Managing your finances plays a key role when it comes to future planning or planning for any exigencies. Be it investment or savings, one should always look for the best option to get a better return. While there are many rules that people follow while planning their finances, there are certain rules to which everyone agrees. Experts have often advised people to follow these rules to have better control over their finances.
Rule of 72: You may have heard about it. The rule comes into play when you want to know the number of years to double your money. The rule is simple, just divide 72 by the annual rate of interest and you will get the number of years in which your money will double at that rate. For example, say if you are getting an ROI of 8 per cent, then divide 72 by 8 and you will get 9. This means your investment will double in 9 years.
Use a Credit card like a Debit card: A high credit card limit may tempt you to spend more and pay in EMIs but don’t fall into this trap. You should spend your credit card like a debit card and try never to cross 15-20 per cent of the given credit limit.
Fixed income vs Equity: Start investing and you should maintain a balance between fixed income and equity instruments. You should invest 50% of your desired investment fund into fixed income and 50% into equity instruments, thus mitigating any high risk.
50-30-20 Rule: This rule helps you control your spending, plan your budget and manage finance effectively. The rule says 50 per cent of your salary/income should be set aside for meeting necessities like rent, groceries, bill payments and EMIs if any. 30 per cent of your salary should be dedicated to wants and desires like entertainment, vacations etc and 20 per cent should be invested in various instruments to build a huge corpus over a long tenure.
Limit EMI Rule: You should never let your monthly EMIs cross 40 per cent of your monthly earnings. Say if you earn Rs 40,000 per month, then your all EMIs should not exceed Rs 16,000 per month. This is also important because lenders often see your ongoing EMIs when you apply for a loan.
Income Sources: Don’t rely on a single source of income. You should look for creating additional sources of income to help you prepare for exigencies. While investing is one of the methods that generate additional income for you over time, you can explore some part-time work but be mindful that it should not violate the legal contract that you may have signed with your present employer.
