3308: Interesting Financial Rules to Follow by J. Money of Budgets Are Sexy on How to Budget Successfully

Summary

Optimal Finance Daily – Episode 3308: “Interesting Financial Rules to Follow” by J. Money
Host: Diania Merriam
Air Date: October 6, 2025
Featured Blogger: J. Money (BudgetsAreSexy.com)

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Episode Overview

In this episode, host Diania Merriam narrates and comments on J. Money’s exploration of common financial “rules of thumb” and how they compare to real-life budgeting experiences. The discussion is practical and honest, zooming in on whether or not these oft-repeated financial guidelines actually help, how flexible they ought to be, and what matters in building long-term financial security and independence.

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Key Discussion Points & Insights

1. Financial Rules of Thumb: Overview

• J. Money reflects on familiar and lesser-known financial “rules,” suggesting most people hear these rules but rarely follow them to the letter.
• Diania adds her own experience and critical perspective to each rule, noting the usefulness and potential pitfalls of strictly adhering to generic advice.

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2. Rule-by-Rule Breakdown

a) Spending and Saving Percentages

• Rule: Spend no more than half of your income on living expenses; keep discretionary items to 30% and save the rest.
• J. Money’s take (02:31):
  • “People sure would be better off if they followed this, but I have yet to run into anyone who actually budgets off of percentages.”
  • Instead, he personally cuts back wherever possible each month and stashes away savings, estimating his own allocation is around 60% living expenses, 20% discretionary, 20% savings.
• Key Insight: Percentages make theoretical sense, but many find it more useful to focus on cutting back in as many areas as possible and maximizing savings as finances allow.

b) Home Affordability

• Rule: You can afford a home that’s two to four times your gross annual income.
• J. Money (03:21):
  • “Well, this one should be an easy one to compare since we literally just bought a house. Doing the math on this bad boy pushes us out into the $320,000 to $640,000 range, where I’m glad to see we’ve landed way on the lower end of the scale here.”
  • Cautions listeners: Banks may approve you for far more than is wise (“…the banks are happy to loan out as much as they can get away with… don’t fall for that trick…”).
• Diania’s Commentary (09:44):
  • “I definitely disagree with this for a number of reasons… To base affordability on income is incredibly risky from my perspective because you could lose your income at any moment.”
  • She prioritized paying off debt, fully funding retirement, building a cash cushion before buying, and ultimately chose a much lower mortgage ($600/month).
• Key Insight: Don’t base affordability on the maximum the bank offers—prioritize financial flexibility and security.

c) Life Insurance Needs

• Rule: Hold life insurance equal to 8–10 times your pre-tax annual income.
• J. Money (04:00):
  • “No idea where this figure comes from, but if we stayed in line with it, we’d need …$640,000 to $800,000 each, of which we’d massively fail since we only have $350,000 each.”
  • The amount was originally set to cover the mortgage, and he considers reassessing now that circumstances have changed.
  • Raises a philosophical question about insurance as it relates to financial independence: “Isn’t the point of financial freedom to be fully sufficient without needing outside help unless you wanted it?”
• Key Insight: Coverage may need regular reassessment and should evolve as you build wealth and approach financial independence.

d) College Savings Rule

• Rule: Save one third of the cost of college; pay a third from current income and financial aid; borrow the last third.
• J. Money (05:20):
  • “I’ve just always gone with the save as much as you’re able to route, and we’ll figure it out later when it gets closer.”
  • Recognizes the challenge in preemptively planning for college costs but encourages saving what you can.
  • “If you’re at least saving something towards it, you’re allowed to be semi-proud of yourself.”
• Key Insight: It’s unrealistic for many to follow this rule exactly—consistency and effort matter just as much.

e) Retirement Income Needs

• Rule: You’ll need 70–80% of your pre-retirement income to live on in retirement.
• J. Money (06:12):
  • “Oh boy, the magical retirement number… pay attention to the expenses of your future planning, not your income…”
  • Highlights FIRE (Financial Independence Retire Early) community rule: accumulate 25x your projected annual expenses.
  • “You can very well be poor with a million dollars… or rich with $10,000… all depending on the quality of lifestyle you want or need later on.”
• Key Insight: Focus retirement planning on future expenses, not replacing current income—the right number is personal and flexible.

