Personal Finance 

Money’s 25 Rules To Grow To Rich By

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Money has a valuable little series called 25 Rules to Grow Rich By that I’ve been reading through and my only complaint is that each rule is devoted to its own page and that you can’t see all of them (or at least maybe a 1 – 5, 6 – 10, etc) on one page so you can pick which one you want to read. So, since I am such a proletariat, I’ve done just that (with links) below:

FYI, the category headings are my own, I take full responsibility for inaccuracies. 🙂

    Home Ownership, Mortgages, and Debt

  1. For return on investment, the best home renovation is to upgrade an old bathroom. Kitchens come in second. [link]
  2. It’s worth refinancing your mortgage when you can cut your interest rate by at least one point. [link]
  3. Spend no more than 2 1/2 times your income on a home. For a down payment, it’s best to come up with at least 20%. [link]
  4. Your total housing payments should not exceed 28% of your gross income. Total debt payments should come in under 36%. [link]
  5. Never hire a roofer, driveway paver or chimney sweep who is going door to door. [link]
  6. Retirement & Investments

  7. All else being equal, the best place to invest is a 401(k). Once you’ve earned the full company match, max out a Roth IRA. Still have money to invest? Put more in your 401(k) or a traditional IRA. [link]
  8. To figure out what percentage of your money should be in stocks, subtract your age from 120. [link]
  9. Invest no more than 10% of your portfolio in your company stock – or any single company’s stock, for that matter. [link]
  10. The most you should pay in annual fees for a mutual fund is 1% for a large-company stock fund, 1.3% for any other type of stock fund and 0.6% for a U.S. bond fund. [link]
  11. Aim to build a retirement nest egg that is 25 times the annual investment income you need. [link]
  12. If you don’t understand how an investment works, don’t buy it. [link]
  13. Saving for Emergencies, College Education, Everything.

  14. If you’re not saving 10% of your salary, you aren’t saving enough. [link]
  15. Keep three months’ worth of living expenses in a bank savings account or a high-yield money-market fund for emergencies. If you have kids or rely on one income, make it six months’. [link]
  16. Aim to accumulate enough money to pay for a third of your kids’ college costs. You can borrow the rest or use some of your income to help out when your child is in college. [link]
  17. Insurance

  18. You need enough life insurance to replace at least five years of your salary – as much as 10 years if you have several young children or significant debts. [link]
  19. When you buy insurance, choose the highest deductible you can afford. It’s the easiest way to lower your premium. [link]
  20. Credit

  21. The best credit card is a no-fee rewards card that you pay in full every month. But if you carry a balance, high-interest rates will wipe out the benefits. [link]
  22. The best way to improve your credit score is to pay bills on time and to borrow no more than 30% of your available credit. [link]
  23. Anyone who calls or e-mails you asking for your Social Security number or information about your bank or credit card account is a scam artist. [link]
  24. Buying Stuff

  25. The best way to save money on a car is to buy a late-model used car and drive it until it’s junk. A car loses 30% of its value in the first year. [link]
  26. Lease a new car or truck only if you plan to replace it within two or three years. [link]
  27. Resist the urge to buy the latest computer or other gadget as soon as it comes out. Wait three months and the price will be lower. [link]
  28. Buy airline tickets early because the cheapest fares are snapped up first. Most seats go on sale 11 months in advance. [link]
  29. Don’t redeem frequent flier miles unless you can get more than a dollar’s worth of air fare or other stuff for every 100 miles you spend. [link]
  30. When you shop for electronics, don’t pay for an extended warranty. One exception: It’s a laptop and the warranty is from the manufacturer. [link]
{ 8 comments, please add your thoughts now! }

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8 Responses to “Money’s 25 Rules To Grow To Rich By”

  1. Paul says:

    Rules 3 and 4 do not appear to be consistent to me. Consider someone making $80,000 a year. The 2.5 times income rule suggests that he should not purchase a home greater than $200,000. The 28% of gross income suggests that he can spend on Principle, interest, taxes and insurance up to $1866 a month. Depending on local tax and insurance rates, the 28% rule would allow someone to purchase a home more significantly more expensive than $200,000 at a mortgage rate of approximately 6.0%.
    It is worth doing the math in any event as I do not think that 2.5 x rule is helpful.

  2. jim says:

    I saw that too (plus the fact that the 2.5 times income rule is unreasonable in most metropolitan areas, I own a house that far exceeds 2.5 times my income) and I think that’s because all those rules are more like “rules of thumb” to be taken independently, not necessarily simultaneously.

    Rules 20 and 21 are a little incongruous in that one recommends buying a junker and the other says that you should lease if you plan to own a new car fewer than three years – which would be choices made by individuals with very different financial mentalities.

    That’s how I approached this list anyway…

  3. prlinkbiz says:

    Rule 26. These rules were made up by people who are not rich, so break them all. When everyone goes right, go left.

  4. Steve says:

    The rule on saving is key!!!

  5. What an excellent resource. I need to follow more of them. One of my main concerns if the future of my family so I will need to look closer at the 15 and 16. I also realise that it is so important to have a safety net. Just in case. The 6 months is an excellent buffer.

  6. Great Advice for the rest of us. Most of us will be able to follow at least some of these rules some of the time. Especially relevant for me is 15, 16 because I have a young family and I am a bit older. Their welfare is very important to me so I need to be mindful of how I look after them.

  7. Greg says:

    I have to disagree with 25. On flat-panel TVs, the best thing you can do is to buy an extended service plan (ESP). Even Consumer Reports thinks so. The high cost of repairing these items alone makes it worth the extra $100-$300 or so.

    If you have an LCD tv, and something goes wrong with the pixels 13 months after you buy it, you’re screwed because it requires replacing the entire screen.

    I work for a regional electronics retailer, and I have seen case after case of people who get angry because their new tv doesn’t work and the manufacturer’s warranty expired a few months ago.

    Always, always, buy the ESP on a new flat panel tv.

  8. Matt says:

    I’d say the 2.5 times income rule is way too restrictive. If you have the means (within the 28/35 rule, and frankly I think making even that one absolute is a mistake…if you have no _other_ debt, it’s fine to spend more than 28% on servicing a mortgage), then go ahead and buy the house.

    Thanks to my fiancee’s inheritance, we put down 60% of the purchase price of our house, and I don’t consider it a remotely bad purchase, despite the fact that it costs way more than 2.5 times my annual income (and indeed the payments are more than 28% of my monthly income…but it’s my only debt, and well below 35%).

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