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TAKE CHARGE of YOUR MONEY in 10 MINUTES! | Financial Planning | Ankur Warikoo Hindi - YouTube
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In 10 minutes, I will share
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9 personal finance rules with you
[3]
which are important for you
[4]
if you want to
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take charge of your money.
[8]
Before starting the video,
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a big shout-out to Harshil
[10]
who sent me an email
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that he got a whatsapp forward
[13]
around these
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9 personal finance rules.
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I really liked them,
[17]
so I thought of making
[17]
a video on them.
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So thank you Harshil,
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and thanks to everybody
[20]
who keeps sharing feedback with me,
[22]
because that's the way I keep
[23]
helping all of you guys.
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Well, let's get started.
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Number 1: The rule of 72.
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It is a fundamental rule
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but a very useful rule.
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In how many years will
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your money double?
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You have to divide 72 by
[38]
the rate of interest you earn every year.
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Let's say. you get an interest
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of 10%, then your money will
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double in 7 years,
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which is 72 divided by 10.
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If you have invested in an FD,
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then as per 5%, your money
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will double in 14 years.
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If you are earning 20%,
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doing whatever investments
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that you are doing,
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then your money will double
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in 3.5 years only.
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Rule of 72:
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In how much time does your
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money double?
[75]
Based on this, rule number 2:
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The inflation adjustment rule,
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called the rule of 70.
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If you want to know in
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how many years will the value
[84]
of your money decrease,
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then you can divide 70
[88]
by the inflation rate.
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Nowadays, the inflation rate
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is around 5-6%,
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let's take it as 6%.
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This means, 72 divided by 6,
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which is 12, so your money
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will reduce to half in 12 years.
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If you have ₹100 with you
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and you keep it with yourself only,
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then after 12 years,
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with that ₹100,
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you will be able to buy things
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worth ₹50 only as of today's price.
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This tells you the importance
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of continuously keep saving
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and also beating inflation.
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Rule number 3:
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The 4% withdrawal rule.
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A lot of people ask me,
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'When you invest,
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then how and when do you
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withdraw money,
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how much do you withdraw?'
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And there comes this 4% rule.
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First, multiply all your
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yearly needs, your expenses by 25,
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to figure out how much money
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would you need at the
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time of retirement,
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because that is approximately
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the time you will live
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after retirement.
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Suppose your annual expense
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is ₹5 lakhs, and you retire
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at the age of 50 or 60,
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then you would need ₹1.25 crores
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at that age,
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which is ₹5 lakhs
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multiplied by 25.
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When you will retire
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with this corpus,
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then you will withdraw 4% every year,
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which is the amount
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that you need to live life.
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So you keep withdrawing
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4% every year.
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Hopefully, your ₹1.25 crores
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will still keep growing,
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in whatever investments you have made.
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It could be debt, equity,
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a combination of both,
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but basically
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what you have to do is,
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every year after retirement,
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start withdrawing 4%
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of your total corpus,
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while the corpus keeps
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earning interest.
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Rule number 4:
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The 100 minus age rule.
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It tells you how much
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should you invest in equities.
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Whatever is your age,
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subtract it from 100,
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and whatever number you get,
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that in percentage is
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how much you should allocate
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to equities.
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Suppose you are 25 years old,
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100 minus 25 is 75%.
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This means, you should invest
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75% of all the money
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that you invest every month
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in equities.
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It could be direct stocks,
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mutual funds, smallcase,
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combinations thereof.
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But 75% of your own
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investment amount
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should go to equities.
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You can then split the
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remaining 25% in multiple
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other assets.
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You can buy digital gold,
[245]
corporate bonds, you can
[247]
invest some in crypto too,
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you can park some of it for
[251]
your emergency fund too.
[253]
By the way, investing in FD
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for an emergency fund
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is the right decision.
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Not to grow, but to protect money.
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So 100 minus age rule
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will tell you how much of your
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investments should go
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towards equities.
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Rule number 5: The 10-5-3 rule.
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It is a very simple rule
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for you to have reasonable
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expectations with the
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growing percentage of your
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investments post-tax.
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10 means, assume that your
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equity investments will give
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you an annual return
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of 10% post-tax.
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5% is your fixed deposit
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post-tax return.
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These days, you don't even
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get that much but assume it
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to be this much.
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3 is the savings rate
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that you get from your
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bank annually,
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where your money is rotting.
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10-5-3.
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It is very important
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because a lot of people
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chase short-term returns,
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and forget that you earn
[316]
the same reasonable return
[318]
every year on
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a long-term investment
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with great difficulty.
[322]
So even if you get 10% annually,
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then your money is doubling
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every 7 years,
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which means for you to
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actually multiply your money
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by say 16 times,
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all you need to do is
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just stay invested for
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around 30 years.
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That is not a really long time,
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but your money will grow
[346]
from 2 to 4, 4 to 8, 8 to 16
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in just 28 years,
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if you keep growing your
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money at 10% every year.
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Be reasonable around
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the expectations that you can get,
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because that will then
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allow you to stay invested.
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If in any year you get
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20% or 25%,
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but the next year you get only 15%,
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that doesn't mean that you
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are doing poorly, because trust me,
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even the best investors
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across the world consistently
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deliver 15-20%, not more than that.
