Rule of Thumb
Candlefocus EditorRules of thumb have been around for generations, and view experience as the best teacher. A rule of thumb helps you to make estimates, or guide decisions, based on past progress or similar situations. These tips are often shared among those experiences traditional, personally passed from one generation to the next.
In finance, rules of thumb offer practical advice that suggest amounts of money to save, how much to pay for a home, what kind of investment is best for your portfolio and many other advice related to money. They suggest how much an individual should save for retirement. They may tell how much to pay for a home based on the amount of money an individual makes each month.
While rules of thumb offer general advice, they don’t always provide the best solution for a particular individual. Nobody can predict the future, so there’s no guarantee that any rule of thumb is always completely accurate. For example, a rule of thumb can suggest that 2.5 times a monthly income is a good amount to pay for a house. But what if an individual lives in an area with much higher housing costs?
Rules of thumb can provide a good place to start, however they should not overshadow an individual’s personal needs. Factors such as age, health, personal investments and retirement plans should also be taken into account before making a final decision. Everyone will have to make their own decisions in the end, and that’s why evaluating everything and getting professional advice is needed to make the best choices for their financial futures.