5 Useful (and 6 Totally Useless) Rules of Thumb
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- Опубліковано 1 чер 2024
- Oftentimes financial planning can be very confusing and that’s why it’s
important to know which rule of thumb to apply to get the most out of
your financial strategies.
How much should you spend? How you should invest? How you should
budget? What your asset allocation should be? Is the 4% rule always a
good option? Are stocks risky and bonds conservative?
In today’s video, we’re going to go over 5 useful rules of thumb and 5
rules of thumb that, in my opinion, should be avoided.
Learn the tips & strategies to create your secure retirement.
⏰ TIMESTAMPS
00:00 - Introduction
2:10 - Six Totally Useless Rules of Thumb
4:22 - Saving For Retirement: How Much?
6:49 - Understanding Validity of 4% Rule
9:52 - Average Returns
10:06 - Understanding Risk In More Detail
12:34 - Where Do I Start?
14:15 - Lifestyle Decisions
17:16 - Personal Finance is Often More Personal
18:50 - Summary
19:30 - Working With Us
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James you are wise beyond your years! It's too bad everyone your age doesn't know what you do.
LOL - totally agree with the mortgage payment thought process
Made far more sense to invest the money and keep making the monthly payment, but nope - paid that sucker off as soon as possible
Yep. illogical but sure felt good doing it
I paid off my mortgage when I was 50 and after that I felt like I was rich! No regrets doing it and now I'm putting about 27% of my income into my retirement accounts.
I enjoy your videos so much but I admit that I do forget to upvote you.
So now, I upvote you first, then watch the video....
DON'T LET ME DOWN YOU!
I love this channel and The Money Guy Show
Love The Money Guy Show as well but their numbers tend to fluctuate towards the upper class IMO. Very few people that I know can afford to max out their 401(k)s.
Thanks Dave!
You have some of the best personal finance content on the web. So natural and smooth, minimal editing/cut-offs, and great insights. Keep up the great work.
Thank you!
Good video, but I completely disagree with your statement that it totally makes sense to invest rather than payoff your mortgage. With the higher standard deduction and SALT limitations many people no longer itemize. The 3% you’re saving on your mortgage is guaranteed. The only guaranteed investment is US treasury obligations and they’re paying way less than 3%. Regarding stocks for people in retirement or about to retire, can they afford (financially and emotionally) a 25% decline that lasts for a few years? And finally, would you take out a mortgage (your home is the collateral) and invest it in the stock market? If I had the money I would payoff my mortgage. I do realize that everyone is different and your advice may work for a select few.
The feeling of knowing nobody is going to evict me is priceless! I'M DEBT FREE!!!
Morgan Housel in his book “Psychology of money” explains this point beautifully. Every financial decision need not be academic, as long as it’s rational it’s fine. Clearing off housing debt is one. If it allows one to sleep better, makes sense to pay off the home loan instead of trying to invest that money loking for higher returns.
Paying off a 3% mortgage rather than investing that money is very very stupid use of that money.
@@brahmmauer7437On a scale of "very very stupid" to "very very smart," I would consider things like high stakes gambling and purchasing 10,000 lotto tickets to be "very very stupid." Paying off a house is not mathematical maximization, but it does have positive financial and psychological implications, and it still increases net worth while lowering monthly bills. There are far worse things people can do with their money.
It is good advice on low interest loans but some people feel so much better.. your investments were saved to last many years or you didn’t,t save enough. Stock market is still good for many.
I agree with you Re: Life Insurance, However,
If a young couple is planning on starting a family,
Purchasing Life Insurance sooner will not only reduce their premiums but
It will also
"Guarantee that they have Insurance in place even if one of them becomes uninsurable due to a medical condition."
None of us know what life has in store for us just around the corner!
Even a smaller policy to hedge against the risk of disease (Heart Condition, Cancer, or any of the other 600 Million diseases in store for all of us!) should be obtained as soon as they are married and as kids come along, it can be replaced or added to....
#4. It’s something I’m learning. You can’t deny yourself ALL the time. Then it can feel like, what’s is all for?
Exactly
Thank you very educational🙏🏾🙏🏾
Excellent points.
Your critical thinking is refreshing.
Thank you, Margaret.
another very good show with a ton of great info.
Thank you!
Excellent! Really good. Congratulations!
Be prepared, be ready. Learn how to make decisions. Don't look back, don't hesitate as you can't change the past and only plan for the future.
Thanks for listing your points to the right or left. Nice touch!
