OK, fine. Just do this.

If you ask me any financial planning question, my answer will almost always be “It depends.” This is not just because I was an economist in my past life, a profession renowned for its on-the-other-hand-ness. For people who just want to know what the F they should be doing with their money and if they are making good decisions, this lack of precision is frustrating.

Thus enters well-trod financial planning rules of thumb, upon which many an AI-generated answer is based. And you know, I’m (kinda) here for it.

If you ask me for advice, I am going to respond with a million or more probing follow-up questions upon which I will provide a well-considered, nuanced, and personalized response. A bespoke plan tailored to your individual circumstances and idiosyncrasies. That’s what separates me from a bot. But yes, if you want me to just get to the point already, there are popular financial planning rules of thumb that are at least worthy starting points.

Save 15% of your salary for retirement.

What I like about this rule. This rule of thumb is based on academic research. It posits that if you save this percentage of your gross income throughout your entire working career, you should be able to replicate the same(ish) standard of living if you retire in your mid-60s. There certainly are assumptions in the equation that one could quibble with, and it assumes no change in the current Social Security benefit scheme which may cause mockery among Gen Z and millennials. But it’s a good starting point in the conversation.

 Where it fails. The biggest “failure” is that phrase above, “your entire working career.” If you are 50 years old and have not done jack about saving until now, 15% is probably not going to cut it. More generally, if you are within 10 years of retirement — whether early retirement or traditional age — you need to do the math; relying on this “rule” just isn’t good enough. And if you have no cash savings (later rule to follow) and/or credit card debt, that needs to take precedent today.

Spend only 30% of your take-home income on housing.

What I like about this rule. Honestly, I love this rule. I just wish it could be true for more people. The simple truth is that if you are spending much more than this on housing (rent or all-in mortgage payment), you will find it difficult to finance all the other things that you want to do in your life (not the least of which is saving that 15% for retirement). Spending half of your take-home on rent is a recipe for miserableness.

Where it fails. Seattle? San Francisco? New York? Washington, DC? Need I go on? If you live in a high cost of living area, it may simply be unrealistic to abide by this rule. Treat this rule as aspirational as you go house hunting. You may not go down as low as 30%...but can you get to 35%? 40%? Employ this rule as a cautionary threshold.

Keep the equivalent of six months of spending as an emergency fund.

What I like about this rule. First you will see that I wrote “six months” and not three; I am not even entertaining the idea that a three-month emergency fund is adequate these days given the pains of the labor market. As soul-killingly boring as this rule of thumb is, it is the foundation of any credible financial plan. You cannot comfortably progress on any other goal with the threat of going bust hanging over your head.

Where it fails. It’s a big number that many will find daunting and will simply give up. And it may not even be a big enough number depending on your individual circumstances. For example, a single-income household with large “sticky” financial obligations (like school tuition, daycare expenses, a mortgage) who is a business owner in a volatile industry should carry a larger emergency fund.

In retirement, spend about 4% of your investment portfolio annually.

What I like about this rule. Conceptually, saving for retirement is easy. In short, just do it. But withdrawing your savings is fraught with all kinds of emotions, not the least of which is fear of running out of money. Seemingly every few months someone publishes an article stating that the “4% rule” is either a bit too high or a bit too low. Which is another way of saying that the general idea, that you can spend 4% of your savings each year (adjusting for inflation) over the course of a normal length retirement with little chance of running out of money, is probably broadly correct. The 4% rule takes something that can be complicated (retirement account distributions) and makes it very easy for even the laziest retiree to implement.

Where it fails. I don’t think that the rule fails per se; it is the interpretation of the rule that is often troublesome. It need not be a straitjacket. Consider it a guidepost; it is an inherently conservative rule. If you are routinely spending only 3% of your savings year in, year out, ask yourself why that is the case. Are you intentionally trying to leave an inheritance? Are you denying yourself life experiences? On the other hand, if you are consistently spending 6%, 7%, 8% of your portfolio over multiple years, you have introduced a very real danger of running through your nest egg too soon. Now, if Social Security, a pension, and/or other type of annuity already cover your must-have expenses, you may not be at all troubled by this. (Don’t forget long term care though.) But if not, you may very well be on track for a problem.

Spend .01% of your net worth without worry.

What I like about this rule. This is perhaps not a rule yet; it only just appeared in a recent Wall Street Journal article, from author Nick Magiulli. Magiulli posits that when one is torn about treating themselves to that occasional little something extra, calculate .01% of your net worth. For example, if your net worth is $750,000, then any purchase falling below $75 (.01% of $750,000) should not keep you up at night. I have not explored the mathematics behind this rule, but I certainly like the spirit of it. Many super-savers of all income levels needlessly struggle with parting from their money. Yes, I want you to save (see rules above!), but I don’t want you to be miserable.

Where it fails. What is net worth? Assets minus liabilities. But if your assets consist only of your home equity and retirement accounts, then no, I don’t want you to use this rule at all. You have savings to build. Take illiquid assets out of the equation. Consider blithely spending .01% of your current net worth (cash savings minus credit card debt, for example).

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