Rule of Thumb
A rule of thumb is a general guideline or principle derived from practical experience rather than precise calculations or scientific evidence. Rules of thumb are often used in finance, business, and everyday decision-making to simplify complex problems and offer quick, practical solutions. While not always accurate, these informal guidelines can help individuals make reasonable estimates or decisions when exact data is unavailable or unnecessary.
Example
A common rule of thumb in personal finance is to save 20% of your income for retirement, offering a simple guideline to encourage consistent saving habits.
Key points
• A general principle or guideline based on practical experience, not scientific analysis.
• Used to simplify decision-making in finance, business, and everyday situations.
• Provides practical solutions but may lack precision or accuracy in certain situations.
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