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Notable Quotes & Memorable Moments

• J. Money on Percentages:
  "People sure would be better off if they followed this, but I have yet to run into anyone who actually budgets off of percentages." (02:31)

• J. Money on Mortgage Approval:
  “...don't fall for that trick like many of us have over the years. You need life insurance equal to 8 to 10 times..." (03:42)

• J. Money’s Philosophical Musing:
  “Isn’t the point of financial freedom to be fully sufficient without needing outside help unless you wanted it?” (04:34)

• J. Money on Saving for College:
  “If you’re at least saving something towards it, you’re allowed to be semi-proud of yourself. At least that's the rationalization I'm telling myself.” (05:56)

• J. Money on Retirement Planning:
  “Pay attention to the expenses of your future planning, not your income... all depending on the quality of lifestyle you want or need later on.” (06:20)

• Diania Merriam on Home Affordability:
  “To base affordability on income is incredibly risky from my perspective because you could lose your income at any moment... buy the least expensive and smallest house that is comfortable because my overall goal is to keep my fixed costs as low as possible.” (09:47)

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Timestamps of Key Segments

• [01:36] — J. Money introduces the concept of breaking (or following) financial “rules of thumb”
• [02:31] — Discusses spending/saving percentage rule and personal approach
• [03:21] — Home affordability rule and thoughts on bank lending limits
• [04:00] — Life insurance recommendations and reflections on financial independence
• [05:20] — College savings advice and realistic perspectives on saving
• [06:12] — Retirement needs: income-based vs. expense-based calculations
• [09:44] — Diania Merriam’s commentary on determining true home affordability and her own financial milestones

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Tone & Style

• The episode effortlessly blends practical financial advice with humor and realism. Both J. Money and Diania admit that many rules, while theoretically sound, are difficult to practice exactly—and that personal circumstances demand flexibility.
• Diania’s closing remarks encourage listeners to keep their core needs low, especially in housing, transportation, and food, to improve resilience and option value over time.

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Summary

This episode tackles influential financial “rules of thumb,” acknowledging their educational value while challenging listeners to adapt them to their own realities. Listeners are urged to build flexibility, question one-size-fits-all advice, and focus on foundational habits: saving diligently, reviewing actual needs versus rules, keeping fixed costs as low as comfortable, and making financial freedom a personal journey defined by expenses and lifestyle, rather than arbitrary benchmarks or lender assessments.

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For anyone exploring personal finance, early retirement, or simply trying to get a handle on budgets, this episode is a relatable, candid resource—packed with both strategy and permission to do what works for you.

Transcript

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This is Optimal Finance Daily. Interesting Financial Rules to follow By J. Money of budgets are sexy.com I came across an article this morning and can't say I've heard of half of these rules of thumb before. Maybe that's why they're so breakable. It's called financial rules of thumb to consider breaking. I'll go over them along with my own two free cents and an attempt at comparing them to our own finances to see if we're on track or not. Is anyone following any of these? Quote spend no more than half of your income on living expenses, keep discretionary items to 30% and save the rest. People sure would be better off if they followed this, but I have yet to run into anyone who actually budgets off of percentages.

[A]

Do you?

[D]

