The 20s are the age of dreams, careers and new beginnings. But money related mistakes made during this period can become big problems in future. If you understand some easy and effective finance rules before the age of 30, then the future can be financially secure and stress-free. Let us know 5 important finance rules which every youth should follow.
1. 50/30/20 rule
This rule states that 50% of your income should go to essential expenses (rent, groceries, bills), 30% to your desires (travel, shopping) and 20% to savings or investments. If you follow this rule from the beginning, not only will your expenses remain under control, but you will also be able to save a good amount.
2. 20/4/10 Car Rule
Buying a new car is every youth’s dream, but remember the 20/4/10 rule. Make at least 20% down payment, do not take the loan for more than 4 years and do not spend more than 10% of your monthly income on EMIs and car expenses. With this you can avoid getting trapped in the loan trap.
3. Rule of 72
If you want to know how long it will take for your investment to double, divide 72 by the interest rate. Suppose you are getting 12% return, then 72 ÷ 12 = 6 years. That means the money will double in about 6 years. This rule helps you understand the power of compounding.
4. Emergency fund of 3-6 months
What if you suddenly lose your job or have a medical emergency? That’s why keep aside an amount equal to 3 to 6 months’ expenses. This is your protective shield, which will support you in difficult times.
5. Rule of 100
Subtract your age from 100. Whatever number comes, invest that percentage in the stock market and the rest in safe instruments. If you are 25 years old, invest 75% in equities and 25% in safe options. This maintains the balance of risk and return.
Why are these rules necessary?
Establishing right financial habits at an early age can lead to financial freedom later on. If you adopt these rules before the age of 30, you can avoid financial stress to a great extent in future.
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