Simple Rules, Life-Changing Results: Take Charge of Your Finances Today

Before We Begin — A Personal Note

Let me be honest — when I started my financial journey, I had no clue these "rules" existed.

I wasn’t following the 50-30-20 rule, or calculating compounding using Rule of 72. I wasn’t thinking in terms of 25x retirement or the 4% withdrawal strategy.

But unknowingly, I was doing many of those things — saving before spending, investing consistently, staying away from debt traps, and gradually increasing my SIPs over time.

Not because someone told me to. Not because I read it in a finance book.

But because I never wanted a financial crisis to ever touch me or my family — or leave us dependent , helpless, or lost.

I wasn’t chasing competition — I was chasing 🔗financial freedom

And I was determined to reach it before my friends, my peers, and even some of the leaders I once worked alongside.

And the irony — many of us know all the rules, follow finance influencers, read every money book… yet we still don’t act.

And that’s exactly why financial struggle continues.😔

To make peace with that gap, we convince ourselves we’re content — calling it our “dream job”, even when we’re just building someone else’s vision.🤓

"It’s not what you know. It’s what you do with what you know that shapes your life."

It’s never too late to start. These rules can act as a simple guide to take control of your money and live life on your terms. But to achieve that goal, you need to be observant, disciplined, consistent, patient, and intentional.

Let’s explore each of them — and see how they can help you rewrite your financial story.

The following rules may seem simple, but applying them in real life can be challenging. However, those who’ve actually applied them — have achieved financial independence faster than most.

1. 50-30-20 RULE

This concept helps you create a budget by breaking your finances into three separate parts.

50% for needs

30% for desires

20% for investments

Of course, you can tweak it and invest more if you like. But don’t go below 20% to secure your future.

2. 6X RULE

It helps you decide how much money you must keep aside for emergencies. Before investing your money, you must save at least 6 months of expenses for a rainy day.

Say, your monthly expense is Rs 50,000. Keep 50,000 x 6 = Rs 3 lakh aside as a safety net.

3. 40% EMI RULE

This one suggests your total loan EMIs should not exceed 40% of your income. Crossing this threshold means you're burdened with excessive loans. And that can result in missing out on investment opportunities and never achieving financial freedom.

4. 20X TERM INSURANCE

This rule recommends that your life insurance coverage must be at least twenty times your yearly earnings. For example, say, your annual income is Rs 5 lakhs. Then you must get a term life cover of 1 crore.

5. 100-AGE RULE

It is a simple way to determine your equity-debt mix. Subtract your age from 100. The number you get is the percentage you can invest in equities. Rest should be in debt.

Example: If you are 30, invest 70% in equity & 30% in debt.

But it isn’t perfect.

If you are a beginner, you can take this rule as a reference for asset allocation. But as you evolve as an investor, it’s better to decide on an asset mix based on your goals. You can also add gold to your portfolio for optimizing risk and returns.

6. RULE OF 70

This tells you the impact of inflation. Divide "70" by the inflation rate, you get the no. of years after which your money's worth will be half. If the inflation rate is 7%, your money’s worth will be half in 10 yrs.

7. RULE OF 72

This helps you determine the time it will take for your investment to double. How does it work? Simply divide "72" by the rate of return you are earning. For example, with a 9% return, it will take 8 years (72/9) to double your investment.

8. 15*15*15 RULE

It is said to be one of the most basic rules that helps an investor to become a millionaire.

To explain the above rule further, let say that if you start an SIP of INR 15,000 per month for a period of 15 years in an equity based mutual fund that fetches you 15% CAGR (compounded annualized growth rate), then you will amass an amount of INR 1,01,52,946 at the end of 15 years. The power of compounding your money can undergo a multiplier effect in which the initial capital generates return, and then the accumulated return generates more return subsequently. 

There is also a 15*15*30 rule that you should be aware of, which says;

Rs. 15,000 SIP at an assumed CAGR of 15% for 30 years can help you to accumulate Rs. 10 Crore at the end. By just increasing your tenure by 15 years, one can get ten times more return. The investment amount is Rs 54 lakhs, but the amount accumulated by then is Rs 10 Crore.

