7 Financial Rules to Follow in the New Financial Year for Better Financial Planning:
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Salary Division: Adopt the 50-30-20 Rule The 50-30-20 rule is a simple and effective budgeting method. It suggests dividing your take-home salary into three parts:
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50% for essential needs (e.g., food, rent, utilities).
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30% for your wants or discretionary spending (e.g., entertainment, dining out).
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20% for savings and investments.
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Savings and Investments: The First Week Rule – Save 20% of Your Income This rule encourages you to save and invest 20% of your income in the first week of each month. Additionally, before making any major purchases, wait for one week. If you still feel strongly about it after the waiting period, then proceed with the purchase.
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Emergency Fund: Build an Emergency Fund of 6 Times Your Monthly Income An emergency fund should ideally be six times your monthly expenses. For instance, if your monthly expenses are ₹50,000, your emergency fund should be ₹3 lakh. This ensures that your financial goals and investments remain protected during emergencies.
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Financial Control: The 40% EMI Rule Your total EMI payments (including home loans, car loans, personal loans, and credit card bills) should not exceed 40% of your take-home salary. For example, if you earn ₹1 lakh per month, your total EMIs should be no more than ₹40,000.
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Life Insurance: Opt for a Term Insurance Policy 20 Times Your Annual Income Life insurance is essential for safeguarding your family’s financial future in case of your absence. If your annual income is ₹5 lakh, you should consider a term insurance policy with a coverage of ₹1 crore (20 times your annual income).
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Money Calculation: Use the Rule of 72 to Estimate When Your Money Will Double The Rule of 72 helps you estimate how long it will take for your investment to double at a given interest rate. For example, if you earn a return of 12% annually, dividing 72 by 12 gives you 6, meaning your money will double in 6 years.
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Investment Tip: Test Your Risk with the 100-Age Rule To determine the appropriate portion of your investments in risky assets like equities, subtract your age from 100. For instance, if you’re 32 years old, 100 – 32 = 68. Therefore, 68% of your money should be invested in stocks, while the remaining 32% should be allocated to safer investments like bonds or fixed deposits.
