Dealing with money can be daunting a task. How do you know if you can afford a home? How do you go about setting a reasonable budget? And how much is too much to spend on a car anyway? While everyone’s financial situation is different, there are a few money formulas that can help guide you along the way.

Use the 20/4/10 formula to keep your wealth from driving away.

Americans love their cars, but our automobile fixations could be driving us straight to the poor house. According to a recent AAA report, it costs $8,876 per year to own and operate a sedan in the US. Unfortunately, many Americans drive more car than they can truly afford. So what should you do to keep your transportation costs under control?

Follow the 20/4/10 formula. When purchasing a vehicle, you should put down at least 20% of the purchase price of a car and finance for no more than 4 years. Most importantly, no more than 10% of your gross income should be spent on total transportation costs, including car payments and insurance.

To prepare for financial emergencies, use the six month rule.

Emergencies happen. Water heaters break. Transmissions die. Your job isn’t even guaranteed. Despite the inevitability of financial emergencies, research by the National Bureau of Economic Research found that one half of Americans surveyed said they either definitely or probably couldn’t come up with $2000 within 30 days.

Experts caution that you should build an emergency fund that can cover at least six months of living expenses. And while this may seem like a daunting task, it will save your financial life one day. Start slow. Have 5% of your weekly paycheck directly deposited into an emergency fund savings account. In addition, augment your emergency funds with cash windfalls from holiday bonuses, income tax refunds, and other sources.

Use the 35% rule so you don’t buy more home than you can afford.

Owning a home is the American dream. Unfortunately, for many of us, it has turned into an American nightmare. Far too many Americans have become house rich and cash poor, overextending themselves to pay for their real estate dreams. So how do you avoid the financial traps of home ownership?

Experts suggest that you do not spend more than 35 percent of your pretax income on mortgage, property tax and home insurance payments. In addition to this rule, don’t forgot to plan for maintenance expenses. According to a report by the University of Illinois, homeowners should budget between 1% to 2% of the purchase price of their home to cover yearly maintenance and repair costs. A $300,000 home, therefore could set a couple back $3,000 to $6,000 in maintenance costs every year. The expenses are often twice as much for older homes.

Budget your way to success with the 50-30-20 balanced money formula.

A budget is a great way to keep your spending under control, but it’s often hard to figure out exactly how much of your money should go where. The “50 – 30 – 20 balanced money formula”, advocated by many financial professionals, provides a simple budget framework.

According to the budget, fifty percent of your take home pay should be used to cover absolute necessities like food, shelter, and transportation. Thirty percent should be directed toward your “wants”, those things that are nice to have but not absolutely essential. Cable television, your smart phone, and dining out are a few examples that come to mind. Finally, twenty percent of your pay should be dedicated to paying off debts and building savings.

BMWK, what are some of the money rules you use to keep on top of your finances?