7 Personal Finance Rules
That Will Help You Save More Money
Managing money wisely is the cornerstone of a successful and stress-free life. Whether you're just starting your financial journey or you're trying to optimize your current strategy, understanding the right personal finance rules can make a world of difference.
In this article, we explore 7 time-tested personal finance rules that can help you manage your money efficiently, invest smartly, and prepare for the future. These rules are simple, practical, and easy to implement, no matter what your income level or life stage is.
1. Rule of 72
The Rule of 72 is a quick and effective way to determine how long it will take for your investment to double, based on a fixed annual rate of return. To calculate, divide the number 72 by your expected rate of return. For instance, if your investments yield a 10% return annually, your money will double in roughly 7.2 years (72 / 10 = 7.2).
This rule emphasizes the power of compounding and how a consistent investment strategy can lead to substantial growth over time. It’s particularly useful for long-term planning and understanding the true value of steady returns.
2. The 100 Minus Age Rule
This rule is a guide for asset allocation, especially when it comes to deciding how much to invest in stocks (equity). According to this rule, subtract your age from 100 to determine the percentage of your portfolio that should be invested in equity.
For example, if you're 30 years old, you should have about 70% of your investments in equity and the rest in safer, fixed-income instruments. The logic is simple: the younger you are, the more time you have to ride out market volatility. As you grow older, it’s wise to shift your investments toward more stable and conservative assets.
3. 50-30-20 Budgeting Rule