Stephen Dsouza (@steve) 22 Followers 1m

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Personal Finance 1031 0

Useful quick rules in Personal Finance

Some basic rules in Personal Finance

1. 50-30-20 ratio

As a rule of thumb, you should allocate your budget as follows:   50% - "needs," 30% - "wants," and 20% - Investments.  

2.  1-week spending rule

The 7-Day Rule is a method for avoiding impulsive purchasing. In this, you allow yourself a seven-day "cooling-off time" before making purchases. After 7 Days you can decide whether you still want that item or not and purchase accordingly.

3.  Rule of 72

Do you want to double your money and want to know when your money will double? The simple formula is to divide 72 by the current rate of return to find the time it needs to double your money. By doing so you can predict when your money will double. For example, if your current mutual fund return is 12%, then it will take 6 years (72/12) to double your money. You can use 72 divided by the number of years to get the rate of returns required from a financial instrument to double your investment.

4. 3X emergency fund rule

The 3x emergency fund rule is that one should always have three times of their monthly income set aside for emergencies. It will be helpful in case of emergencies, such as job loss, sudden travel or medical emergency, etc.

5. 100 Minus age rule

There is one thumb rule in investments. Never invest all your money in one asset type. Be it crypto or the stock market or debt.  So you might be wondering how much money one should allocate to stocks or debt assets. You can use the 100 minus age thumb rule to find how much money to put in debt and how much in stocks. The percentage of your money that can be invested in equities is calculated by subtracting your age from 100. For example, if you are in your 30's, then 100 - 30 = 70. So 70% of your money can go into equities.

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