10 Thumb Rules For Financial Planning – Everyone Should Know

By
Hemant Beniwal
82

In life people want shortcuts – I think that’s the reason rules of thumb find someplace in one life. These thumb rules for financial planningare very basic & not at all full-proof as the requirements of 2 different people can never be the same. They can just give you some idea but important financial decisions should not be taken on basis of these. Editor of The Journal of Financial Planning (US), once noted that “Rules of thumb are for people who want to decide things without thinking about them.” But still, it will be unfair to suggest ignoring all of them.

10 Thumb Rules For Financial Planning - Everyone Should Know

Read – Benefits of Financial Planning

10 Thumb Rules For Financial Planning

1. What should be my asset allocation or how much equity should I have?

This is the most common rule of thumb which is used in the investment world. The rule says Equity percentage in your portfolio should be equal to 100 minus your age or in other words, debt should be equal to your age. For eg if you are 30 you should have 30% of your investments in debt & 70% (100 – your age) in equity. This doesn’t take care of risk appetite, risk tolerance, or how far your goals are.

2. How much emergency funds I should have?

Emergency Fund helps people in case of a sudden loss of income, medical emergency, etc. The Thumb rules say one should have an emergency fund equal to 3 to 6 months of monthly expenses. You can keep it at 3 months if you are a government servant but in the case of a private job or profession, you should keep it on the higher side of the range. Make sure you don’t use this amount for day-to-day needs/wants. For a retired person, an emergency fund should be equal to 1 year of expense.

Must Read – What is finance planning

Retirement Rules of thumb

3. How much money will I need in retirement or how much corpus I should build?

You should have 20 times your income saved for retirement and plan to replace 80 percent of pre-retirement income. But here retirement means retirement at age of 60 & life expectancy of 80 – and a conservative lifestyle. But now things have changed & you would have dream/planned a lot of things for retirement.

Top 10 Financial Planning Rules of Thumb Click to Tweet

4. How much do I need to invest every month to achieve my retirement goal?

“Indians are great savers” sorry “Indians were great savers”. The new generation is in some different mood they would like to enjoy the present & have no idea about future. If you have just started to work & would like to have a very simple lifestyle & retirement at age of 60 you can do it with saving (read investing) 10% of your income. If you are planning for an early retirement start with 20% savings. Another rule says if you are in your early 30s Save 10% for basics, 15% for comfort, 20% to escape. If you are late by decade add 5% more in each category.

Watch This Video for 5 Steps of Financial Planning –

Insurance Rules of Thumb

5. How much insurance should I have?

Here insurance means insurance. The rule says one should have a sum assured of 8-10 times of his yearly income. I think this rule is far from perfect but still can be used as starting point. This does not take care of any of your goals, liabilities & even complete expenses. Some modified version of this rule says that if you are in your early 30s insurance should be 12-15 times your annual income & if you are in your 50s take 6-8 times.

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Loan/Liability/Home Rules of Thumb

6. How big should be my House?

The value of a house should be equal to 2-3 times your family’s annual income. So if you & your spouse are earning a total of Rs 20 lakh – you should buy a house in a Range of Rs 40-60 Lakh.

financial planning rules

7. Maximum EMI that I can have?

Ideally, 0 will be the best answer but a few of the big assets like homes require some loan to buy them. Experts agree that your EMIs should not be more than 36% of Gross Monthly Income at any point of time. It should be even lesser when you are close to your retirement. If you want to talk about home loan EMI, it should not be greater than 28% of your gross income. Now TENURE of loan is missing here – for tenure read No. 6 & 8 rules of thumb.

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8. Rules of thumb for buying a car

This is one of the biggest purchases after your home. And this is a depreciating asset – today morning you purchase a car for Rs 10 lakh & by the evening it will be worth Rs 8-9 Lakh. After 5 years it will not be even of half-value but still, you keep buying cars regularly – buy at 10, sell at 4 & lose 6. (repeat the cycle) There are few rules that you can follow:

  • The value of a car should not be more than 50% of the annual income of the owner.
  • Purchase a used car or buy a new & use it for 10 years.
  • While buying a car with a loan stick to Rule 20/4/10 – Minimum 20% down payment, loan tenure not more than 4 years & EMI should not be higher than 10% of your income.

Rate of return Rules of Thumb

9. In how many years my amount will double?

It’s a very simple & most common rule – if you divide 72 by rate of return you will get the number of years in which your money will double. For Eg. If you expect a rate of return of 12% your money will double in 6 years (72/12=6) & what about if the rate of return is 8% – 72/8=9 years. This can also be used in reverse order at what rate your money will double in 5 years – 72/5=14.4%

Rules similar to rule 72:

Rule of 114 & 144

These can help you in how many years your money will be triple (114) or quadruple (144) at some rate of returns.

Rule of 70

You know it or not but inflation is your biggest enemy – the rule of 70 will tell you in how many years the value of money will behalf. You just need to divide 70 with the rate of inflation so if the rate of inflation is 7% – 70/7=10 years. So in 10 years, your Rs 100 note will be worth Rs 50.

