Published: 28th Aug 2024
By: Value Research
No matter where you stand on the social ladder, effective financial planning is key to securing your future. While there's no one-size-fits-all solution to managing your finances, these 7 rules will set you on the right path.
According to the 6x rule, you should put aside at least six months’ worth of your monthly expenses in an emergency fund. For instance, if you spend Rs 30,000 every month, your emergency fund should consist of Rs 1.8 lakh.
The ‘20x term insurance’ rule states that you should opt for a life insurance that would pay out 20 times your annual income. This would ensure the financial safety of your loved ones in the event of your untimely demise.
The "Rule of 70" helps you understand how inflation affects your money's value. For example, if the inflation rate is 5%, dividing 70 by 5 gives you 14. This means that in about 14 years, prices will likely double, cutting your purchasing power in half. Knowing this can help you plan better for the future and protect your money's value over time.
The ‘rule of 72’ tells you when your money can double in value. For example, you have invested Rs 5 lakh in an investment that generates 12% annual returns. Divide 72 by 12, and you’ll see that your investment will double in around six years, that is, Rs 10 lakh.
This rule helps estimate what percentage of your savings you should invest in high-risk assets. All you need to do is subtract your age from 100, and that’s the percentage of money you can invest in risky assets like equities. The younger you are, the higher the risk you can take.
It helps decide when you should retire. As the name suggests, when your savings are 25 times your annual expenditure, it may be time to sit back and enjoy the golden years. Thus, if your yearly expenses come to Rs 15 lakh a year, aim for a retirement corpus of around Rs 3.75 crore.
The ‘4 per cent withdrawal rule’ helps ensure that you don't outlast your savings. To know what this rule suggests, read the full story by clicking on the link below.