Personal Finance Rules

A few calculation tricks and rules to keep in mind

1. Rule of 72 (Double Your Money)

Number of years required to double your money at a given rate: you just divide 72 by the interest rate.

For example, if you want to know how long it will take to double your money at 8% interest, divide 72 by 8: you get 9 years.

At 6% interest rate, it will take 12 years.

At 9% interest rate, it will take 8 years.

Number of years required to triple your money at a given rate: you just divide 114 by the interest rate.

For example, if you want to know how long it will take to triple your money at 8% interest, divide 114 by 8: you get ~14 years.

At 6% interest rate, it will take 19 years.

At 9% interest rate, it will take 12 years.

Number of years required to quadruple your money at a given rate: you just divide 144 by the interest rate.

For example, if you want to know how long it will take to quadruple your money at 8% interest, divide 144 by 8: you get 18 years.

At 6% interest rate, it will take 24 years.

At 9% interest rate, it will take 16 years.

Divide 70 by the current inflation rate to know how fast the value of your investment will get reduced to half its present value.

For example, an inflation rate of 7% will reduce the value of your money to half in 10 years.

Divide your income into:

- 50℅ - Needs - Groceries, rent, EMI

- 30℅ - Wants - Entertainment, vacations, etc

- 20℅ - Savings - Equity, MFs, Debt, FD, etc

At least try to save 20℅ of your income. More if you can.

Always put at least 3 times your monthly income in Emergency funds for emergencies such as loss of employment, medical emergency, etc.

If you can, put 6 times your monthly income to be on the safe side.

Never go beyond 40℅ of your income into EMIs.

Say you earn, 50,000 per month. So you should not have EMIs of more than 20,000.

This Rule is generally used by Finance companies to provide loans. You can use it to manage your finances.