17 money rules of thumb

MSNMoney’s financial columnist Liz Pulliam Weston has 16 favorite money rules of thumb. She says if you follow them, your finances and nerves will be in pretty good shape.

They are:

1. Retirement, Part I: Save 10% for basics, 15% for comfort, 20% to escape.
2. Retirement, Part II: Retirement money is for retirement. Until then, keep your mitts off it.
3. Student loans: Your total borrowing shouldn’t exceed what you expect to make your first year out of school.
4. College savings: Saving for retirement is more important, but try to put at least $25 a month per kid in a college savings plan.
5. Cars, Part I: Buy used and drive it for at least 10 years.
6. Cars, Part II: If you must borrow to buy a car, follow the 20/4/10 rule.
7. Cars, Part III: To compute and compare the real monthly cost to buy, insure and operate a car, double the price tag and divide by 60.
8. Credit cards: If you carry a balance, look for the lowest rate. If you don’t, get rewards at least equal to 1.5% of what you spend.
9. Debt repayment: Pay off maxed-out cards first.
10. Financial flexibility: You need to be able to get your hands on cash or credit equal to three months’ worth of expenses.
11. Insurance: Cover yourself for catastrophic expenses, not the stuff you can cover out of pocket.
12. Life insurance: Those who need it typically need five to 10 times their income.
13. Mortgages, Part I. If you can’t afford to buy the house using a 30-year fixed-rate mortgage, you can’t afford the house.
14. Mortgages, Part II. Fix the rate for at least as long as you plan to be in the home.
15. Mortgages, Part III: You almost certainly have better things to do with your money than prepay a low-rate, deductible mortgage.
16. Priorities: Retirement, then credit cards, then emergency fund.

Weston elaborates on each of these guidelines here.

I want to add my own rule as #17: Don’t mess with taxes, literally.

If you have a tax bill, pay it off. If you can’t come up with the lump sum to satisfy the IRS, you have options. But you definitely do not want to be on Uncle Sam’s deadbeat list.

And to make sure that you don’t have an insurmountable tax bill, do some tax planning throughout the year.

Taxes shouldn’t be the guiding force behind your every financial move — yes, I just said that — but you need to know the role they play in your personal financial situation so that you can plan for and, in many cases, maximize any advantages that the tax laws might offer.