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