Tips and tricks for successful personal financial planning

Ever feel like your finances are on autopilot? You have a regular income, but you cannot pinpoint where all your earnings disappear, or whether they are enough to meet your future ambitions. This sort of analysis entails developing an individual financial plan that does not necessarily require financial qualification. One only needs basic guidelines and a couple of formulas.

Let's look at the tips and tricks of personal finance using the rules:

Rule of 72, 114, and 144: Doubling, Tripling, and Quadrupling Your Money

Rule of 70: Dealing with Inflation

If the current inflation rate of 7% is maintained, then one way to realize how rapidly your investment loses value through inflation is to divide 70 by this figure. For example, at 7% inflation, in the next ten years, your money loses half its worth.

4% Rule for Financial Freedom

This rule is intended for achieving financial independence. To calculate the corpus required for retirement, multiply your annual expenses by 25. For instance, if your annual expenses are ₹5,00,000 then you will require ₹1.25 crore at retirement. The formula used is to allocate 50% to fixed income and 50% to equity and withdraw 4% annually (₹5 lakh). This rule has a success rate of 96% over 30 years.

100 Minus Your Age Rule: Asset Allocation

This rule assists in determining the asset distribution of your stock holdings. To determine the share of stocks in your portfolio take the remainder when you subtract your current age from 100. For instance, a 30 years old person should commit 70% of what he/she owns towards shares, and the rest 30% should go into bonds; meanwhile someone who is at the age of sixty should divide her/his investment among stocks (40%) and bonds (60%).

10-5-3 Rule: Reasonable Returns Expectations

Investments in equities or mutual funds should realistically have return expectations set at about more than 10%. Debts, on fixed deposits of money, should however only generate returns of around 5%. On the other hand, savings accounts are expected to earn as little as 3% interest annually on average.

50-30-20 Rule: Income Allocation

Separate your earnings into three main categories: allocate 50% of your earnings to essential expenses such as EMIs, groceries, or rent. Dedicate 30% to non-essential items and lifestyle choices, allowing for flexibility and enjoyment. The remaining 20% should be reserved for savings and investments, focusing on debt obligations like stocks, money market instruments, or bonds. Issuers might also consider equities for additional investment options. This strategy ensures a balanced approach to managing your finances, promoting both stability and growth.

3X Emergency Rule: Building Emergency Funds

To maintain financial muscle in the event of job loss or medical issues, it is essential to always have a financial reserve of 3 times the amount of money you should keep in a month at the very least. Being on the safe side, 6 times the amount could be targeted.

40% EMI Rule: Managing Loan Payments

Please make sure that your total monthly EMIs do not surpass 40% of what you make each month. For example, when your monthly salary is ₹50,000 then your EMI should not exceed ₹20,000.

Life Insurance Rule: Protecting Your Loved Ones

Be sure to protect your family's financial future by getting a life cover. It is recommended that you get insured for an amount equivalent to twenty times your yearly earnings. A good example would be a person earning ₹5 lakhs per year should have insurance worth a minimum of 1 crore.

70-20-10 Rule for Equity Investing

When you plan to invest in equities, you should consider setting aside 70% for large-cap stocks, 20% for mid-cap stocks, and 10% for small-cap stocks.

By applying these straightforward financial rules, you can achieve better control over your finances, ensure adequate savings and plan for retirement. Managing investments wisely leads to improved financial stability and peace of mind.