Do you want to invest your money to build assets and multiply it? We’ve all considered investing our money at some point. But it all feels so complicated and intimidating that we just end up storing it in our bank. Investing can seem difficult, but there are smart tips that serve as great starting points. Let’s look at some thumb rules for investing in this blog so you can make well-informed decisions.
A thumb rule can provide you with clear guidance on how to approach investing. They are useful to follow if you want to develop financial security, increase the value of your savings, distribute your investments, and increase your income. Let’s examine some general and well-liked investing terms to help you maximize your wealth.
RULE OF 72 iN ASSET ALLOCATION
The rule of 72 is a simple calculation that estimates how long it will take for your money to grow. With a set return rate, it gives an approximation of the time it will take for your money to double.
The formula is: 72 / interest rate = the number of years it will take for your money to double.
You can enter different interest rates from various investments your money is in to better understand how the formula works.
If your investment account earns 5%, it will take 14.4 years for your money to double [72 / 5 = 14.4]
RULE OF 114
The rule of 114, like the rule of 72, takes it to the next level. The time required to triple your money is specified in this regulation. The mathematical formula resembles the 72-rule.
The formula is 114 / interest rate = the number of years it will take to triple your investment.
So, if your investment account earns: 5%, it will take 22.8 years for your money to triple [114 / 5 = 22.8]
RULE OF 144
What could be better than tripling and doubling your money? That’s right, a quadrupling! With a fixed interest rate, the rule of 144 explains how much your money will increase four times.
The Rule of 144 applies the same formula, much like the Rules of 72 and 114 do.
The formula is: 144 / interest rate = the number of years it will take to quadruple your money.
If your investment account earns 5%, it will take 28.8 years for your money to quadruple [144 / 5 = 28.8]
MINIMUM 10% INVESTMENT RULE
Saving and investing are generally not the first things on our minds when we first start earning. However, starting to save early is essential if you want to take advantage of compounding. According to this investment guideline, investors should begin by setting aside at least 10% of their current wage and then increase it by 10% annually.
RULE OF 100 MINUS AGE IN ASSET ALLOCATION
The asset allocation between equity and debt can be determined using the 100 minus age rule. This rule states that you must deduct your age from 100. The percentage of equity exposure that can work for you is the outcome. You can invest the remaining money in debt. This rule of thumb is based on the assumption that once a person retires, their equity allocation should decrease.
Say you are planning to start investing at the age of 30. According to the 100-minus-age rule, your portfolio’s asset allocation will be as follows:
Equity is equal to (100 – 30)%.
Debt = 30%
RULE FOR EMERGENCY FUNDS
Because life is unpredictable, you should always be ready for financial emergencies. As a result, the majority of financial advisors suggest that young investors start by setting up an emergency fund. This rule states that you must save away money equivalent to your total monthly spending for a minimum of three to six months. This could prevent a crash crush in an emergency. During such crises, the emergency fund needs to be kept liquid and accessible.
RULE OF WITHDRAWAL FOR ASSETS
Most people aim to build a capital that outlasts them and save for their retirement years. However, given the unpredictability of inflation rates, there is a chance of using up the corpus too quickly. The 4% Withdrawal Rule was created to help retirees maintain a consistent income stream without rapidly depleting their assets.
According to this approach, you can manage your living expenses if you take out 4% of your retirement fund each year. The law states that if you have a retirement corpus of Rs. 1 crore, you may withdraw no more than Rs. 4 lakh annually to manage your living expenditures.
However, before blindly following this or any other rule of thumb, do your own study and due diligence.
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