Rules
1. Pay yourself first
As soon as you get paid, put money into savings. Automating this is even better.
2. Keep a 6-month emergency fund.
If you have multiple streams of incomes, you an go as low as 3 months.
If stating out on your own, you could need as much as 12 months.
3. Budget using the 50 / 30 / 20 rule.
- 50% for needs
- 30% for wants
- 20% towards saving/investing
This is the bare minimum!
4. Divide your bonus into thirds
- 1/3 for fun
- 1/3 for retirement
- 1/3 for debt paydown (add to retirement if only low-interest debt)
5. Pull all, or large percentage, of your raises into savings and investings
This helps avoids lifestyle inflation and moves up your retirement date.
6. Avoid high-interest debt
If you have any, use the avalanche or snowball method to pay it off.
7. Always take an employer 401K match
Many employers will match a percentage of your paycheck.
This money is getting an immediate 100% return.
If you turn this down, it;s the same as turning down a raise.
8. Your home payment
Mortage interest insurance should cost less than 25% of your monthly income.
9. When buying a car use the 20 / 4 / 10 Rule if you have it
- 20% down payment
- 4 years loan
- < 10 % of your monthly income
You can also go to buy older vehicles with cash.
10. You should save at least 15%
Save at least 15% of the income for the retirement.
11. Your age subtracted from 100
It represents the percentage of stocks you have in your portfolio.
12. The stock market
It has a long term average return of 10%
To calculate your returns, it’s common to use 6-8% to capture the effect of inflation.
13. The rule of 72
It tells you how long it will take your investment to double
Example: The stock market returns 10%, so 72 / 10 = 7.2 years to double your money
14. The 4 % rule
It says you can safely withdraw 4% of your starting investment balance each year (adjust for inflation in subsequent years) and not run out of money.
15. Your Net Worth
It should be equal to your age X pre tax income / 10
Example: If you are 35 years old and Rs. 20,00,000 in annual income, then your net worth should be Rs. 70,00,000 (35 x 20,00,000 / 10).
16. Have at least five times
You should have atleast 5x your gross salary in term life insurance.
17. Before spending money
You should wait 24 hours and ask, do I still want it? If you do, go ahead and buy it. This will save you from a lot of impulse purchases.
18. Save for retirement first
First save for your retirement, then your children’s education.
19 Value Time
Value time over money and experience over things.