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Rule number 6:
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One of my favorite rules,
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the 50:30:20 rule.
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It is a very powerful budgeting rule.
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If you do not know
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how to spend your monthly income,
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then 50% of your money
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should go towards your needs.
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It could be your EMI, rent,
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food, and clothing expenses.
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All those things which are
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necessary for you to live life,
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that should be within 50%.
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Then 30% goes towards your desires.
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It could be a phone, vacation,
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EMI for your car, whatever is it
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that you wish to spend money on,
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because what fun is it
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if we just keep investing,
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and then we have money only
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when we are old,
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and we could not do anything
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in our youth.
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So you have to spend money,
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spend it wisely,
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and that is why 30%.
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And 20%, minimum 20%
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should be invested every month.
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So, 50% towards your needs,
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30% towards your wants,
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and 20% towards your investments.
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50:30:20 rule.
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Rule number 7: The six X rule.
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Before starting
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any kind of investment,
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you should have at least
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6 months of expense
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in your emergency fund.
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If you do not have it,
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then you are actually
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taking a big risk.
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In addition to this,
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I will add two more things.
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Health insurance
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and life insurance.
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Health insurance,
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because God forbid
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if anything happens to you
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or your family members,
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then all your savings can vanish
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by paying hospital bills.
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This is the biggest learning
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for us from the past 2 years.
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Don't let that happen to you.
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And life insurance,
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because God forbid if anything
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happens to you or your
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main earning member,
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then all the burden of your loans
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should not be borne by your family.
[487]
So in the unfortunate event
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of you passing away,
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you should leave your family
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with financial protection
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for which life insurance
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is important.
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But beyond that,
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the six X rule,
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which is to multiply
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the monthly expense for
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your needs by 6,
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this should be
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your emergency fund.
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And you can split this
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emergency fund in what
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is called 70:20:10.
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70% will be in a fixed deposit,
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which is secure there.
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20% in your savings account,
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from which you can withdraw
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at any time.
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And 10% in cash,
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so that in case of
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any immediate need,
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you can withdraw that money
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or at least tap into that money,
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because it is lying somewhere
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in your drawer or cupboard.
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Rule number 8: The 40% rule.
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The 40% rule tells you
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that if you have any
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ongoing loan EMIs,
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then the total of all the
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loan EMIs should be
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within 40% of your salary.
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If more than 40% of your salary
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is going towards loan EMI,
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then you are over-leverage.
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This means, you have more loans
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than you need,
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and that is going to suck you in
[563]
because all your savings
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are vanishing by paying
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the interest on those loans,
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and you are not getting
[569]
a chance to invest
[571]
according to the 50:30:20 rule,
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because you have to live your life,
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you have to fulfill your desires,
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and then you are not left
[579]
with any money to invest.
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So the longest time
[582]
you spend on paying the loan,
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is the time you are away
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from investing, and because of that,
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you are delaying your investments
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even more,
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and you are not going to retire
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with the money that you
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need to retire with.
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And finally rule number 9:
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The 25 X rule.
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It tells you that whenever
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you buy life insurance,
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then you should multiply
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your annual income by 25,
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and that should be your
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ideal life insurance cover.
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So, if your annual income
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is ₹5 lakhs,
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then you should take
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a life cover of ₹1.25 crores,
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so that god forbid
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if anything happens to you,
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your family will get ₹1.25 crores,
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which would be enough for them
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to manage themselves
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for the next 25 years
[630]
if they invest properly.
[631]
If nothing happens to you
[633]
and the term ends,
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then you would get the premium paid,
[638]
and basis the amount
[639]
that you have chosen,
[640]
whether it is a capital guaranteed plan,
[641]
endowment plan, any investment plan,
[643]
ULIP, etc., whatever the choice
[646]
is it that you have made,
[647]
you will get a return
[648]
according to that,
[649]
but the life insurance cover
[651]
bare minimum should be 25 times
[654]
your annual income.
[657]
So these were
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the 9 personal finance rules
[659]
which are important for you to
[660]
take charge of your money.
[661]
The rule of 72,
[662]
will tell you how many years
[664]
will your money double.
[666]
The rule of 70,
[667]
will tell you how much
[669]
will the value of your money
[670]
reduce because of inflation.
[672]
The 4% withdrawal rule
[674]
tells you how much money
[677]
should you withdraw from
[679]
investments after retirement.
[680]
The hundred minus age rule
[682]
tells you how much should
[684]
you invest in your equity
[685]
according to your age.
[687]
The 10-5-3 rule will tell
[689]
you how much can you expect
[692]
reasonably post-tax
[694]
from your returns.
[695]
The 50:30:20 rule will
[697]
tell you how to split your money
[700]
into your needs, your wants,
[702]
and your investments.
[704]
The six X rule will tell you
[706]
the size of an emergency fund.
[708]
The 40% rule will tell you
[710]
how many EMIs should you have.
[712]
And finally, the 25X rule
[714]
will tell you how much
[715]
should be your life insurance cover.
[717]
Tell me which of these
[719]
was the most helpful and why.
[722]
Ankur Warikoo, signing off!
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