Personal finance rules to help you make better money management
·
Rule of 72 (Double Your Money)
·
Rule of 70 (Inflation)
·
4% Withdrawal Rule
·
100 Minus Age Rule
·
10, 5, 3 Rule
·
50-30-20 Rule
·
3X Emergency Rule
·
40% EMI Rule
·
Life Insurance Rule
𝗥𝘂𝗹𝗲 𝗼𝗳 𝟳𝟮(Double
Your Money):
No.
of years required to double your money at a given rate, You just divide 72 by
interest rate
Eg,
if you want to know how long it will take to double your money at 8% interest,
divide 72 by 8 and get 9 yrs
At
6% rate, it will take 12 yrs
At
9% rate, it will take 8 yrs
𝗥𝘂𝗹𝗲 𝗼𝗳
𝟳𝟬:
Divide
70 by current inflation rate to know how fast the value of your investment will
get reduced to half its present value.
Inflation
rate of 7% will reduce the value of your money to half in 10 years.
I.e.
If you have 1,00,000 Rs at this point of time, the value of this money will be
reduced to half in 10 years with inflation rate of 7%.
𝟰% 𝗥𝘂𝗹𝗲 𝗳𝗼𝗿 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗙𝗿𝗲𝗲𝗱𝗼𝗺:
Corpus
Required = 25 times of your estimated Annual Expenses.
Eg-
if your annual expense after 50 years of age is 500,000 and you wish to take
VRS then corpus with you required is 1.25 cr.
Put
50% of this into fixed income & 50% into equity.
Withdraw
4% every year, i.e.5 lac.
This
rule works for 96% of time in 30 year period
𝟭𝟬𝟬 𝗺𝗶𝗻𝘂𝘀 𝘆𝗼𝘂𝗿 𝗮𝗴𝗲 𝗿𝘂𝗹𝗲:
This
rule is used for asset allocation. Subtract your age from 100 to find out, how
much of your portfolio should be allocated to equities
Suppose
your Age is 30 so (100 - 30 = 70)
Equity
: 70%
Debt
: 30%
But
if your Age is 60 so (100 - 60 = 40)
Equity
: 40%
Debt
: 60%
𝟭𝟬-𝟱-𝟯 𝗥𝘂𝗹𝗲:
One
should have reasonable returns expectations
10℅
Rate of return - Equity / Mutual Funds
5℅
- Debts ( Fixed Deposits or Other Debt instruments)
3℅
- Savings Account
𝟱𝟬-𝟯𝟬-𝟮𝟬 𝗥𝘂𝗹𝗲 - 𝗮𝗯𝗼𝘂𝘁 𝗮𝗹𝗹𝗼𝗰𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗶𝗻𝗰𝗼𝗺𝗲 𝘁𝗼 𝗲𝘅𝗽𝗲𝗻𝘀𝗲:
Divide
your income into
50℅
- Needs (Groceries, rent, emi, etc)
30℅
- Wants (Entertainment, vacations, etc)
20℅
- Savings (Equity, MFs, Debt, FD, etc)
At
least try to save 20℅ of your income.
You
can definitely save more
𝟯𝗫 𝗘𝗺𝗲𝗿𝗴𝗲𝗻𝗰𝘆 𝗥𝘂𝗹𝗲:
Always
put atleast 3 times your monthly income in Emergency funds for emergencies such
as Loss of employment, medical emergency, etc.
3
X Monthly Income
In
fact, one can have around 6 X Monthly Income in liquid or near liquid assets to
be on a safer side
𝟰𝟬% 𝗘𝗠𝗜 𝗥𝘂𝗹𝗲:
Never
go beyond 40℅ of your income into EMIs.
Say
you earn, 50,000 per month. So you should not have EMIs more than 20,000 .
This
Rule is generally used by Finance companies to provide loans. You can use it to
manage your finances.
𝗟𝗶𝗳𝗲 𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝗥𝘂𝗹𝗲:
Always
have Sum Assured as 20 times of your Annual Income
20
X Annual Income
Say
you earn 5 Lacs annually, you should at least have 1 crore insurance by
following this Rule
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