Must Read-What is the Average Financial Planning fees In India?

10. Rule 10/5/3

This is a US rule of thumb which says in long term you can get 10% return from equity, 5% return from bonds (let’s say FDs) & 3% from the t-bills (liquid funds – these returns are more or less close to the range of inflation). Indian economy is growing at some different pace & even inflation numbers are different. Can we safely say if inflation is 6% (t-bill rates) we can get 8% from the fixed deposits & 12% from the equity or in other words – in long term equities will deliver twice the return of inflation? Try combining Rule of 72 with this rule – you will get some amazing numbers.

Sometimes Rules of thumb will give you a false sense of security or wrong guidance – so take them with a pinch of salt.

This article also got published in Financial Chronicle – Thumb Rules for Smart Financial Planning

If you heard of some other rules of thumb related to money/finance – must share. Also, share your personal views/experience on any of the above rules.

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82 COMMENTS

  1. Hi Hemant
    These are very useful rules and one can keep out of serious financial problems by just sticking to some of these rules. But the problem is that most of the people are either ignorant of these rules or don’t want to follow these rules.
    I found the rules regarding purchasing property and car most interesting. But most of the young people I know don’t seem to be following these rules. Only middle aged people look for second hand and small cars.Young persons prefer to buy new and big cars.
    Whenever a young person starts earning his first priority is to buy a new big car and a big house. I know many people who are earning less than ten lakhs but have already purchased a big new car and booked a big house by taking bank loans. They even ask their parents to fund these purchases.

    • Hi Anil,
      Rule regarding car is a must follow for all young guys – this is going to make a huge difference in their financial life.

      • Hi hemant, Can you please me locate where that car related article is!!! which Anil mentioned. Would like to go through…. BTW, it was a terrific rules 🙂 thanks

    • Buying a house is a good investment. It will add financial pressure but still after 5 years the property value might have trippled. But these days youngsters want to enjoy life and they buy car soon after they getting a job, that, i dont think is a good investment. Depends on how much they are really enjoying in their car though.

  2. Simply mind blowing, never thought money and life would be so simple and at the same time so complex too.
    Thank you Hemant ji.
    Thumbs up to you.

  5. Dear Hemantji,

    I am very big fan of you on the financial Planning Topics, As i have read your few articles and this found to be very interesting and helpful to the person before making any investment of his hard earned money. I request you to guide me on the Investment of mutual funds SIP also.
    Once again Thanks and keep in writing such financial topics
    Regards,
    Datta Suryavanshi

  6. This was a sheer pleasure to read, right from the cute pic on the top to the rules in the end. Very impressive rules of 72, 70 and 10/5/3, never thought it would be this simple to understand. Usually articles/blogs like these are very complicated, you have done an excellent job to simplify and communicate these, Thanks Sirji.
    Of many favorite things in this blog, my most favorite is “Here insurance means insurance”. Every article I read here, I have the sense of satisfaction that I learned something new but a small pain that I wish I was reading to your blogs 5 years back. So many disappointments with respect to investing the wrong way, damn agents and media (and ofcourse, damn me :)).
    Thank you Hemantji for simplifying this, God bless.

    • Thanks Mansoor for accepting that investor/client are also at mistake – we should not always hold agents responsible for mis-selling happen in the market. It’s Buyers Beware & Buyers Be-Aware.

  7. Sir,
    Eventhough I am an equity and mutual fund investor for the past 30 years,your artcles are very interesting and guiding.My investments were directionless as a boat in heavy wind.After reading your articles.now I have learnt to streamline my investments.
    Thank you
    Dr.Ganapathy V.L.

    • Hi Dr Ganapathy,
      I really appreciate that a person with such a long experience in investor world is so open to learn.

  8. Dear Hemant,

    You are one of my best achievements of life coz your ideas & suggestions are helping & will help me to not only live my life but to enjoy it also. I am glad to have you as my financial adviser. Thanks for being there.

    …and oh yes!!! what a wonderful article this is “top-10-financial-planning-rules-of-thumb”

  9. Hi Hemant. A nice article that would simplify life. But I am not able to comprehend your return estimations in Indian context in rule 10. Are they based on the relationship from the US context.

    • Hi Sreekant,
      I have not given any return estimates but tried to show relationship between inflation & equity returns. If you look long term history (100 years) of any global market you will find equities has give 2-3 times return than inflation. Even if you check 31 years history of Indian markets you can find this relationship.

  11. Hemant,
    Thanks for the great information.
    The rules of thumb I liked most are about buying House & Car, more because I am planning for both and as of now, nowhere near the retirement 🙂

    How about some rule of thumb for Health Insurance.

    Just wondering, the assumptions behind the statement:
    “For retired person emergency fund should be equal to 1 year of expense.”
    I am not questioning the statement, just trying to understand the rationale.

    Keep sharing like this.

