Legit or Bull-sh*t: Akon's 10 Percent Rule
- Thread starter Guvnor
- Start date
It's a rule to follow if you're not good budgeting and/or have a habit of overspending. The key piece if information in there was understanding interest rates and the lifetime cost of a loan. Most people don't do that calculation. Budgeting is important, and when it comes to big ticket items, it's imperative. You have to make sure you've built yourself some breathing space into that monthly payment at a minimum. Ideally you should be factoring in the ability to pay extra on the monthly payment so you can get out from under that debt quicker and pay less interest.
I'm open about my experience. I took out about a $50,000 loan for my car. Ended up with about a $900 payment over 60 months, which was right around what I was comfortable paying. I set up the automatic payment for $1150, did I think 2 lump sum payments totalling maybe $15,000, and the final 5 or 6 months I bumped the payment to $2150. Ended up paying the car off in slightly over 2 years. It was an expensive but valuable exercise for me. Following that 10% rule, I wouldn't have been able to follow through.
I'm open about my experience. I took out about a $50,000 loan for my car. Ended up with about a $900 payment over 60 months, which was right around what I was comfortable paying. I set up the automatic payment for $1150, did I think 2 lump sum payments totalling maybe $15,000, and the final 5 or 6 months I bumped the payment to $2150. Ended up paying the car off in slightly over 2 years. It was an expensive but valuable exercise for me. Following that 10% rule, I wouldn't have been able to follow through.
Guvnor
Da Speculative Spectacle®
Interesting I'm at work so haven't had a time to really sit with what you're saying here but I have a question.
How much of someone's total paycheck ideally should go towards investments, say index funds and I'm talking aside from a 401k/Ira. Let's say for the 401k I put 5 percent of my check. How much should I put into an index fun.
I don't really have an answer for that honestly. I'm still trying to get in a regular habit of investing each month outside of a 401k. My instinct is to say as much as you can (and are willing to) without letting it impact your normal lifestyle. If you have another 5% left over, I think that's a good start.
Pretty much this. I have 5% pre-tax going into the 401K then 10% post-tax in my company ESPP. The ESPP program acts as my main investment acct for the time being since I can buy company stock at a big discount.
I still throw about $100 each check to the Roth and regular brokerage. I don't do too much in the Roth and brokerage since the 401K with company match solves my retirement savings and the ESPP is my main investment vehicle at the moment. When I leave the company that 10% post-tax I'll switch to the regular brokerage.
Ideally, I believe it's everything left over after you account for fixed costs, debt and discretionary spending. Your money goes further in a retirement account because it can grow tax free, but you can't touch the money for so long in the majority of scenarios.
Here are two rule of thumbs of where to prioritize your money. From there, you can see if you should have $$$ left over for an Index fund.
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