10 basic rules of financial planning
Financial planning and money management is essential
as it provides a blueprint of how things can be done and administrated smoothly
without any sudden shocks from the monetary point of view. Money is everything,
one can’t sustain for a long time without money. Financial planning gives an
advantage to tackle all the transactions and different kinds of money exchanges
whether it be in the form of household expenses, debts, investments, assets or savings
Let’s discuss the 10 most basic rules of financial
1 Equity Investment ratio
The first fundamental rule of money is based on the equity
investment ratio. Equity investment generally portrays risk bearing due to
which the age to investment ration plays a prominent role for the investor to
keep his investment safe and less risky. The basic rule for deciding the equity
to investment ratio in the investment environment is to subtract your current
age from 100. The output of this subtraction is the percentage of your equity
For example-If your age is 25, you can allocate 75% for
your equity investment and 25 percent for debt.
2 How much emergency funds I should have?
Another simple rule of money is to focus on emergency
fund. One should hold a minimum income of 3 months as an emergency fund. This
emergency fund should be held at an easily accessible position. Retired
individual should maintain at least 1 year of income as an emergency fund in
order to counter any kind of uncertainties. Emergency funds should not be
overloaded as it could create a shortage of capital for your daily running
3 Maximum EMI that I can have?
If you’re purchasing something on EMI, the total EMI
should not exceed 35% of your income. And in the case of a Home Loan, the EMI
value should not exceed 25% of your income. EMI can be a flexible payment
option but if you exceed your limit, it can ruin your financial plans.
4 Keeping debt under control
Ideally, you don't have consumer debt, but again,
that's not always realistic. You could have student loan debt, credit cards,
car payments, or some other form of debt you're trying to handle. About how
much debt is too much?, most financial planning experts agree that your overall
monthly debt payments should not exceed 36% of your monthly gross income.
Over time if you can reduce the number of debts, you’ll
hold a pretty good position.
It’ll allow more amount of money from your monthly
income to go towards principal amount which will eventually result in to some handful
5 Aim to save atleast 10% of your income
One of the most widely known and used method to adopt
savings is to save atleast 10% of your income. These savings can act as a cushioning
for any unexpected expenses.
6 How much money you can spend while buying a house?
There’s no rigid rule for deciding the amount for
buying a house although you should keep in mind that the value of the house
shall not exceed 4 times your family annual income.
For example- if your family annual income is ? 10lac,
you can buy a house for up to ?40lac.
7 How much insurance should I have?
Insurance policy is something which is pretty needed
especially at this moment of time, in the world of uncertainties where any new
disease can pop out and make considerable impact on the whole world. You can
keep 10% of your yearly income to invest in insurance policies to get yourself
8 Rate of return Rules
The rule of 72 is another essential rule of wealth. If
your annual return is 12%, your money will be doubled in six years. If the
return is 8 percent it’ll take 9 years and if the return is 14 percent it’ll
take just 5 years for the money to turn into double. So choose your policy smartly
after analysing the return percentage.
9 Whether to invest in equity or bank nifty?
Many investors invest either only in equity or only in
bank nifty. Instead, the investors should have a hybrid or diversified portfolio
with a mixture of both equity and bank nifty deposit which will create a balance
in the portfolio.
10 Retirement planning
10% of your income can be reserved for your retirement
plans. Start as soon as possible and invest as much as you can for your
Evaluating your expenses is the utmost important aspect
to keep your financial planning alive. You can list down all your expenses and allocate
all of them to their respective causes. The surplus amount after churning all
the expenses can be used either for savings, investing or can be included in
your retirement planning. Plan your money wisely.