Financial Rules That Can Transform Your Money Management

Rule no. 1. Rule of 72: Doubling Your Investment

The Rule of 72 is a handy mental shortcut to estimate how long it will take for an investment to double.

Here's how it works:

Formula: Years to Double = 72 / Annual Interest Rate (As per percentage)

For example:

If you invest ₹1 lakh at 6% interest, divide 72 by 6 to get 12 years. So, your ₹1 lakh will become ₹2 lakhs in approximately 12 years.

Rule no. 2. The 0.04 Rule: Smart Spending without Touching Your Salary

The 0.04 Rule helps you manage spending without affecting your regular income:

Formula: Divide the desired spending amount by 0.04 (which represents a 4% return).

Example: If you want to spend ₹1500, divide it by 0.04: ₹1500 / 0.04 = ₹37,500.

Invest ₹37,500 in something that yields a 4% return, and that 4% will generate the ₹1500 you need without dipping into your pocket.

Rule no. 3. 100 Minus Age Rule: Balancing Stocks and Bonds

The 100 Minus Age Rule guides your portfolio allocation based on your age:

- Subtract your age from 100 to find the percentage of your portfolio that should be in stocks.

- Example: If you're 30 years old, consider having 30% in bonds and 70% in stocks.

- This balance manages risk and growth as you progress through different life stages.

Remember, while these rules provide useful guidelines, individual circumstances and risk tolerance vary. Consult a financial advisor to tailor your investment strategy to your specific goals and situation. Happy investing! 🌟

Comments

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