Do you want to build your wealth? Are you seeking control over your finances? You may consider these important personal finance thumb rules to grow your wealth. Personal finance thumb rules help you to judge a situation and make the right financial decisions. Otherwise, you could land in a debt trap even if you earn a good salary. Take a look at some of the personal-finance thumb rules to grow your wealth.
Pay Yourself First
You have a golden thumb rule in personal finance ‘Pay yourself first’. It means you must save a certain percentage of your salary before you spend the money on other things. Identify your financial goals and estimate the amount of money you must save for them.
You may route a fixed amount towards a savings or investment account when you get the paycheck. You may consider managing the household expenses with the amount left after diverting funds from your salary. In simple terms, you must first pay for your financial goals before spending on other things.
Save at least 10% of your income
You may save around 10% of your post-tax income at the start of your career. For example, you are 24 years of age with a monthly salary of Rs 20,000. You may consider saving at least Rs 2,000 per month for your future financial needs.
However, you may save more money if you have larger financial goals. You may increase the amount you save as your salary increases. You may consider keeping a part of your saving in an emergency fund for unexpected expenses.
Also Read: Should You Invest in Balanced Funds?
Follow the 50/30/20 rule to manage personal finances
You could follow the 50/30/20 rule for overall financial wellness. You may divide your income after taxes and allocate your money towards necessary expenses and financial goals.
According to the personal finance thumb rule, you must allocate 50% of your income after taxes towards necessities. You may consider spending 30% of your income on luxuries. You must invest the remaining 20% to achieve your financial goals.
Have three to six months of living expenses in an emergency fund
How much should you save in an emergency fund? Financial experts suggest that you save around three to six months of living expenses in an emergency fund. If you have a secure job with a regular salary, then you may put aside three months of living expenses in the fund.
If you are self-employed, you may set aside around six to twelve months of living expenses in the fund. You must save for all the daily expenses, insurance premiums, and the loan EMIs in the emergency fund.
How much should you invest in equity?
You may consider dividing your investments between debt and equity. However, you must decide what percentage of your portfolio goes towards equity. You may follow the personal finance thumb rule ‘100 minus age’.
For example, if you are 25 years of age you may allocate 75% of your portfolio towards equity investments. You may put your money in equity-oriented funds to earn a higher return over the long-run. Equity investments could deliver a good return over longer periods, and you may start putting your money at a younger age. However, you must always select an investment depending on your financial goals and risk tolerance.
The combined EMIs of all your loans must not exceed 40%-45% of your monthly take-home salary. However, you also have personal finance thumb rules to show you the amount of life and health insurance you need. In a nutshell, thumb rules serve as guides and help you manage your finances. You may use the personal finance thumb rules after accessing your investment goals and risk profile.
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