A few simple rules can help you get your money in order. Although thumb rules are not always correct, they help steer you on the right path because they are usually tried-and-true procedures. They’re easy to pick up, memorize, and put into practice. To assist you in organizing your finances, below are some basic personal financial thumb guidelines. Rather than blindly following them, be sure they’re right for you.
• Maintain An Emergency Reserve Equal to Six Months’ Worth of Pay
You are aware of the need for an emergency fund. When you’re in trouble, it always comes to your aid. Regular expenses, EMIs, and insurance payments should all get included.
While the general guideline is six months, it varies from case to case. Those with stable jobs, for example, should set away three months’ worth of emergency funds, whereas those who are self-employed or work on freelance assignments, who face greater risk, should set aside up to a year’s worth of costs.
• Take Out A 10-Times-Your-Annual-Salary Term Life Insurance Policy
Life insurance gets designed to replace an insured’s income if he dies unexpectedly. While there are different methods for determining your insurance needs, the general guideline is to purchase life insurance at least ten times your yearly salary. Pure term insurance gets advised because it provides more coverage for a lower price.
• The Rule of A Hundred Points
According to this formula, your portfolio’s percentage of equity should be 100 minus your age. As a result, by the time you’re 30, the equity portion of your portfolio should make up 70% of your assets. When you’re 40, it should be 60%, 50% when you’re 50, etc. This rule gets founded on the idea that once market volatility has leveled off, equity investments will give good returns over a period. As a result, you should start your career with more equity and gradually reduce your equity exposure as you approach retirement, according to Billy Crafton from San Diego.
• Rule of 35%
Some loans, such as mortgages and student loans, are beneficial. Other debts, such as credit card payments, may, however, place a burden on your resources. As a general guideline, your EMI should not be more than 35-40% of your monthly salary. Anything more than that may put a strain on your budget, according to Billy Crafton from San Diego. If your EMI is higher, you should refrain from taking out more loans.
• 72-hour Rule
When investing in a specific instrument, this thumb rule indicates how long it will take you to double your money. The time it takes for your money to double is 72 divided by the rate of return, it states. If your rate of return is 8%, your money will double in nine years, while if it is 12%, it will double in six. It’s crucial to remember that you need to generate a higher rate of return than inflation to be successful. In addition, where you invest will be determined by your risk tolerance and the amount of time you have till you reach a specific goal.
Billy Crafton 