A Nomad Life自由旅居: 7 Money Rules I Used to Save My First $100K Before 25

Unlock financial freedom with these 7 Money Rules! This summary dives into actionable strategies, from budgeting to investing, inspired by the FIRE (Financial Independence, Retire Early) movement. Learn how to manage your money effectively and build wealth for the future.

Quick Takeaways:

50-30-20 Rule: Allocate your income to needs (50%), wants (30%), and savings/debt repayment (20%). Consider lowering "needs" percentage to accelerate savings.
4% Rule: Aim to withdraw only 4% of your investment portfolio annually in retirement to ensure your capital lasts. Factor in inflation and adjust based on risk tolerance.
Emergency Fund: Maintain 3-12 months of living expenses in a readily accessible, low-risk account.
Two Times Investing Rule: For every discretionary purchase, invest a matching amount.
Three Times Rent Rule: Limit rent to one-third (or less) of your income.
20-10-4 Rule: When buying a car, put down at least 20%, finance for no more than 4 years, and ensure payments don't exceed 10% of your income.
Rule of 72: Divide 72 by your investment's annual rate of return to estimate how many years it will take to double.

The 7 Money Rules for Financial Freedom

This article outlines seven key money rules that can help you achieve financial independence and reduce your reliance on labor-intensive income. These rules, applicable regardless of age, provide a framework for budgeting, saving, and investing.

Rule #1: The 50-30-20 Rule

This rule advocates allocating your income based on needs, wants, and financial goals.

Needs (50%): This covers essential expenses like food, housing (rent/mortgage), and transportation. It's crucial to keep this percentage as low as possible.
Wants (30%): This includes non-essential items such as vacations, new clothes, or upgrading to a newer car or phone.
Goals (20%): This portion is dedicated to savings, investments, and debt repayment.

It's important to avoid inflating your "wants" proportionally with income increases. Aim to save at least 50% of your income each month to accelerate wealth accumulation.

Rule #2: The 4% Rule

This rule is a cornerstone of the FIRE (Financial Independence, Retire Early) movement. It suggests that you can withdraw 4% of your total savings each year without depleting your capital. This rule accounts for inflation, considering the historical growth of the S&P 500. To enhance safety, especially during market downturns, maintain a cash reserve of 6-12 months' worth of living expenses. This allows you to avoid selling investments during market dips and protects your overall portfolio. A more conservative withdrawal rate of 3.5% might be suitable based on individual risk tolerance.

Rule #3: Emergency Fund (3-6 Months)

Building an emergency fund is crucial for financial security. Aim to save 3-6 months' worth of living expenses in a highly liquid, low-risk account. As responsibilities grow (e.g., having children), increase this to 6-12 months. This fund serves as a safety net during job loss, unexpected expenses, or company restructuring, preventing the need for high-interest loans.

Rule #4: The Two Times Investing Rule

Whenever you are tempted to make a discretionary purchase (something you want but don't need), invest an equal amount of money into your investment assets. This rule serves two purposes: it curbs impulsive spending and emphasizes the long-term potential of investing. The short-term gratification of buying something can be replaced with the potential for doubled returns in the future, which can help to lower initial consumption spending.

Rule #5: The Three Times Rent Rule

Limit your rental expenses to a maximum of one-third of your income. Aim to reduce this ratio to one-fourth or even one-fifth as your income increases. Lower rent allows for more significant savings. Strategies to reduce rent include:

Sharing accommodation with roommates.
Renting out spare rooms in your apartment.
Living further from the city center where rent is lower.

Consider the trade-off between commute time and lower rent. Using commute time effectively can offset the distance.

Rule #6: The 20-4-10 Rule (for Car Purchases)

This rule applies specifically to car purchases made with loans.

20% Down Payment: Pay at least 20% of the car's price upfront.
4-Year Loan Term: Limit the loan repayment period to a maximum of four years.
10% of Income: Ensure that monthly car loan payments do not exceed 10% of your total monthly income.

Since cars are depreciating assets, avoiding loans is ideal. Car dealerships often offer incentives for taking out loans because they earn commissions on the loan itself. Always calculate the annual rate of a car loan to avoid high-interest traps. Leasing, while seemingly attractive, is generally not cost-effective due to the artificially low residual value assigned to the vehicle. Consider delaying car ownership, especially in cities with developed public transportation. Frequent car changes lead to high depreciation costs. Consider buying used or keeping the car for a long period of time to mitigate costs. In addition to cars, avoid overspending on depreciating assets such as decoration.

Rule #7: The Rule of 72

This rule provides a quick estimate of how long it takes for an investment to double. Divide 72 by the annual rate of return on your investment to determine the approximate number of years required for your investment to double. For example, a 10% annual return means your investment will double in approximately 7.2 years (72 / 10 = 7.2).