You’re welcome, thanks for watching!
Really good video.
Excellent. I had to listen twice so I could take notes. Thank you.
You’re welcome!
EXCELLENT, EXCELLENT CHANNEL!
I agree with your #1. That is an incredibly conservative allocation. Personally I prefer a bond tent. Everyone doesn’t have the same risk profile so it’s crazy to give every single 30 year old a 70/30 split. I’m sure it worked for some people but I can’t help but wonder how many people it set up for failure.
Simple, clear, direct and succinct guidance regarding multiple common finance ‘rules’ - excellent advice, thank you.
Thanks, Neil!
Every or any "rule of thumb" is just that. A place to start, food for thought... not an absolute.
Exactly right
I appreciate the advice here.
You're welcome!
Great advice especially your breakdown of the 4% rule which I’ve never understood since we seem to spend less as we age.
Semper Fi👍🏽
Thank you!
Thank you. People first.
Very helpful. Wisdom beyond his years.
Thank you.
I will be sharing this vid. My reasons for sharing are not particularly about the strengths or weaknesses of each Rule of Thumb. My reasons for sharing are all about his clear, sensible and informative narrative on the topics surrounding each rule of thumb.
Thank you!
Optimally, financial decision making would consider all the relevant variables specific to your situation, but this causes analysis paralysis, especially for those just getting started. It’s easy to just throw up your hands and just not think about it anymore. Rules of thumb are great for those who just need to get going. Once the wheels are turning and the basics are in place using rules of thumb, then you can refine as needed.
Great video. Finance is very personal and we should never make hard and fast rules that apply to everyone. The first 6 rules of them are helpful guidelines, but they need to be adjusted for each person's specific circumstances.
Thank you. Certainly need to be customized.
thanks
There should also be life insurance on the stay at home spouse. The breadwinner is likely to be shocked at how much it costs to replace what the stay at home spouse does.
@Jee Vang So when your spouse dies and you need someone to take care of the children, make the meals, clean the house, etc. you are going to be able to maintain the same standard of living for your family? Income is not the only way to financially contribute - you also have to consider the value of not having to spend money for those “free” services.
Enjoyed the "Rules of Thumb" video. This is one of the first times I have heard that keeping the mortgage payment (if your rate is low) might be a the best solution of someone. Individually based.
I’m glad you enjoyed it.
Truth be told you leaned everything you need to know about how to be ready for retirement when you were in grade school. Back then it was called math. I retired 7 years ago debt free. My wife retired 2 years later. To date, we have not tapped in to our retirement savings. At this rate of withdrawal, how long will our money last?. Grade School level math. Never complicate things that are not complicated.
As far as the #1 useless rule, I’ve actually heard it use “120 - your age” . Much closer to what is recommended, but I still agree with your points on why it’s not the best. Thanks for the content!
120 - age is a very good rule of thumb for those that don't want to get too far into the weeds or involve the assistance of a financial planner up until say around age 50. :)
@@thegrimmperspective 41, over 95% equities here.
Jim,
This is quite possibly your best video. As you mentioned more than once, the rules of thumb serve best as starting points, but for too many of us, personal finance and investment begin and end with the rules of thumb. Sure, they are simple and easy, but all too often, they are not right and not wholly applicable to our own unique personal situation.
You made a great point about the behavioral side of personal finance. I totally agree. Keep up the good work, and please keep the videos coming!
Thank you, Gregory!
I didn't grew up in USA and I didn't have a lot of knowledge about the retirement. I do invested thru the years.... your knowledge is brilliant and you are my free teacher and very well spoken and easy to understand...
I'm glad the videos are helpful!
The 4% Rule for portfolio withdrawal gets trumped by RMDs (which you must start at 73).
I have always felt that the 30% house payment rule is much too high once you hit a certain income level. It makes sense as a maximum in low to mid range income. For example, a gross income of $75,000 would mean a maximum mortgage of about $1,900. Makes sense. But at a gross income of $150, 000, that max mortgage doubles to about $3,800. Yes, you can afford that large expensive home. But do you really need it? Why not buy a nice home in a nice area that costs less, and put the extra money in other places, like retirement savings, travel, etc.? My mortgage is roughly 18% of my gross income. I live in a high cost state, so my income is higher but so are housing and other costs. I choose to buy a house in a good area, good size but not huge (2,100 sf) that is nice but not brand new and luxurious. I’d rather use the extra 12% of gross income toward other financial and personal goals than sink it into a big expensive house. I see so many people who, despite having a nice income, end up “house poor” and not able to save enough or do other things they want to do because they have gone with the 30% rule and/or accepted the largest mortgage that a lender will approve for them.
