Rules of Thumb (6/13/2025)

Rules of Thumb

Let’s talk about rules of thumb — those quick little formulas or benchmarks that are supposed to guide your money decisions. Some are genuinely helpful. Some are wildly outdated. Some are basically clickbait with a calculator.

This week, I’m breaking down a few of the most common personal finance rules I get asked about — and sharing which ones I think are worth following and which ones should be cancelled. 

💵 Spending & Budgeting

✅ Spend Less Than You Earn

Yes. This rule is basic but powerful. Spending less than you earn is the foundation for every other financial goal. It’s also the only way to give your future self a fighting chance.

❌ The 50/30/20 Rule
This one gets a polite no thanks in my book. The premise is that you budget 50% of your income towards your needs, 30% towards your wants/discretionary spending, and 20% of your income towards your savings.

In reality, very few people’s lives fit neatly into these buckets. High cost of living? Childcare? Student loans? Forget it! And even if you could squeeze your expenses into these categories, I still prefer a more simple 80/20 approach: Put 20% of your income in savings and then you can spend everything else. Let’s not make life harder than it needs to be.

✅ Avoid Lifestyle Inflation
A raise is not a hall pass to spend more. One of the fastest ways to build wealth is to not let your spending increase every time your income does. You may recall my “3 things I wish I knew sooner” edition from back in March when I recounted how I learned this lesson the hard way. Beware of letting your expenses creep up when your income does or you’ll be screwed if your income is disrupted!  

✅ Emergency Fund (3–6 Months of Essentials)
Yes, yes, yes. Another throwback to that March newsletter when I learned this one the hard way. Your cash emergency fund is your buffer against lay-offs, illness, unexpected bills, or life just being full of expensive surprises. Make sure your EF is easily accessible and not invested in the market. 

🧓 Retirement Savings

✅ Save 15% of Your Income Towards Retirement
This is a good one — if you can swing it, 15% (can include employer contributions) is a great long-term savings target. And if you can’t do 15% right now? That’s okay. Start where you can, and make it a goal to increase it each year. 15% of your income annually throughout your career should generate enough savings and growth for you to maintain your lifestyle in retirement. 

❌ Retirement Savings Benchmarks by Age (Have a retirement balance of 1x annual salary saved by age 30, 3x by age 40, 6x by age 50, etc. )
I hate this one. It oversimplifies retirement readiness and stresses people out unnecessarily. There are so many variables that affect whether those targets are realistic: when you started saving, your career path, how the markets have treated you, and even whether you were lucky enough to have your parents help with the cost of education. As someone who had zero income at age 25 as a full-time grad student racking up student loans, it was impossible to hit these benchmarks. Don’t let these discourage you, just focus on the road ahead. 

❌ The 4% Rule
This one has been around forever — it says you can withdraw 4% of your retirement savings each year and not run out of money. It’s too oversimplified to be helpful, and makes many assumptions about consistent market returns and flat spending, and ignores healthcare costs, lifestyle changes, taxes, etc. If you’re retired or nearing retirement, I recommend avoiding rigid withdrawal rules and finding more flexible strategies that adjust with you, like dynamic spending.

❌ The 25x Rule
This one is also oversimplified. The math: take your annual expenses, multiply by 25, and that’s roughly how much you need saved to retire. So if you spend $60K a year, your target is $1.5M. This rule does help anchor retirement savings goals to your lifestyle instead of your income, but does not take into consideration what your retirement income sources or other assets may be. Proceed with caution here. 

✅ The 80% Rule
This one I can get behind. The idea is that you’ll need about 80% (between 70-90%) of your pre-retirement income to maintain your lifestyle in retirement. That assumes your taxes might go down a bit, you won’t be saving for retirement anymore, and your lifestyle might simplify a little. It’s not perfect, but it’s a great starting point when planning for the long run. 

Final Thoughts

Rules of thumb can be a great starting point — but they’re not commandments. Your financial life is too personal and too dynamic to be boiled down to an instagram post.

If any of these rules have left you feeling overwhelmed, behind, or confused about where you stand, let’s talk. These rules shouldn’t stress you out — they’re just tools. You are not behind. You are not doing it wrong. And it’s never too late to build something better.

Rules of Thumb

Save 15% of your income annually to maintain same lifestyle

The 4% Rule

25x Rule

70-80%-90 Rule

Spending & Budgeting

• Spend less than you earn (like)

• 50/30/20 rule (don’t like)

• Avoid Lifestyle Inflation (like)

• Emergency Fund (keep 3-6 months of essential expenses) (like)

Retirement Savings

• Save 15% of your income annually (like) 

• Benchmark by Age (@ 30 1x salary, @ 40 3x salary, @ 50 6x salary)  (hate)

• 60, 8x, 67 10x

• 4% rule (don’t like)

• 25x Rule (like) 

• 80% Rule (like)