Make Money And Secure Future: 11 Personal Finance Rules Everyone Should Know

11 Personal Finance Rules: By mastering personal finance concepts, you can effectively manage your income, expenses, savings, and investments

11 Personal Finance Rules: Understanding personal finance is important because it empowers you to make informed decisions about your money, leading to greater financial stability and security. By mastering personal finance concepts, you can effectively manage your income, expenses, savings, and investments. This knowledge helps in setting and achieving financial goals, such as buying a home, funding education, or preparing for retirement. It also enables you to avoid debt, build a good credit score, and create an emergency fund, ensuring you are better prepared for unexpected financial challenges.

Here we will discuss 11 personal finance rules that everyone should know. These financial rules are valuable for individuals of all ages, offering simple, practical, and effective guidelines for managing personal finances.

1) Rule of 72 (Double Your Money)

To determine the number of years required to double your money at a given interest rate, simply divide 72 by the interest rate. For instance, at an 8 per cent interest rate, it will take 9 years to double your money. At 6 per cent, it will take 12 years, and at 9 per cent, it will take 8 years.

2) Rule of 70 (Inflation)

Divide 70 by the current inflation rate to estimate how quickly the value of your investment will halve. For example, with a 7 per cent inflation rate, your money's value will be reduced by half in 10 years.

3) 4 Per Cent Withdrawal Rule

To achieve financial freedom, you need a corpus of 25 times your estimated annual expenses. If your annual expense after 50 years of age is Rs 500,000 and you wish to take voluntary retirement, you will need a corpus of Rs 1.25 crore. Allocate 50 per cent to fixed income and 50 per cent to equity, and withdraw 4 per cent annually, which amounts to Rs 5 lakhs. This rule works 96 per cent of the time over a 30-year period.

4) 100 Minus Age Rule

This rule helps with asset allocation. Subtract your age from 100 to determine the percentage of your portfolio that should be allocated to equities. For example, if you are 30 years old, 70 per cent (100-30) of your portfolio should be in equity and 30 per cent in debt. If you are 60 years old, 40 per cent should be in equity and 60 per cent in debt.

5) 10-5-3 Rule

This rule sets reasonable return expectations:

• 10 per cent return from equities or mutual funds


• 5 per cent return from debt instruments like fixed deposits


• 3 per cent return from savings accounts

6) 50-30-20 Rule

This rule suggests allocating your income as follows:

50 per cent to needs (groceries, rent, EMI)

30 per cent to wants (entertainment, vacations)

20 per cent to savings (equity, mutual funds, debt, fixed deposits)

7) 3X Emergency Rule

Maintain an emergency fund equivalent to at least three times your monthly income to cover unexpected events like job loss or medical emergencies. Ideally, aim for six times your monthly income in liquid or near-liquid assets.

8) 40 per cent EMI Rule

Your EMIs should not exceed 40 per cent of your income. For instance, if you earn Rs 50,000 per month, your EMIs should not exceed Rs 20,000. This rule is commonly used by finance companies to assess loan eligibility.

9) Life Insurance Rule

Your life insurance coverage should be 20 times your annual income. For example, if you earn Rs 5 lakhs annually, you should have at least Rs 1 crore in life insurance.

10) Rule of 144

This rule determines the number of years it takes to double your money through SIP (Systematic Investment Plan). For example, at a 15 per cent interest rate, your SIP corpus will double in 9.6 years (144/15).

11) Revolving Credit Formula

To calculate the annual cost of revolving credit, use the formula (1+i%)^12-1. For instance, if a credit card company charges 3 per cent per month as interest, the compound annual cost is 42.6 per cent.