Nine Personal Finance Rule Everyone should know

 Nine Personal Finance Rule Everyone should know 

(WA Forward)

1) Rule of 72 (Double Your Money)
2) Rule of 70 (Inflation Adjustment)
3) 4% Withdrawal Rule
4) 100 Minus Age Rule
5) 10, 5, 3 Rule
6) 50-30-20 Rule
7) 3X Emergency Rule
8) 40% EMI Rule
9) Life Insurance Rule

1) Rule of 72

No. of yrs required to double your money at a given rate, 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

2) 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.

3) 4% Rule for Financial Freedom

Corpus Reqd = 25 times of your estimated Annual Expenses
Eg- if you wish to retire at 50 & annual expense at that time is 500,000, then required corpus is 1.25 Cr
Put 50% of this into Debt & 50% into Equity
Withdraw 4% every yr, i.e. 5 lacs

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 so (100 - 30 = 70)

Equity : 70%
Debt : 30%

5) 10-5-3 Rule

One should have reasonable returns expectations post taxes
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)

7) 3X 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 can 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 

KEEP SPREADING..

Personal Finance