Unlock Financial Freedom: Personal Finance Rules to Master Your Money and Boost Your Savings

 SIX Magical Personal Finance Rules for Everyday Money Management

Do you also want your friends to ask, "How do you calculate so quickly?" or "How did you get so smart with money?" Personal finance can seem tricky sometimes, but it doesn't always have to be. Today, we’ll explore 6 magical rules that will make handling your finances an Easy Peezy job. 

1. The Rule of 72: Double Your Money Easily

The Rule of 72 is a simple yet powerful trick to know how long it will take for your money to double. Just divide 72 by the interest rate you're getting on your investment. For example, if you invest in a Fixed Deposit (FD) that gives you 7% interest, divide 72 by 7. The result is approximately 10 years—this is how long it will take for your money to double.

This rule works best for interest rates between 4% and 15%. Be cautious, though—if someone offers you much higher returns, it’s probably too good to be true!

2. 100 Minus Age Rule: Balancing Your Investments

Wondering how much to invest in different asset classes? The 100 Minus Age Rule can help. Subtract your age from 100, and the result is the percentage you should allocate to equities (stocks). For example, if you are 30 years old, you should have 70% of your investments in equities and 30% in other asset classes like gold, debt, or real estate. Also don't forget the percentage is on the amount you want to invest and not on the income you earn. For example, if your income is $50,000 and you want to invest $10,000, then it is advised to invest $7,000 in equity and $3,000 in debt based on your age assuming it to be 30 years.

This is a general guideline, especially for people with minimal loans or liabilities. Adjust based on your financial situation.

3. 50/30/20 Rule: Budgeting Like a Pro

The 50/30/20 Rule is a popular budgeting rule. Here's how it works:

• Spend 50% of your income on needs—things like rent, groceries, bills, and transportation.
• Use 30% for wants—like vacations, dining out, or buying new gadgets.
• Save or invest the remaining 20% for your future.

For example, if you earn $50,000 a month, $25,000 should go towards your needs, $15,000 for your wants, and $10,000 should be saved or invested.

4. 6x Emergency Fund Rule: Be Prepared for Emergencies

An emergency fund is essential for any financial plan. According to the 6x Emergency Fund Rule, you should have enough in your savings account to cover six months’ worth of living expenses.

For instance, if your monthly expenses are $25,000, aim to have $150,000 saved for emergencies. Keep this in a savings account with a feature like auto sweep, which gives better returns than the usual 2-3% savings account interest rate.

5. 20x Insurance Rule: Protect Your Life

Life insurance is a critical part of financial planning. The 20x Insurance Rule suggests you should have life insurance coverage equal to 20 times your annual income. If you earn $500,000 per year, you should have $10,000,000 in life insurance.

Remember, term life insurance is usually the best option—it offers large coverage at lower premiums.

6. 40% Loan Rule: Stay Out of Debt Trouble

When it comes to taking loans, the 40% Loan Rule helps you avoid over-borrowing. Your Equated Monthly Installments (EMIs) for all loans combined should not exceed 40% of your monthly income.

For example, if your monthly income is $50,000, your total loan payments (including home loans, car loans, etc.) should not exceed $20,000.

Some useful Tips to keep in mind 

Don't Overlook the Importance of Liquidity

While planning for investments, don't forget about liquidity. Some investments lock your money for years, making it hard to access in times of need. Keep a portion of your investments in liquid assets—ones you can easily turn into cash, like savings accounts or short-term deposits.

Review Your Financial Plan Regularly

Personal finance is not a one-time thing—it’s an ongoing process. Regularly review your investments, savings, and loans to ensure they align with your goals. Rebalance your portfolio if needed, especially as you grow older or your financial situation changes.

Smart Decision-Making with Financial Tools

Rules like the Rule of 72 and 50/30/20 can help you make quick financial decisions. But always use these rules as guidelines. Your personal situation, liabilities, and financial goals should be considered before making any big moves.