How Useful Are Financial Rules of Thumb?

published 3 January 2008

Making financial decisions often involves a lot of "on the one hand, on the other hand." But sometimes you just want a fast answer -- a simple guideline to point you in the right direction.

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That's where rules of thumb come in: They aim to break down a complex financial choice into a quick one-liner. You know, "Never spend more than 36% of your income on housing," for example, or "pay off debt with the highest interest rate first."

They may be touted as gospel truth, but when it comes to money rules of thumb, some are more helpful than others. Many are time-tested words of wisdom that set you on the right path. Others are downright wrong and could wind up costing you, no matter how well-meaning the giver of advice. The misleading guidelines may be outdated, impractical or simply a misunderstanding. The trick is evaluating these oft-quoted principles to see if they make sense for your personal situation.

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Just how useful are the financial rules of thumb? We've pulled together a QUIZ to see if you can sort the most truthful advice from the misleading.

Of course, the one solid rule of thumb you can count on is that there is no one-size-fits-all answer to most financial decisions. But if you can zero in on the best rules of thumb, you're one step closer to making good choices with your money.

TAKE OUR QUIZ: Financial Truth or Bunk?

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.