Managing money can be overwhelming, especially when you have multiple goals like building wealth, saving for retirement, and protecting your family. Fortunately, there are simple, time-tested rules that act as a starter pack for personal finance.
These rules simplify financial planning, help with budgeting, and guide investment decisions.
Let’s explore 12 rules to handle your finances better.
The Rule of 72 is a quick way to estimate how long it will take for your money to double at a given interest rate. You simply divide 72 by the interest rate to get the approximate number of years.
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This rule helps visualise how your investments grow with compounding, without doing complex calculations.
The Rule of 69 is similar to the Rule of 72 but is used when interest compounds continuously rather than annually. The "rule of 69" formula is a quick approximation, generally calculated as Doubling Period ≈ 69 / Interest Rate. For slightly greater accuracy, particularly with continuous compounding or for a more precise estimate than the simpler rule of 69, a small adjustment of 0.35 is sometimes added to the result, making the formula:
Formula:
Years to double = (69 ÷ Interest Rate) +0.35
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This rule is especially useful in finance and economics for more precise growth estimates.
If you want to know how long it will take to triple your money, the Rule of 114 is useful. Divide 114 by the interest rate to estimate the number of years needed.
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Similarly, the Rule of 144 helps determine the time needed to quadruple your investment.
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These rules together help you quickly estimate the growth of your money over time.
Inflation reduces the purchasing power of your money. The Rule of 70 estimates how quickly the value of money will halve due to inflation.
Formula: 70 ÷ inflation rate = years to lose half value
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This rule shows why simply saving money in cash may not be enough and why investing is crucial.
The 4% Rule is used to plan retirement. It estimates the corpus you need to withdraw 4% annually without depleting it.
Formula: Corpus required = 25 × annual expenses
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This approach works for most 30-year retirement scenarios and ensures sustainable withdrawals.
This rule helps determine equity vs. debt allocation in your portfolio. Subtract your age from 100 to find your equity allocation; the rest goes to debt instruments.
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This simple rule balances growth potential and risk according to your age.
This rule sets realistic expectations for returns:
It helps you plan investments based on risk and potential returns.
A practical guideline for budgeting income:
Saving at least 20% ensures you are building a financial cushion for the future.
Always maintain an emergency fund of at least 3 months’ income to handle unforeseen events like job loss or medical emergencies. For added safety, aim for 6 months.
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Avoid spending more than 40% of your income on EMIs. This ensures you have enough cash flow for other needs and emergencies.
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Your life insurance coverage should be 20 times your annual income. This ensures your family is financially secure in case of an untimely event.
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Also Read : Why Funding Travel with Loans Could Be a Costly Mistake
These 12 rules form a guide to personal finance. By applying them, you can:
Even as a beginner, understanding these rules can make personal finance simple, actionable, and effective.
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