Edit this post1)THE 3% RENTAL YIELD RULE
A property you own should generate an annual rental yield of at least three
percent of the property purchase cost. For example, if the property costs
Rs 50 lakh, your annual rent should be at least Rs 1.5 lakh. This is a
loosely applied thumb rule, and the actual rental yields may vary wildly
from one location to another. But a good point of reference nevertheless.
2)THE 3X EMERGENCY FUND RULE
You must always own an emergency fund that's at least three times your
current monthly income. That's the bare minimum. You can go up to six
months and keep building if you feel the need to do so. This is up to you.
This fund will keep you financially stable in emergencies such as loss of
employment, urgent travel, repairs, etc.
3)THE 8% RULE
Before you make any long-term investment, ask yourself: will it pay you at
least 8% returns per annum after taxes? If not, reconsider your decision to
invest. The benchmark refers to returns from small savings schemes such as
the Public Provident Fund, which currently provides tax-free returns of 7.9
percent per annum on investments up to Rs 1.5 lakh per year. If your
investment can't beat PPF, then it may not be worth your while.
4)PAY YOURSELF 10% RULE
You are in debt to your future self. So make sure you clear this debt on
priority each month without fail. Your 60-year-old self depends on you for
his income. You should invest at least 10 percent of your monthly income
in long-term investments such as equity mutual fund SIPs and PPF to secure
your retirement. Want to retire early? Invest more than 10 percent.
5)THE 20X LIFE COVER RULE
If you are buying life insurance, make sure that your sum assured can take
care of your family's income needs for the long term. If you are in your the 30s, the sum assured should be at least 20x your current annual income, or
more if you can afford it.
6)THE 30% CREDIT LIMIT RULE
Try to keep your credit utilisation ratio (the percentage of your credit
limit you are using) to 30 percent for any month. For example, if your
credit card limit is Rs 1 lakh, and if you spend Rs 30,000, your CUR is 30
percent. Try and stay within this limit, because it will help improve your
credit score.
7)THE 30% HOME BUYING RULE
Any time you buy property, you are going to pay at least 30 percent (and
normally around 40 percent) of the property cost from your pocket. Banks
will typically finance up to 80 percent, while you may need to fork out
30-40 percent more for the down payment, costs of stamp duty and
registration, furnishing, etc.
8)THE 40% EMI RULE
All your EMIs combined should ideally be no more than 40 percent of your
take-home income. For example, if your take-home pay is Rs 50,000, your
combined EMIs should ideally be Rs 20,000. While few would stop you from
going over this limit, you will strain your finances, lower your savings,
and run the risk of defaulting on your EMIs.
9)THE 50-30-20 RULE
This is a ratio that says how much you should spend from your monthly
income on fixed expenses such as rent (50 percent), discretionary expenses
such as eating out (30 percent), and minimum savings and investments (20
percent).
This ratio is ideal at the start of your working life. As your income
grows, gradually flip your savings from 20 percent to 30 percent. As you
age and your fixed expenses fall, your savings ratio should move from 30
percent to 50 percent, helping you secure your retirement.
These are rules of thumb — the most basic guidelines to better manage your
money. Depending on your life stage, income, and life priorities, you may
fine-tune these rules to achieve the best results.
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