5 rules of thumb from Fidelity

Avoid a fumble: Consider keeping these financial rules of thumb in your lineup.

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Key takeaways

  • Using a rule of thumb can help you estimate important figures in your financial life.
  • Fidelity has rules of thumb for budgeting, saving for college, saving for retirement, and buying a house.

Quarterbacking your financial life requires a good playbook and discipline. You can't possibly know everything that's likely to get thrown at you. But some clear rules of the game can help you move the ball down the field.

Since you're the QB of your financial life, consider these rules of thumb for 4 common goals: budgeting, saving for college, saving for retirement, and buying a house. These are a great way to get started thinking about budgeting and your spending and saving. There's no one size fits all answer here but you can use the guidelines to get started and then tailor them to fit your situation, goals, and financial needs.

How much can I spend?

Your budget is essentially a spending and saving game plan. The reality is that few people make or follow a detailed budget. Still, you can keep the ball moving down the field by following our simple 50/15/5 rule of thumb.

  • Think about allocating 50% of take-home pay to necessities (housing, medical care, debt payments, transportation, and food).
  • Strive to contribute 15% of your pretax income to retirement savings—that includes your contributions and any contribution you may get from your employer.
  • Consider allocating 5% of take-home pay to a savings account to cover unexpected and one-off expenses like traveling to a wedding or replacing your dishwasher.

Anything that's left over can be saved for other goals or spent on fun activities.

Read Viewpoints on Fidelity.com: 50/15/5: a saving and spending rule of thumb

How much do I need to save for retirement?

To get to your retirement end zone, aim to have saved 10 times your salary by retirement, assuming you retire at age 67. The best way to reach that goal is to save consistently throughout your life.

So we've come up with some age-based goal posts. Simply multiply your income at certain ages by your savings factor to see how much you should aim to have saved by that point.

10x retirement rule1


By age Save
30 1x your salary at age 30
35 2x salary at 35
40 3x salary at 40
45 4x salary at 45
50 6x salary at 50
55 7x salary at 55
60 8x salary at 60
67 10x salary at 67
See footnote number 1 at the end of the article for more details.

Not there yet? No worries. Even saving just a little bit more now can have a dramatic impact on the amount of money you end up with in retirement.

Read Viewpoints on Fidelity.com: How much do I need to save for retirement?

How much should I save each year for retirement?

A winning season in football doesn't happen by accident; it takes a long-term strategy and a clear goal. So does getting to retirement.

To improve your odds of retiring with enough money to last through your retirement years—assuming a retirement age of 67—we suggest saving at least 15% of your pretax income2 each year from age 25 to age 67. While 15% may seem like a lot, if you have a 401(k) or other workplace retirement account with an employer match or profit sharing, that counts toward your annual savings rate.

Of course, 15% is just a guideline. Your annual savings rate may be higher or lower depending on when you start saving, when you want to retire, how you invest, and how you want to live in retirement.

Read Viewpoints on Fidelity.com: How much should I save each year?

Am I saving enough for college?

Saving for your children's college education while saving for your own retirement can feel like a running back rushing for 1,000 yards in a single season. It is not an easy thing to do.

Even while you're putting money away, it can be hard to know if you're saving enough. Consider this simple rule of thumb to see if your college savings are on track.

We call it the college savings 2K rule of thumb.3 Simply multiply your child's current age by $2,000. This amount can show you whether your college savings to date are generally on track to cover 50% of the cost of attending a 4-year public college.

Read Viewpoints on Fidelity.com: Are your college savings on track?

How much house can you afford?

Buying your first home may feel like kicking a 50-yard field goal in the last seconds of an important game—it's a tremendous feeling of accomplishment and pride. To make sure that feeling doesn't get overwhelmed by stress about housing payments, it's important to buy a house that fits your budget.

To get an idea of how much house you can afford, try this rule of thumb.

First, save an amount equal to your annual income. This should cover your down payment and the other expenses associated with buying a house.

For most people who don't have much debt, buying a home that costs about 4 times their annual income can be a good fit. If you've saved up one year's salary, that should provide you with a 20% down payment.

If you have some debt, dial the purchase price of a home back to 3 times your annual income.

If you're completely debt-free, you can consider a home that is up to 5 times your annual income—once you've saved enough for a 20% down payment and have solid cash reserves in an emergency fund.4

Read Viewpoints on Fidelity.com: How much house can I afford?

Finances are complicated and it can be overwhelming to delve into details. Employing a good mix of offense and defense is generally a good strategy. Using a rule of thumb as a shortcut can help you get a quick read on the situation. Then you can decide if your savings are on target or if you need to correct course to get on the right path.

Next steps to consider

Fidelity Go® is an easy, affordable way to get professional money management.

Get your Fidelity Retirement ScoreSM—a credit score for retirement.

This small percentage can add up to a lot in retirement.

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