The moral of the story is that if you want to create wealth, you need to keep patience and stay invested for the long term.

9. THE 10% HIKE RULE / TOP UP RULE

It is a strategy that emphasizes increasing your investments systematically over time, typically through SIPs (Systematic Investment Plans) in mutual funds or other investment vehicles. Here’s how it works:

Example Illustration:

• Initial Monthly SIP: Rs 5,000

• Investment Tenure: 30 years

• Annualized Return: 12%

Scenario 1: Without Hike

If you continue with a fixed SIP of Rs 5,000 per month for 30 years at a 12% annual return, the final corpus would be Rs 1.76 Crores.

Scenario 2: With 10% Annual Hike

If you increase your SIP by 10% every year:

• Year 1: Rs 5,000

• Year 2: Rs 5,500 (10% increase)

• Year 3: Rs 6,050 (10% increase on Rs 5,500), and so on.

By following this strategy, the final corpus after 30 years would be Rs 4.42 Crores.

Key Points:

• Compounding Effect: Increasing your SIP amount annually takes advantage of compounding returns over a long period. Even small annual increments can lead to significantly larger final amounts due to the compounding effect.

• Adjustment for Income Growth: As your income increases over time, it becomes feasible to increase your investments. The rule suggests adjusting your SIP amount annually to align with your income growth.

• Flexibility: While the rule mentions a 10% hike annually, you can adjust this percentage based on your financial situation. A 5% or 3% annual increase can still have a positive impact on your investment growth compared to a fixed SIP.

• Long-Term Commitment: This strategy works best when followed consistently over a long period. The longer you maintain the increased SIP amounts, the greater the final corpus due to compounding.

10. 25X RETIREMENT RULE

It is recommended to have at least 25 times your yearly expenses as your retirement corpus if you are retiring at the age of 60. For instance, if your annual expense at retirement is Rs 12 lakhs, you should aim to have a corpus of Rs 3 crores. This rule of thumb ensures that your savings will likely last through your retirement years, accounting for inflation and other financial needs.

However, if you decide to retire early, it's important to save even more. Retiring early means you will need your retirement funds to last longer, and you'll also miss out on additional years of potential income and savings. To accommodate this, it's advisable to aim for a higher multiple of your annual expenses. Specifically, you should consider saving 30 to 35 times your annual expenses if you plan to retire early.

11. 4% RULE

The 4% withdrawal rule, also known as the "4% rule," is a guideline used in retirement planning to determine a sustainable withdrawal rate from a retirement account, typically invested in stocks and bonds, over a 30-year period. Here’s how it works:

• Withdrawal Rate: You withdraw 4% of your retirement savings in the first year of retirement.

• Adjusting for Inflation: In subsequent years, you adjust the dollar amount of your withdrawals to account for inflation. The original dollar amount withdrawn in the first year is increased annually by the inflation rate.

• Historical Context: The rule is based on historical data of investment returns and inflation rates. It was popularized by a 1994 study by William Bengen, which found that a 4% withdrawal rate, adjusted annually for inflation, would have sustained a 30-year retirement portfolio with a high probability of success, assuming a balanced portfolio of stocks and bonds.

• Safety Margin: The 4% rule provides a balance between enjoying a reasonable standard of living in retirement and preserving the principal for the duration of retirement. It's designed to minimize the risk of outliving your savings.

• Adjustments: While the 4% rule provides a good starting point, actual withdrawal rates may need adjustment based on individual circumstances such as retirement age, expected length of retirement, investment returns, inflation, and changes in spending needs.

• Criticism and Adaptation: Some financial experts argue that a fixed 4% withdrawal rate may not be appropriate in all market conditions or for longer retirements. Therefore, flexibility and periodic reassessment of withdrawal rates are often recommended.

However, it’s always important for retirees to consider consulting with a financial advisor who can help tailor withdrawal strategies to their specific financial situation, goals, and market conditions.

Hope it helps!

Disclaimer: The information contained in this article is for informational purposes only. This study does not constitute financial, investment, legal, or other professional advice and should not be construed as such.