In this guide lets us understand the 5 fundamental money rules for financial planning.
Let’s get started and understand one-by-one all the 5 fundamental personal finance rules 🤑 to take charge for your money 💰
1. The Rule of 70 (When will my money be valued half of the current value ?)
Formula : 70 / rate of inflation
Example : If the inflation rate is around 5%, then your money will be valued at half of the current value in around (70 / 5 = 14) approximately 14 years. So if you can buy 10 🍫 chocolates today with X amount of money that you have today, after 14 years you will be able to buy only 5 🍫 chocolates with the same amount of money.
2. The Rule of 72 (When my money will be doubled ?)
Formula : 72 / rate of interest earned every year
Example : If you are earning 10% interest rate every year, then your money will get doubled in around (72 / 10 = 7.2 ) approximately 7 years
3. The Rule of 100 (How much should I allocate in Equity or Risky Assets ?)
Formula : 100 minus AGE
Example : If your age is 25 years, then you can allocate (100 - 25 = 75%) 75% of your total investments into Equity or Risky Assets as your risk taking ability is higher when you are younger and as you grow older you should ensure that you minimize your risk by shifting your money to more Stable Assets.
4. The Rule of 50/30/20 (How should I wisely spend my Salary ?)
This is a very powerful budgeting rule.
Allocate :
50 % of your money should go towards your NEED. It could be your 🏡RENT, EMI, 🍕Food and 👚Clothing Expense, all the things which are absolute necessary for you to LIVE a LIFE comes under this bracket.
30 % of your money should go towards your WANTS or DESIRES. It could be latest smartphone 📱, computer, vacation, CAR 🚗 etc. Spend this 30 % wisely.
20 % of your money should go towards your SAVINGS or INVESTMENTS. It could be Equity, Mutual Funds, GOLD, Bonds etc.
5. The Rule of 6X (How much money should I allocate to my Emergency Fund ? )
Formula : Emergency Fund = 6 X Monthly Expenses
Before starting any investment, you should always have a Savings of atleast 6 months of your expenses in your Emergency Fund.
Calculate your monthly expenses which you need to survive (🏡RENT, EMI, 🍕Food and 👚Clothing Expense etc.) and multiply it by 6.
This emergency fund will help you survive if you are fired from your job or you are hit by a loss in your business due to any pandemic or things which are not in your control.
Disclaimer : Please consult with an investment professional or financial advisor before you invest your money. This site is for entertainment or educational purposes only - any opinion here should not be treated as an investment advice. We are not liable for any losses suffered by any party because of recommendations published on this blog or website.
Originally published at https://www.inkeybit.com on May 8, 2022.