In theory I think it all makes sense, but I tend to just cut back on all the areas I'm able to cut back in. Some months it's good and others not, and then at the same time stash as much savings as I can each month as well. Maybe it breaks down into similar percentages over time. I've never really run the numbers, but so far it's been working out well, at least since I've wrapped my head around all this stuff a decade ago. Ask the old me though, and I couldn't tell you what I was spending on no less the PI percentage. At any rate, here's where our current finances would break down if it was pied up like that. Living expenses 60%, discretionary 20% and savings and investments 20%. It's not too far off actually, although there's a number of items in there I had to guess on as wasn't sure which category they'd fall into. Says the guy who blogs about finance for a living, you can afford a home that's two to four times your annual gross income. End quote. Well, this one should be an easy one to compare since we literally just bought a house. Doing the math on this bad boy pushes us out into the 320,000 to 640,000 range, where I'm glad to see we've landed way on the lower end of the scale here. Although if you recall, we did get approved all the way up to $800,000 from one source, so it seems pretty accurate, at least on the lender side and not to be confused with what you can actually afford by the way, since the banks are happy to loan out as much as they can get away with because it means more money for them. So don't fall for that trick like many of us have over the years. You need life insurance equal to 8 to 10 times your annual pre tax income. No idea where this figure comes from, but if we stayed in line with it, we'd need to have about $640,000 to $800,000 each of which we'd massively fail at since we only have $350,000 of life insurance each. Though it was initially set up to mainly cover our mortgages in the event one of us passed pre kids, so it wouldn't be a bad idea to reassess here again, although isn't the point of financial freedom to be fully sufficient without needing outside help unless you wanted it? We're far from that point at the moment, but it would be yet another perk if you could start clearing away some insurances since you'd be able to fund a lot more during your demise. And not talking about health insurance by the way, ain't no way I'm giving that up with our jacked up system here. Curious though, how many early retirees out there are still carrying life insurance? Why? Or why not? In other fun news, I recently read that they call it life insurance versus Death insurance because it's more appealing to see and better odds of people signing up for it. Which is probably true unless you happen to enjoy thinking about death Save one Third of the Cost of College I've never thought of the ratio when it comes to saving for college. I've just always gone with the save as much as you're able to route, and we'll figure it out later when it gets closer. But probably better to have a more developed game plan in place. Per that same article, under this rule of thumb, you pay for a third of the cost of college from savings, pay a third from current income and financial aid, and borrow a third using a combination of parent and student loans. Anyone care to share their perspective or strategy with this who's in the thick of it all? Obviously it would be great to have it all taken care of by the time they leave your comfy nest, but we all know it's hard enough to stay on top of our other massive goals in this game of life. So I think if you're at least saving something towards it, you're allowed to be semi proud of yourself. At least that's the rationalization I'm telling myself. And lastly, you'll need 70 to 80% of your pre retirement income to live on when you retire. Oh boy, the magical retirement number Question Everyone run for the hills. You already know what I'm going to say on this one, so we won't linger on it too long, but it's always fun to refresh ourselves for all the new people to the scene. And to those people we say pay attention to the expenses of your future planning, not your income, as you can very well be poor with a million dollars hitting you in the face or rich with $10,000 in the bank, all depending on the quality of lifestyle you want or need later on. And while we do have a common rule here in the Fire community, 25 times your yearly forecasted expenses, there's still all kinds of variables you can throw into the mix and tweak to your heart's desire. So it's really about finding the starting point that seems best to you and then adapting it as life moves on and changes. And it will always be changing, believe me. And with that, I'm already feeling a bit retired. You just listened to the post titled Interesting Financial Rules to Follow by J. Money of budgets are sexy.com imagine you're.

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[D]

I think the rule that stood out to me the most is you can afford a home that's two to four times your annual gross income. I definitely disagree with this for a number of reasons and frankly I think a lot of people that buy homes simply can't afford them. To base affordability on income is incredibly risky from my perspective because you could lose your income at any moment. For me personally, I didn't feel I could afford to buy a home until other financial goals were met. I first got out of consumer debt, started fully funding my retirement vehicles, and had a year of expenses as a cash cushion before I considered buying a house. Income is just one delicate element of your overall financial position. So if you only consider this one thing when deciding if you should buy a home, you may be backing yourself into a corner. I think it's wise to buy the least expensive and smallest house that is comfortable because my overall goal is to keep my fixed costs as low as possible. If you can do really well in the areas of housing, transportation and food, you're pretty much set up to be able to navigate whatever life throws at you and you have many more options. For example, my mortgage is only $600 per month, which made my decision to quit my job last year and pursue self employment so much easier. And when I was buying this house, I didn't think about if I could afford it based on what the bank said I could afford. I thought about if I could easily afford it, should I have a drop in income. And that's a wrap for another Monday's show. Have a great rest of your day and start to your week. And I'll be back tomorrow as usual, where your optimal life awaits.