Happy New Year! If you’re seeking a bit of financial motivation, here are five wealth planning questions that can be addressed with simple “rules of thumb.” They may spark discussions about wealth management, budgeting or family and estate planning — and might even inspire better financial choices for you or your family members:

1. How long will it take for my investments to grow?

The Rule of 72: In the investing world, the Rule of 72 is used as a simple way to estimate the time it takes to double an investment based on a constant rate of return. Dividing the number 72 by this rate of return determines the approximate number of years it would take to double. For example, for a 6 percent rate of return, it would take approximately 72÷6, or 12 years. This rule serves as a reminder of the power of compounding and the importance of staying invested for the long term. At a rate of return of 6 percent, even if you’ve reached the respected age of 70, based on the average life expectancy you’re likely to see your funds double — and twice still if you become a centenarian!

2. Am I on track with my wealth accumulation?

The Net-Worth Indicator: This measure, developed by the authors of “The Millionaire Next Door,” estimates expected net worth based on household income. Multiply your age by your pre-tax annual household income (excluding inheritances) and divide by ten. This result is your expected net worth. If your actual net worth is more than twice this figure, you are considered a “prodigious accumulator” of wealth; if it is below, you are considered an “under-accumulator.”

3. What portion of my budget should go toward saving?

The 50-30-20 Budgeting Rule: This rule divides after-tax income into three buckets: 50 percent to “needs,” 30 percent to “wants” and 20 percent to “savings.” Needs include essentials like housing, utilities, food, transportation, healthcare and childcare. Wants are non-essentials, like memberships, entertainment and hobbies. Savings include investment and debt repayment. If you hold debt, it may be wise to allocate more to repayment, given higher borrowing costs.

4. How much of my income should go toward housing?

The “Rule of 30” for Home Purchases: In the past, a general rule of thumb suggested the price of your home should be no more than three times your annual gross income. However, with skyrocketing housing prices, this rule of thumb may be largely outdated. Instead, the “Rule of 30” suggests limiting total annual housing costs (mortgage payments, insurance, property taxes, maintenance, etc.) to 30 percent of gross income. This guideline helps frame a purchase decision, especially for younger buyers, to avoid the risk of financial strain or vulnerability in the event of unexpected changes.

5. When should I be having discussions with elderly parents?

The 40/70 Rule for Aging: This simple rule of thumb encourages discussions about aging-related matters, suggesting that these conversations should begin between adult children and aging parents once the child reaches the age of 40 or the parents turn 70. By having these conversations early — while parents are still healthy and capable — families can address topics like future care, living arrangements, finances and end-of-life decisions before a crisis arises.

Of course, these rules are informal guidelines designed to offer broad advice and encourage thoughtful planning — they are oversimplified and intended to be general in nature. However, they can serve as helpful starting points and high-level guidance when managing finances and building wealth for the future.

For a deeper discussion on these, or any other aspects of wealth management, please contact the office.

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