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Make financial advice work for you

One-size-fits-all advice can be useful because it’s easy to remember, but it can also oversimplify things, putting your financial wellness at risk. Find out if these rules of thumb are right for you.

  1. Don’t buy a house priced more than two-and-a-half times your annual household salary. Yes, income is key when house shopping — but no matter what this rule or any lender says you can afford, resist the urge to max out. From repairs to taxes, ongoing home expenses can exceed your mortgage payments!
  2. You should be saving 15% of your income for retirement. A good average target — but if you got a late start, want to retire early, or have expensive dreams, you may need more. Try this calculator to see if you’re on track. Or use the tools and resources available through your retirement plan.
  3. Your emergency fund should cover six months of living expenses. Good advice, but it can take years to save that much. You’ll want a backup in the meantime, such as a Roth IRA (you can withdraw your contributions anytime without tax or penalty) or a home equity line of credit.
  4. You need at least five times your annual salary in life insurance coverage. This is an estimate of how much your family might need to cover living expenses after your death. But if you’re the sole breadwinner and/or you have significant debt to pay off, you may need more coverage to avoid leaving them short on money in the long run.

Now that you know to take these four common rules of thumb with a grain of salt, do the math for your situation and make personalized decisions that support your financial health!

Sources: bankrate.com; nerdwallet.com