Thumb rules for Financial Wellbeing

Pay yourself first: As you get paid, put money into savings. Automating it is the best.

Build an emergency fund: Save for emergencies an equivalent of six months of your living costs.

Use the 50/30/20 rule for Budgeting: Allocate 50% to needs, 30% of your monthly income to wants and 20% towards investments or savings for the future.

Diving your Bonus: Allocate the bonus earnings in the following way: A third each for Debt-repayment, Retirement and Entertainment/leisure.

Put 80% of your raises into Savings: Avoid lifestyle inflation. When income rises, let not the expenses rise.

Avoid high-interest debt: Avoid credit cards or personal loans with a high-interest rate.

Always opt for a National Pension Scheme: Most employers match a percentage of your salary and invest in a pension fund. Whatever maximum reduction you are eligible for, take it.

The rule for buying a car: Follow the 20/4/10 rule, in which you pay 20% as a downpayment and take a four-year loan. Your monthly repayment instalment should be less than 10% of your monthly income.

The rule for Buying a Home: The total cost of home loan repayments each month, which includes mortgage, interest and insurance, should cost less than 25% of your monthly income.

The rule for Retirement: Save at least 15% of your income for retirement. Save for your retirement first and then for your children’s education.

Invest in quality longterm stocks: The stock market has an average return of 10-12% yearly. Do not put all your money in a few stocks. As a thumb rule, You should own a hundred minus your age number of stocks.

Rule of 72: This rule tells you how long it will take for your investment to double in value. It is calculated as 72 divided by the rate of returns expected on an average each year on the investment. So, if the rate of return is 10%, it will take 72/10=7.2 years for your investment to double in value.

The four per cent rule: This thumb rule tells us that we can withdraw 4% of our starting investment each year without running out of money.

Thumb rule for Net worth: Your net worth should ideally be equal to (your age X Pretax income /10). So if your annual income is 100000 at age 35, then your net worth should be equal to 35×100000/10, that’s 350000.

Thumb rule for Term Insurance coverage: Your term life cover should be at least equal to five times your annual gross salary.

Value time over money, experience over things.