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
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
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,
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.