The Only Financial Rule of Thumb You’ll Ever Need

“The money is in the banana stand.”

Perhaps you are someone who makes a significant income each year or maybe you don't, either way, chances are the money isn't in the banana stand for you.

If you've never seen Arrested Development do yourself a favor and watch season 1 ASAP, but most likely, most of your money is actually in your housing, transportation, and food allocations each month.

Now you might be saying, “Yeah, duh..,” but just bear with me.

In my article on creating more financial awareness, the top priority I stress for everyone regardless of where they're at in life is to always view money as a percentage.

Viewing money at a percentage is the only financial rule of thumb you will ever need, here is what I mean…

Money is a percentage game.

financial rule of thumb

What do an NFL quarterback and an MLB hitter have in common?

If the quarterback can complete 65% (PERCENT) of their passes and the hitter can hit 300 (30 PERCENT) they can have long prosperous careers that generate millions.

BUT if they dip down and only start completing 55% of their passes or hitting just 23% of the pitches they see, the chances of even seeing the field are greatly diminished.

In other words, completing just 10 fewer passes or hitting 7 fewer balls out of 100 are the separators to making millions.

percentage rule of thumb

The emphasis is on the percentage because it is the great equalizer and truth be told, your finances are no different. Grasping money in terms of percentage instead of numerically is the only financial rule of thumb you will ever need to follow.

Percentage… the best financial rule of thumb ever!

Personally, I didn't really grasp the “Money as a percentage” concept until I read Grant Sabatier's book Financial Freedom – A Proven Path to All the Money You Will Ever Need, in the spring of 2019.

I had actually heard a very wealthy individual say one time that the best advice he got when he was young was to never let your annual mortgage payments exceed 25% of your monthly take home.

At the time I had no clue really what the individual meant by that, but after reading Financial Freedom, I began to understand the true meaning of viewing money by percent – not numerically. Here is how simple the concept is:

Let's say you and I walk into the same grocery store to buy some cereal…

  1. You go with the Honeynut Cheerios for $3.64
  2. I go with the store brand Honey-O's for $2.09
  3. I save $1.55, you get a little bit better-tasting cereal

But at the end of the day, it's just a $1.55 right?


The name brand cereal was a whopping 55% more than the store brand cereal. And that my friends is the trick to making sure you always control money.

Viewing money in percentage instead of the numerical value is not only a simple concept, but it is also the only financial rule of thumb you will ever need.

The playing field is level when you view everything in percentage.

Average Household Spending

Sabatier refers to this concept as “The only budget you will ever need.”

Essentially if you can reduce your percentages, or allocate more money to other areas such as saving more each month, you won't need to count every penny or even have a budget for that matter.

However, that first starts with recognizing where most adults' money goes (According to the United States Bureau of Labor Statistics 2016):

Insurance & Retirement$6,83112%
Health Care$4,6128%
All Others$10,70018%

Note: The “All Others” category consisted of entertainment, charity/gifts, apparel/services, and any other expenditure, each ranging from 3-7%.

As you can see, the chart quickly reveals some areas of concern:

  1. The average adult is spending 49%, call it 1 out of every $2 of their money on a house & cars.
  2. The roof over your head, the car you drive and the food in your belly accounts for $6 of every $10 you make.
  3. Between housing, transportation, food & insurance/retirement, 75% of the money is accounted for each month.
  4. A 25% savings goal has never been harder to reach (but is still possible), hence why Americans are saving less than 3% each year.

While this should be eye-opening, the conventional way of looking at money wouldn't expose these same truths.

But if that is the case, and simple math is the trick to most money issues, the question remains… how much should you be committing to each expenditure/spending category monthly?

Allocate your money appropriately!

In 2014-2015 my finances were tight, but I couldn't understand why.

financial rule of thumb to follow

Late 2014 I had purchased my gas-guzzling, tax eating truck, but the payment was only $430, not bad I thought. Between the truck payment, insurance, personal property taxes, and gas my truck was actually costing me somewhere between $750-$800 per month.

