9 rules for managing finances better, you can change them as you like, but they can be helpful for your financial health
Every person’s financial needs are different but there are certain rules that apply broadly to many situations. These tried and tested rules can improve your financial life. You can change these rules as per your requirement, but they can be helpful for your financial health. Here we are telling you those special 9 rules.
Rule of 72
The rule of 72 states that in how many years will your money double at a certain rate. To know this, all you have to do is divide 72 by the interest rate. For example, if you want to know how long it will take to double your money at 8% interest, then divide 72 by 8 i.e. your money will double in 9 years. So it will take 12 years for money to double at 6% rate and 8 years at 9% rate of interest.
Rule of 70
To know how fast the value of your investment will become half of its present value, one has to divide 70 by the current inflation rate. Therefore, an inflation rate of 7% will halve the value of your money in 10 years.
The 4% Rule for Financial Freedom
Under this rule, the corpus should be equal to 25 times your estimated annual expenses. For example: If your annual expenditure after the age of 50 is Rs 500,000 and you want to take VRS then you will need Rs 1.25 crore. Now put 50% in fixed income and 50% in equity, and withdraw 4% every year, which is Rs 5 lakh. This rule works 96% over a period of 30 years.
100 minus your age
This rule is used for asset allocation. Subtract one’s age from 100 to find out how much portfolio should be allocated to equities. For example: If your age is 30, then subtract 30 from 100, subtracting you get 70, so you need to allocate 70% in equity and 30% in debt.
10-5-3 Rule
One should expect reasonable returns. For example, 10% returns can be expected from equity and mutual funds, 5% from debt which is fixed deposit or other debt instrument and 3% from savings account.
50-30-20 Rule – About Expense Allocation of Income
You have to divide your income into three parts i.e. needs, wants and savings in which 50% money is to be allocated for needs like groceries, rent and EMI, 30% for needs like entertainment and holidays To be allocated. 20% in savings like equities, mutual funds, debt and FDs.
3X Emergency Rule
Always put at least 3 times of your monthly income in emergency fund for emergencies like sudden job loss, medical emergency etc.
40% EMI Rule
Never put more than 40% of your income in EMI. For example, if you earn Rs 50,000 per month, then your EMI should not exceed Rs 20,000. This rule is generally used by finance companies to provide loans. But it can also be used to manage one’s finances.
life insurance rules
Always keep the sum assured at 20 times of your annual income. Suppose if you earn 5 lakhs annually, then by following this rule you should have insurance of at least 1 crore.
