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Understand Personal Financing

The Personal Finance is one of the most important Goals every individual must possess and that will definitely make an individual ahead in life. Here are 5 popular finance thumb rules to sort out the money life. However, one needs to ensure that they suit your personal circumstances instead of following them blindly.

1. Maintain an emergency fund equivalent to 6 months of salary/Business income: It will come to your rescue when an individual is suffering from crises.

2. Take a term insurance of 10 times of your annual income: The purpose of life insurance is to replace the income of the insured in case of his or her unfortunate demise. 3. The rule of 100: This thumb rules suggest that the Percentage of equity in your portfolio should be 100 minus your age. So when you are 30, the equity portion of your portfolio should be 70 percent. This thumb rule is based on the fact that equity investments deliver good returns over a longer time period as market volatilities out. So at the start of the career, an individual should have higher equity exposure and it should reduce gradually as you bear retirement 4. The 35 Percent Rule: As a thumb rule, EMI as a percentage of your income should not exceed 35-40 percent. Anything above that might put some strain on your finances. In case EMI is more than the above mentioned condition, an individual should avoid taking any more loans. 5. The rule of 72: This thumb rule gives you an indication that how much time it will take you to double your money when you are investing in a certain instrument. It says 72 divided by the rate of return is the time taken for your money to get double. So, if your returns are 8% p.a, your money will double in nine years. Remember, it is important to earn a rate of return that beats inflation. Also, where you invest would depend on your risk appetite and the time to a certain goal.

Thumb rules are meant to act as broad guidelines and are not meant to be followed blindly. At times, according to your finance needs, certain adjustments are required and it is absolutely acceptable.

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