early and consistently, you benefit from compounding growth and reduce your dependence on social programs or late-career catch-up saving. It also introduces financial discipline and makes room for life goals like early retirement, home ownership, or education funding.
6. The 25x Rule (Retirement Target Estimator)
What it is: Multiply your desired annual retirement spending by 25 to estimate your retirement savings goal.
Example: $40,000/year in desired retirement income × 25 = $1,000,000 target.
The Rationale: This rule offers a quick and realistic way to set a retirement savings target. It reflects the underlying logic of the 4% rule and helps you focus on your spending needs rather than arbitrary portfolio sizes. It simplifies planning by showing how much you actually need to support your lifestyle, giving clearer purpose to your savings and investment strategy.
7. The Emergency Fund Rule (3–6 Months of Expenses)
What it is: Keep 3 to 6 months’ worth of essential living expenses in an accessible savings account.
Why it matters: An emergency fund is a financial shock absorber. It helps you manage unexpected life events, such as medical bills, car repairs, or job loss, without having to go into debt or sell investments at a loss. It provides peace of mind and serves as a cornerstone of financial stability, especially for those with irregular income or dependents.
8. The 10% Rule (Car Affordability)
What it is: Spend no more than 10% of your gross annual income on purchasing a vehicle.
The Rationale: Cars lose value the moment you drive them off the lot, so overspending on a vehicle can undermine your wealth-building efforts. This rule helps keep auto expenses proportional to your income, freeing up more cash flow for investments, savings, or debt reduction. It encourages practical car-buying decisions and curbs the temptation to finance luxury for short-term satisfaction.
9. The 50/30/20 Budgeting Rule
What it is: 50% of income goes to needs / 30% goes to wants / 20% goes to savings and debt repayment
The Rationale: This budgeting model strikes a realistic balance between living in the present and planning for the future. It allows for lifestyle enjoyment while prioritizing financial health. It’s beneficial for beginners who feel overwhelmed by budget planning, as it offers structure without requiring them to track every dollar. Over time, adhering to this rule can lead to reduced debt, increased savings, and improved financial awareness.
10. The 1% Rule (Real Estate Investment Quick Test)
What it is: A rental property should ideally generate monthly rent equal to at least 1% of its purchase price.
Example: A $250,000 rental property should generate approximately $2,500 per month in rent.
The Rationale: This rule helps real estate investors quickly filter properties that are likely to be profitable. While not a guarantee of cash flow (since costs such as taxes, vacancies, and maintenance vary), it is a good initial benchmark for identifying deals worth further analysis. It prevents emotional purchases and helps avoid negative cash flow — a critical risk for new landlords.
Closing Thoughts: Use the Rules, But Know When to Bend Them
These guidelines are popular for a reason: they’re easy to remember, rooted in sound financial principles, and provide a structured approach to some of life’s biggest financial decisions. But remember — personal finance is personal. Life stages, income levels, goals, risk tolerance, and even geography can shift the equation.
Use these rules as tools to help you make decisions with confidence, but do not be afraid to adapt them as your circumstances evolve. At the very least, they give you a solid foundation to question, plan, and move forward with purpose.