Excellent point! Buy what you need no matter what your income.
I really liked the Rule of 10 and wish that I had heard of it years before. However, now that I know it, I plan to use it in my future decisions (not just my financial decisions). Thanks!
Glad you liked that!
IL give you a good rule of thumb ...if someone says ..."everybody knows that you should ....."
...what ever follows that sentence will be wrong
Here is a guy old enough to be my grandson and giving advice on retirement.
What does that mean “ you are leaving a lot on the table”? You say that a lot.
Number 1 rule, spend less than you make and you will be fine. Nr. 2 pay off your mortgage for a piece of mind.
If you're more than like 15 years from retirement you should have 0% in bonds. If you want to diversify go for a mix of US/international stocks and REITs, the return from bonds these days is so low it doesn't even counter inflation.
@Jee Vang I take it you have a problem with REITs?
I have zero in bonds and I'm two years from retirement. I don't plan to change that. I'm willing to ride the stock market roller coaster even in retirement.
I am against life insurance all together. I suspect that having life insurance just shortens life. The very idea that your death can benefit somebody that you love leads to less resistance of your body and brain against the disease. There is better way to secure your loved one’s future. It is to increase your wealth while you are alive and well. And hey, Rule #0: Invest in a healthy lifestyle and exercise.
6 rules of thumb labeled "totally useless" and then described as not totally useless... that's not how language works
For those relying on stocks & especially bonds need to wake up. CPI numbers are cooked by the same shysters selling inflation as "transitory". The real rate is around 15%. $30 trillion in debt & $164 trillion in unfunded liabilities will guarantee that inflation moving forward will be anything but transitory. So 10% return means you're losing money. Want perspective on purchasing power? $1million @ 15% inflation buys $232k in 2030.
Put it all in on bank savings account and CDs. Safe! No risk! Low income taxes. Best investment for those who are near retirement or are already retired.
Do that and you'll slowly fall behind as inflation eats away at it
You forgot to mention that the 4% rule cannot work due to "sequence of returns".
Can not work? It has worked over 90 percent of the time
@Jee Vang ?? Really
YOu want to get out of debt? Dump the ENTIRE windfall onto the principal of your mortgage or pay off that incessant CREDIT CARD bill that comes EVERY month that you've been trying to pay off. YOu played and had fun...NOW PAY FOR it. Sorry....but that's how I got OUT of debt. Now I have fun all the time and every paycheck is a windfall..... I know, I sound like Ramsey...
Right on! I'M DEBT FREE!!!
Spend less than you earn
Sorry - I disagree. 30 years of financial slavery to a home IS not worth it. I would go with your mortgage payment being 20% or less of your NET monthly income. When we bought our house - we made sure that JUST one of us could work at Burger King and STILL keep it. Look at as this way - the less pistons you need to run a engine the better. If you ABSOLUTELY need 2 pistons to keep your financial "engine" running...you're taking your chances...especially for 30 YEARS. We structured our life to so that we ONLY needed ONE person to work at Burger King to keep the house.
The biggest screw-up I ever saw was this DOLT at work. He bought a house with his wife that was SO expensive, he had to work overtime at his regular job....AND work part-time in the evenings at Pizza Hut AND his wife also had to work as a Nurse. That was 3 PISTONS to keep his financial engine running.
Guess what happened? He was so exhausted, he was hurt in a bad accident AT work that crushed his head. He nearly died. He did live but it was catastrophe after that for the rest of his life. Our company found lawyers to show that it was his own fault because he was exhausted due to working two jobs (also known as "moonlighting") - he also was more focused on playing fantasy football as workers had to admit ON THE STAND in court. The company did end up settling but it wasn't all that much.
I have no idea whether he was able to keep his house...but from I hear, his medical bills were devastating and as I say - he was screwed for life after that.
As for myself, I and my wife killed the house mortgage in 11 years total. We put every bonus, tax return, garage sale proceeds, etc ONTO the principal.....and also insured that my son's college education was TOTALLY paid too. He's completely debt-free and able to start his life REad this everyone and LET this be a lesson. The main secret....put down a MASSIVE down payment.
At least 20% down or you're throwing away money on mortgage insurance.
It's all common sense.
Must be a lot of uncommon people in the world then :-)
Small grammar issue: “There’s too many…”. Should be “There are too many…”