Looking back, it was shocking to realize that nearly 21-22% of my net income each month was going towards just transportation. For every $100 I made, roughly $20 were already accounted for.

Essentially, I had $80 to cover all of my other living expenses all because of one silly financial decision. Yet had I been following the best financial rule of thumb – percentages – I would have easily figured out why my finances were so tight!

Seel Also; Never Buy New Cars

Money percentages to strive for!

One final point as to why percentages are the only financial rule of thumb you will ever need.

If you have ever bought a home you probably remember when you were looking to procure lending there was something that banks wanted to know:

Your debt to income ratio.

In order to determine how much you could afford each month on your home, the prospective lender wanted to see what PERCENT of your money was already accounted for each month.

So if a bank thinks it is important to make sure your percentages line up, maybe it is time you do the same!

1. Net Income Over Gross Income

The first step in making the percentage rule of thumb work is to get away from the conventional thinking of gross income. Corny jokes aside, think of looking at your gross income as just that – gross.

Instead, adopt the mindset of take-home or net income. “I make $100,000,” some will say, but in reality, they bring home closer to $70,000.

Note: The only exception is pretax investments like your 401K. Always take the employer match – it is free money – and be sure to set a goal to allocate 10% of your pretax income to your 401K automatically. Increase it by 1% each month until you reach 10%.

2. Housing Percentage – 25% Net

Most personal finance experts and planners will say 30% of your gross income annually(or monthly) is the appropriate percentage to follow when it comes to housing expenses.

However, 25% of your net income is a better goal to strive for, here is why:

  1. 30% of $100,000 gross would be equal to $30,000 per year or $2,500 per month
  2. 25% of $100,000 after taxes (Approx $72,000 per year) would equal $18,000 per year or $1,500 per month

The difference is a whopping $1,000 per month!!!

3. Transportation 10% <

In 2014 I had 21% of my income going towards my truck after taxes. Today, my wife and I have a combined monthly outgo of 4% with regards to transportation.

Without car payments, are only car expenses come from gas, insurance, and maintenance. The standard financial rule of thumb is to make sure that no more then 10% of your income is going towards your car.

How you do this: When purchasing a car, the purchase price should not exceed 25% of your annual net income. For example, if you bring home $40,000 per year, your car value should be approximately $10,000. Higher is breaking the % rules!

4. Re-work insurance & Cell phone bills

Between cell phone and internet, we spend .018% of our income per month. The same goes for our car and health insurance. However, this is typically not the case for most.

To reduce the amount of money you spend on insurance and communication bills each month, call your providers and re-work your plan. Don't be afraid to spend a Saturday figuring this out and remember other companies want your money, so jump ship if you have to!

This is super easy with apps like Trim that literally do this for you! Download Trim here and start saving money.

5. Stop eating so much

Lastly, after housing and cars, food is the third-largest expenditure for American Adults. No wonder these companies rake in billions each year.

Now that being said, we all have to eat to survive. But you don't have to eat out so often and every meal doesn't have to be 5 Star equality.

Instead of spending 13% of your income towards food each year, set a goal to keep that number under 10% with a goal of reducing it 1% every 6 months. A truly manageable number is approximately 5% depending on family size.

Final Word

Looking at money in terms of percentage is what I like to refer to as “The Great Equalizer.”

The current social climate and world have always viewed money numerically. Joe nets $90,000 per year, Tom ‘s take-home is $65,000, therefore Joe is more financially successful.

In reality, Joe spends $85,000 per year, therefore only paying himself 6% per year, whereas Tom only spends $40,000 thus he is paying himself 38% each year. Therefore, Tom is the winner.

While yes Joe can scale his lifestyle inflation and there is certainly more opportunity to save more when you earn more, it all comes down to what you decide to do with your money!

The transition from looking at money just numerically, to viewing all outgo as a percentage has revolutionized our finances. Setting financial targets like increasing our net worth by X% has never been easier to track and accomplish.

So here is to never looking at money in terms of the face value again, but only in how much you pay yourself!!

Question: What adjustments are you going to make with regards to the allocation of your money after viewing it in percentage form?