Nine Personal Finance Rules we all should know

1) Rule of 72 (Double Your Money)

2) Rule of 70 (Inflation)

3) 4 % Withdrawal Rule

4) 100 Minus Age Rule

5) 10, 5, 3 Rule

6) 50-30-20 Rule

7) 3 X Emergency Rule

8) 40 ℅ EMI Rule

9) Life Insurance Rule

1) Rule of 72 

         Number of years required to double your money at a given rate. Divide 72 by interest rate e.g., if you want to know how long it will take to double your money at 8 % interest, divide 72 by 8 and get 9 years, At 6% rate, it will take 12 years and at 9% rate, it will take 8 years.

2) Rule of 70

          Divide 70 by the 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.

3) 4 % Rule for Financial Freedom 

              Corpus Required = 25 times of your estimated Annual Expenses. E.g.- if your annual expense after 50 years of age is 500,000 and you wish to take VRS then corpus required is 1.25 Cr. Put 50 % of this into fixed income & 50 % into equity. Withdraw 4 % every year, i.e. Rs.5 Lakhs. This rule works for 96 % of time in a 30 year period.

4) 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 then (100 - 30 = 70) - Equity : 70%, Debt : 30%. But if your Age is 60 then (100 - 60 = 40) - Equity : 40%, Debt : 60%

5) 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

6) 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 and save 20℅ of your income.

7) 3 X Emergency Rule

          Always put at least 3 times your monthly income in Emergency funds for emergencies such as Loss of employment, medical emergency, etc. In fact, one should have around 6 X Monthly Income in liquid or near liquid assets to be on a safer side

8) 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. 

9) 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.