💰 10 Best Personal Finance Tips
Rules of thumb
Hi Partner 👋
I’m Pieter and welcome to a 📈 free edition 📈 of Compounding Quality.
In case you missed it:
If you haven’t yet, subscribe to get access to these posts, and every post.
Personal Finance is just as important as your investment decisions.
You can save a lot of money with some very simple tricks.
Here are 10 Personal Finance Tips that could change your life.
10. 50-30-20 Rule
The 50-30-20 rule is a simple budgeting guideline that helps you manage your money efficiently.
Do you work?
Divide your income into three categories:
50%: Needs like rent and groceries
30%: Wants like eating out and entertainment
20%: Saving and Investing
This rule helps you to balance your life while securing your financial future.
9. 6X Emergency Fund
An emergency fund is the money you save for unexpected expenses.
Think about a car repair or medical bill.
Aim to save six months' worth of living expenses.
So if you need $2,000 a month to live, save $12,000.
This will protect you from going into debt when life throws unpleasant surprises your way.
8. 100-Age Rule
This rule helps you decide how to invest your money.
The formula is straightforward:
% of your money you should invest in stocks = 100 - your age
If you're 30, invest 70% in stocks and 30% in safer options like bonds.
The older you get, the more you’ll invest in safe assets to protect your money.
It’s a simple way to balance risk and return on your investments.
7. Rule of 72
The Rule of 72 tells you how fast you can double your money.
Years to double your money = 72 / Annual return
Let’s say your yearly return is 10%:
Years to double your money = 72 / 10% = 7.2 years years
In this example, it will take you 7.2 years if you manage to compound by 10% per year.
6. 10-5-3 Rule
This rule gives you a rough idea of what to expect from your investments.
Over the long term, you might get a:
10% return from stocks
5% from bonds
3% from savings accounts
It’s just an estimate, but it helps to set realistic expectations.
5. Pay Yourself First
Spend what is left after saving and not the other way around.
When you receive your monthly salary, invest around 20% of your income immediately.
It’s a simple habit that helps you prioritize your financial goals.
4. 25x Rule
The 25x rule helps you figure out how much you need to save for retirement.
Take your yearly expenses and multiply them by 25 to find the amount of money you need to reach financial independence.
If you spend $40,000 a year, you’ll need $1 million ($40,000 x 25 = $1,000,000).
3. Save enough for retirement
To see if you’re on track for retirement, aim to save:
1x your salary by age 30
2x your salary by age 35
3x your salary by age 40
And so on
For example, if you make $50,000 a year, you should have saved $100,000 by 35.
If you’re behind, try to save more or spend less to catch up.
Starting early gives your money more time to grow, making it easier to hit these targets.
2. Wait 24 hours
The average American spends over $300 on impulse purchases every single month.
Before buying something expensive, wait 24 hours to decide if you need it.
This simple pause helps you avoid impulsive spending.
After waiting for 24 hours, you’ll often realize you don’t need it as much as you thought.
1. Rule of 70
The Rule of 70 shows how fast inflation can reduce your money’s value.
Divide 70 by the inflation rate to see how long it takes for your money to lose half its value.
For example, if inflation is 2%:
Years to halve your money = 70 / Inflation Rate
Years to halve your money = 70 / 2% = 35 years
This means your money would halve in value after 35 years.
It’s a great reminder that you should invest your money.
Investing is the easiest way to build wealth over time.
Whenever you’re ready
That’s it for today.
Compounding Quality is all about securing your financial future.
Whenever you’re ready, here’s how I can help you:
📈 Access to my Portfolio with 100% transparency
📚 Access to my ETF Portfolio
🔎 Full investment cases about interesting companies
📊 Access to the Community
✍️ And much more!
Today we’re adding to an existing position.
Subscribe now to get access:
Everything in life compounds
Pieter (Compounding Quality)
Book
Order your copy of The Art of Quality Investing here
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Finchat: Financial data
I try to run my personal finances like a business operation. Money comes in from my employment. Expenses like food, water, housing, services, etc consume the money. I can summarize it in an income statement and calculate my margins. Obviously, higher = better. 😉
I save and invest the excess while also maintaining a minimum amount in my checking account. How much I save and invest has some variability. Some months I may have higher than usual capital expenditures, like when my car needs repair. 😫 So, this is kind of like my cash flow statement.
I can also make a balance sheet with all of my assets and liabilities too. My assets would be my home, car, my investments, etc and my liabilities will be my mortgage.
Our family's goal is to keep our expenses as regular and predictable as possible. We live a pretty simple life so it's not that hard in our case. Our utilities rise and fall very predictably with the seasons.. Summer = higher electricity (air conditioner), higher water bill (lawn), lower natural gas (no heat). Winter = lower electricity (no air conditioner), lower water bill (snow - no watering the lawn), high natural gas (need heat!). Our food bill is very predictable too. It's not necessarily low but it's predictable.
These costs fluctuate over the year and rise due to inflation but they don't yo-yo up and down unexpectedly.
Life happens and unexpected negative surprises happen. We can only anticipate so much. A savings or slush fund helps. Pay for tomorrow's car repair ahead of time by putting some money away for it today.
We use credit cards but always inside of a budget. The entire balance is paid off every month. No exception. That should be a golden rule. "Thou shall pay thy credit card balance in full before the date due!" 🧙♂️ ⚡ 🧙♂️
Two fun clichés:
"I can afford anything I want. I just don't want everything!"
When I was younger I wanted all sorts of stuff, like fancy watches and lightweight carbon fiber bikes with top end Shimano Dura-Ace components. I burned through so much cash and even fell into debt for it. Maybe I had to scratch those itches while I was young so that i don't get eaten alive by those itches later in life. At the same time, my life has progressed so far from where it was. My values have changed and my moral compass points in a different direction. Where before I wanted toys, now I want my wife and kids to be healthy, strong, and happy.
"I can afford that but it doesn't make sense for me to buy it."
I see people chasing after the cars and "stuff" that I have long since forgone. Sometimes I get tempted to think about replacing my car, especially when mine is being serviced. My car is clumsy and loud and burns a little oil. I know I could talk to my wife and convince her it would be OK to sell off my taxable brokerage account and buy a new car. It would break my heart twice and twice again though. I would be betraying our long term goals and her trust in me. It would negate all the work I have been doing to build up that account. I would feel awful and stupid and lousy. It's not worth it and it doesn't make sense to sacrifice what I have for something I don't really need. 😫
100-age rule is wrong when you have children. I wasn’t happy when my father died. The last 20 years he avoided stocks and my heritage went down. My children can’t afford buying stocks. They are happy that I. Uy them and keep them. I share my portfolio and I discuss it with them. They are happy that I invest and later it will be for them. (Not going to wait till I am 100 to give a big part to them