The smart spender's guide: 6 personal finance rules

Money management may seem overwhelming. You've probably heard of many rules that sound smart but don't really apply to your day-to-day life. That's because no personal finance rule fits everyone perfectly.

Hence, the need for personal finance tips that you can bend and twist to fit your lifestyle.

In this article, we will present six tried-and-tested personal finance rules, and will explain how they will help you and how you can make them your own.

1. Rule of 72

This thumb rule helps you figure out how long it will take for your money to double at a given interest rate. Just take the number 72 and divide it by your interest rate.

Suppose you invest in:

It gives you an idea of how fast your money can grow based on where you are investing it. You can use it to compare investments, especially for time-sensitive goals.

Just remember: It only works effectively with consistent, predictable returns.

2. 6x Emergency Fund Rule

You never know when you might need some extra money.

Solution: The 6x Emergency Fund Rule.

It says that you should save for:

• 6 months of expenses if you have a stable job
• 9 months if your income is variable (like freelancing or running a business)

So, if your must-pay expenses (rent, groceries, bills, EMIs) are ₹40,000/month, save:

• ₹2.4 lakh if salaried
• ₹3.6 lakh if self-employed

Put this money in a sweep-in account of liquid mutual funds. Both let you withdraw easily and give better returns than a savings account. Start small (one month's worth of expenses) and define what an emergency is for you.

3. 25x Retirement Rule

If you multiply your annual expenses by 25, you'll find out how much money you need for your retirement corpus.

Why 25? Because 1/25 = 4%, and if you can safely withdraw 4% of your savings every year in retirement, then saving 25x your annual spending should last you about 30 years.

So, if your annual expenses are ₹10 lakh, your retirement goal would be ₹2.5 crore.

However, this rule comes from US data. In India, with higher inflation and longer life expectancy, 30x (saving ₹3 crore for ₹10 lakh annual expenses) is safer.

4. 7-Day Rule

Retail therapy and impulse buys may feel good for a bit. Then they leave you with the guilt of buying something you didn't need (and empty pockets).

So, wait a week before buying anything non-essential. Use those seven days to ask:

• Do I actually need this?
• How have I lived without it?
• Could this money serve a better purpose?

Mostly, the craving disappears. And if it doesn't, at least you know it's something you really want.

Try to keep a list of things you want, and if you still want them after seven days of contemplation, then make an intentional decision to buy them.

5. 100 Minus Age Rule

How much of your investments should be split between equity (risky but high return) and debt (safe but slow)?

Just use this basic formula:

100 - your age = % of equity

So if your age is:

• 30 = 70% in stocks, 30% in debt
• 50 = 50% stocks, 50% debt

It is based on the assumption that young people can take more risks while older investors want to protect their earnings.

Naturally, this assumption may not always be accurate. You can adjust this percentage based on your responsibilities and risk appetite.

6. 40% EMI Rule

Loans can be helpful tools, but only if your EMIs don't consume your income. The 40% EMI rule says: your total EMIs (home, car, credit card dues—everything) shouldn't cross 40% of your monthly income.

So, if you earn ₹1 lakh a month, your total EMIs should be under ₹40,000.

Aiming for 35% would be even safer. That way, you can keep enough breathing room for savings and emergency funds. You can tweak this percentage as per your preferences, just make sure that you don't over-commit and fall into financial stress.

Conclusion

At the end of the day, personal finance is about discovering what truly fits your life and goals. That's the approach Pranjal Kamra, founder of Finology, encourages while breaking down complex money ideas into simple, relatable insights so everyone can take control of their financial future.

Finology is a SEBI-registered investment advisor firm with registration number: INA000012218.

Disclaimer:The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.