Five More Personal Finance Rules

I have already shared 5 personal finance rules, which might have been of some interest to you. Now I add 5 more rules as under:

6️⃣40% EMI Rule
7️⃣10, 5, 3 Rule
8️⃣50-30-20 Rule
9️⃣3X Emergency Rule
🔟Life Insurance Rule

The above rules are explained hereunder:

6️⃣ 40% EMI Rule
This Rule is generally used by Banks and Finance Companies to provide loans, in terms of which EMIs should never go beyond 40℅ of your income.

As EMI is a major dent on monthly budget, this rule can also be used to manage personal finances. Say you earn, 50,000 per month. So you should not have EMIs more than 20,000.

7️⃣10-5-3 Rule
One should have reasonable returns expectations, and accordingly plan the portfolio allocation, e.g. 10℅ rate of return on Equity / Mutual Funds, 5℅ on Debts instruments like Fixed Deposits, and 3℅ on Savings Account.

8️⃣50-30-20 Rule –
Income may be divided as under:
50℅ for Needs (essential expenses) i.e. groceries, rent, EMI etc
30℅ for Wants (discretionary spending) i.e. entertainment, vacations etc, and
20℅ for Savings i.e Equity, MFs, FD, etc.

One can definitely save more than 20%, but try to save at least 20℅ of the income.

9️⃣3X Emergency Rule
Allocate at least 3 times your monthly income to the Emergency Fund for emergencies such as loss of employment, medical emergency, etc.

3 X Monthly Income
It is always better to put more in the emergency fund to be on a safer side.

🔟 Life Insurance Rule
Sum Assured should be 20 times of your Annual Income, i.e

20 X Annual Income

Say you earn 5 million annually, then you should at least have 100 million term insurance till you retire.

Term insurance is low premium, high-cover protection plan, where the premium goes entirely towards risk coverage. There is no savings portion of the premium.

These are called thumb rules. There is ‘no one size fits all‘ approach. Your personal finances need to be personalised according to your family situations, inflation and employment scenario, age profile and risk appetite. As such, it is important to review the portfolio over time and plan accordingly.

–Kaushal Kishore


    1. Thank you! Yes, for financial freedom, planning in young age itself should be done. Banks and organisations arrange pre-retirement training for retiring employees for health and financial planning, which should be done at younger age.

      Liked by 1 person

  1. These golden rules will definitely act as saviour.
    Mr Kaushal, I wanted to ask something.
    As you know that many people are investing their money in stocks and crypto market because they provides much higher return in short span of time.
    However, it involves potential risk of losing funds if not done correctly.
    How do you think it’ll affect banks as people are not putting funds as fixed deposit?

    Liked by 2 people

    1. Thank you, Tanishq for reading and appreciating the post.

      I also do invest in share market, but not in crypto. I find crypto a bit tricky, as a few countries have banned it. RBI is also not coming out openly with its clear-cut policy on crypto. So I keep a safe distance. Stocks are also dicey in short term, but in long term, say 10 years, it always gives handsome returns. Even in short term, if you have knowledge of companies and market trends, you may get higher returns, but one has to develop expertise for this.

      As regards fixed deposits, you will be surprised to know that even during the present boom in share market, banks deposits have increased more than loan portfolio. So banks have their own types of patrons, who have low risk appetite.

      Liked by 1 person

      1. Yup, Expertise and reasearch in case of short term matters the most.
        You can’t just put your money blindly into any share.
        I belong to an IT background but I still find all these talks interesting & benifitial.
        However, how f.deposits have increased is still out my head.
        Much thanks for a clear explanation. 😊

        Liked by 1 person

      2. You’re welcome😊 FDs are favourites of senior citizens, who don’t have expertise in stock movement, and don’t want to take risk. There are also plus aspects of FDs.

        Liked by 1 person

    1. Is it on higher side, Haoyan? It may be low or high, depending upon currency. I have, therefore not mentioned any currency. Anyway, the amount quoted is just for illustration. Thanks for boosting my optimism, as I’m hopelessly hopeful.


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