I wonder how many of you are great readers. You already know those who can read a book a week or peruse endless data and tips to help them develop a financial plan that will guide them on the path to prosperity.

However, if you’re like most people and don’t have time to read a mountain of books, magazines, and websites (or feel like doing so), this article is for you. It will list the main “rules of thumb” for financial planning.

1. The saving / investing rule:

Pay yourself first: try to set aside at least 10% of your take-home pay

I’m sure you’ve seen this rule of thumb before. I first read it in The Richest Man in Babylon. As you will learn, paying yourself first is the most important bill you will pay each month.

The best way to implement this rule is to make it automatic. Have 10% of your take-home pay withdrawn from your paycheck and deposited into a separate bank account. If your employer does not allow you to do this, simply set up a transfer between your main account and your account for “ten percent” equal to ten percent of your paycheck.

If you already have a well-funded emergency fund and your short-term goals have been funded, you could funnel all 10 percent into a retirement plan. Of course, if you set aside 10% in your retirement plan, you will be contributing before taxes, which is more than 10% after taxes.

2. The empirical rule of short-term debt:

The so-called “bad” debt should not represent more than 20% of your income

Short-term debt includes your auto and student loans, as well as your credit cards and other forms of debt. Basically everything except your mortgage. You must list all your outstanding liabilities and their respective minimum / monthly payments. Now add up the minimum / monthly payment amounts and you will get a figure.

Take this number and divide it into your monthly net salary.

If the result is more than 20%, it means that you have too much revolving debt. Newcomers to the workforce or recent graduates often have a higher debt-to-income ratio due to their student loans and low-paying entry-level jobs.

Compulsive spenders also have a problem because they spend every dollar they earn.

You should aim to allocate at least 20% of your take-home pay to pay your outstanding debts. If you stop increasing your short-term debts today, you will find that you can pay off most of your short-term debts in 3-7 years.

3. The empirical rule of the cost of housing:

You must spend less than 36% of your monthly salary on housing

This general rule of thumb is primarily for homeowners, but if you rent and spend more than 36% of your monthly rental payment, you’re living in New York or San Francisco and it’s time to find a new place. Either that or find another roommate.

Why 36%?

Well, banks like to see that the cost of your monthly mortgage payment, taxes, insurance, and utilities won’t put an undue strain on your finances.

In short, they calculate the cost of living in your home and know that if it exceeds 36% of your housing costs, you have probably bitten off more than you can chew.

Regardless of what your current percentages are, try to lower these percentages over time. Just because a bank is willing to lend you up to 28 percent of your gross monthly income doesn’t mean you need to borrow that much money to buy a home.

The less money you borrow, the faster you can pay it back and the higher your monthly cash flow (because you’re spending less on your mortgage). The less you spend monthly, the more you will have to invest for your future.

4. The golden rule of retirement:

You need to save approximately 20 times your gross annual income to retire

There are tons of calculators and spreadsheets on the internet (I have one too) that you can use to figure out how much you will need to retire. I’ve never come across anyone who has the patience to complete one of these and it only takes two minutes to complete! The solution is what author Robert Sheard calls the twenty-factor model.

Basically the formula is:

Financial independence = annual income requirement X 20

The formula is based on two centuries of stock market performance and the actual rate of return (5% per year) that you can expect to earn after taxes, expenses, and inflation.

If you have 20 times your annual income requirement, it means that with the prescribed withdrawal rate of 5% per year on your savings and the expected annual net return on your investments of 5%, you will never run out of money.

Now, isn’t it a lot easier to multiply your gross income by 20 than to fill out one of those online calculators? I thought so. Let’s go.

5. The golden rule of insurance:

You must have a policy equal to at least five to eight times your annual income at a minimum.

Some planners even suggest more than five to eight times your annual income as the level of coverage you should have. My suggestion is that you get your financial house in order, which means gathering your net worth and cash flow statement, and talking to a good insurance agent about your needs.

He or she will be able to guide you through the various options. As with a financial planner, ask how they are compensated so that you are honest with the advice they are giving you.

Keep in mind that this factor or rule of thumb could be much higher, depending on how many years of income you will have to replace. The highest “factor” I’ve seen is multiplying your annual after-tax income by 20.

Interestingly, it is the same as the rule of thumb above. Here it is not a coincidence. If you died and you wanted to make sure your dependents would continue to receive exactly what you brought home each month, they would have to completely replace your income forever. According to the twenty-factor model, it will be enough to have an insurance policy with at least 20 times your annual income.

6. The rule of thumb for charity:

Give away at least 10% of your take home pay each month.

Most of us think that there is not enough money for everyone. We live in a state of scarcity rather than a state of abundance. We believe that if we give away ten percent of our income each year, we will not be able to make ends meet and we will not be able to afford a decent retirement.

I understand the fears, but if you apply the five rules of thumb above, you shouldn’t have to worry too much about making ends meet. Let me explain.

The journalist Scott Burns, in his article titled “Take a look at the returns” made an analysis of the amount of money you would need to save so that you do not run out of money when we die, assuming we retire at 65. The bottom line was that we would have to save 34 percent of our income if we plan to live another 20 years after we retire. The analysis assumed that we would not get any return on our investments.

But you will gain something from your investments, right? Of course you will. Burns goes on to show that the higher your return on investment, the less you will have to save.

The 34 percent of income young people need to save today if they don’t get any returns falls to 25 percent if they get the historical real yield of 2 percent on bonds.

It drops to 15 percent if they get the actual 5 percent return that a 60/40 equity / bond portfolio is likely to get.

It plummets to 9 percent of earnings if they get the 7 percent actual return on common stock.

You are already setting aside 10% of your money (general rule of Pay yourself first) and once you pay off your short-term debts, you will have an additional 20% of your salary free to invest wisely. In reality, if you are setting aside tax-deferred money, you are setting aside more than 10% of your take-home pay each pay period, but why split your hairs?

In short, you have more than you think.

Give a little gift and see what little impact it will have on your standard of living. Of course you will feel better about yourself and help others in the process. No wonder it’s my favorite rule of thumb.