While financial planning has a lot of numbers involved, here are a few letters and abbreviations you should know, too. Eric explains several common financial abbreviations.

You may have heard of at least one if not all of these financial rules, but should you follow them? What do they really mean? On today’s episode of the podcast, we talk through four common rules of thumb when it comes to financial planning and what Eric advises about them.

The Rule of 100 is a planning rule that comes to how much risk you should have in your portfolio. If you subtract your age from 100, the rule goes that’s the amount you have leftover is how much you should have in riskier investments like stocks. But before you assume this rule always applies, it’s important to consider your unique situation. This might be a good conversation starter though with your financial advisor.

The 75 percent rule is a rule a lot of planners use to consider how much of your income you’ll need in retirement. While you’re working, things come out of your check, such as retirement contributions, Medicare, and Social Security. The amount of money you need in retirement might better resemble your net income when working. What does it take for you to live?

The six months savings rule is set to protect you when you’re working in case of job loss or unexpected emergencies. How liquid does this money need to be? Liquidity isn’t only the money in the bank.

What is the 4 percent rule and is it a good one? This was originally designed by a financial advisor, William Bengen, in California in the 1990s. He found that 4 percent should last you about 25 years in retirement. The thing is, will retirement only be 25 years? Morningstar did a review of this to see if it still holds up and at what probability of success. The new rate of withdrawal they came up with was 2.2 percent.

Do you have strategies in place to get you in the income you need and protect it?

Listen to the entire episode or use the timestamps below to skip to a particular rule.

[1:51] – What’s the Rule of 100?

[3:03] – The 75 percent rule means what?

[4:50] – Do you need six months in savings?

[8:01] – Should you use the 4 percent rule?