Financial planning often is too complicated, and personal, to rely on generalizations. Still, certain rules of thumb that are easy to grasp can provide insight when it comes to saving, investing, debt and more.
But are they worthwhile and even realistic? That depends. Here are some common examples:
Buy homes worth no more than 2.5 times what you earn
There are various rules of thumb related to housing. If you’re looking to make a purchase, this one suggests that you shop for dwellings priced no more than 2.5 times your annual income. So if you earn $100,000 annually, you would look for homes in the $250,000 price range.
This rule is simplistic, as a lot of factors other than price factor into the equation, such as how much you need to borrow, what your monthly expenses will total, whether you could deduct housing costs on your tax return and whether you have other assets on the side. It also ignores the level of interest rates and thus mortgage costs.