    • Hi Vikas,
      If you follow rules of House & Car it will automatically help you in retirement planning. 🙂
      Emergency Fund at the time of retirement will be higher due to medical emergency, no income & you will not want to run door to door to have some money.

  12. hemant ji
    this article is very wonderful,informative
    this will definately show path to a financial freedom journey

  14. Dear Hemant,
    I am a regular reader of your articles and follow some other noted writers from this space as well. Here are some of my suggestions/perspectives for the 10 rules you ha mentioned. As you have already said in the beginning the rules are for lazy and simpletons, and real gains come after real pains, and I totally agree with this. Still if some one will bother to scroll down up to this point, s/he may get a little extra insight.

    Rule 1: the asset allocation cannot depend only on your age (that says that the younger you are, the more risk apetite you might have). one should also take into consideration the present financial standing – an unmarried single-child male in his late 20s or early 30s living with parents in their owned home will certainly have more risk apetite than a married young person living off his income in a rented house with his wife and possibly kids; similarly, a businessman willing to park some money to earn extra income has more risk apetite than a salaried person with only salary as his source of income, even if other things like age and dependents remain the same.

    Rule 2: I agree to it if one has not sufficient amount of insurance cover in the form of term or health and/or personal accident policies. if these things are in place to an adequate amount then one can stick to the lower limit of amount equal to three months’ EXPENSES.

    Rule 3: retirement will be most likely at the age of 50+. by that time, thanks to our spoiled lifestyle, we will need to probably spend more on our health that what our parents we do today as a percentage of their income. there will be expensive medical procedures/treatmens to take care of, thanks to a more laid back life, partying harder and merry making. Probably expectation from children and thei families to receive a gift at the rime of retirement, or more importantly that long promised time in reclusion with your spouse at some distant hill-station, or frequent visits to relatives out of your home city. these all actually lead to more expenses rather less.

    Rule 4: probably right…but again depends on the lifestyle and city you live in.

    Rule 5: probably modified rules are better than the original one.
    RULE 5.1: What about health insurance?????? Opt for a cashless mediclaim policy (family floater) along with a personal accident benefit policy (for each earning member at least). Include your aged parents in it too.
    Assuming you have dependent parent(s), are married and have 0/1/2 kids, then the following may help:
    It must be around 1x to 2x of your annual income if you are in age bracket of <35.
    If you are between 35 and 45, make it (increase if already prior cover is in force) 2x to 3.5x.
    If you are in the age bracket of 45+ make it (increase if already prior cover is in force) 3x to 5x. This is because that with passing age the number, severity and therefore costs of medical expences will rise meteorically.

    Rule 6: Going for a new (read first) house to live in, the rule is quite impossible to achieve in most Tier I and II cities in India. one of my friends recently bought a flat in Jaipur, in a new locality, for just 18Lakhs, while hias earnings are around 4L pa. But, the real estate prices have risen very steeply in recent years. Your suggestion of 2-3 times would have not got him any deal. Therefore save atleast 30-50% of the final perspective cost of your home (as self contribution) and then go for a home loan of upto the balance. never exhaust your complete limit of 80-85% from bank, in case of such a volatile economic conditions.

    Rules 7 and 8: Maximum EMIs practically often break the ceiling suggested. Like in the above example of rule 6, my friend is to pay almost 48% of his month;y take home as EMI for home loan. As far as auto loan is considered, although i would agree to your RULE 8, but wold like to point the fact that in this time of pomp-and-show, many people have to keep big cars to keep big company/clients and carge big bucks for their job. It has become a marketing gimmick of sorts.
    There must, however, be a cap on the EMIs for non-appreciating assests (home loan) or non-productive assests (auto loan on a decent ride) say not more than 5% of NET monthly income. These may include credit-cards, personal loans, travel loans, and the like. However, loan on the childrens' education should be considered as a productive loan.

    Rule 9: probably right, but for finding a particular multiplier for a rate of real income (rate of returns – rate of inflation) assuming it remains steady for the whole tenure the rule of 72 can be modified as follows:
    72/(RoR-RoI)
    Where, RoR is the expected rate of return and RoI is the rate of inflation. If RoI is greater than or equal to thr RoR, then do not expect your money to grow over any time period. it is better to consume it now than to save it it for tomorrow.

    Rule 10: The modified rule of 12/8/6 seems to hold if one looks at a long-term period BEFORE 2008. But post QE1 and QE2 by US Fed and ECB (European central bank), the rising liquidity has raised the comodity prices (read inflation) to close to 10% levels for last 2 and a half years and it doesn't seem to be coming down anytime soon. Also the tighetening of the interst rates by RBI, in order to keep the real rate of return in non-negative teritorry, have lead to bond yields (FD) in the range of 9.5% to 11% range. So for present dcenario we can not see this rule eorking. But, over a long term of say, 5 to 10 years from FY2012 onwards it may hold.

    Happy investing

    • Hi Mudit,
      Thanks for giving insight on thumb rules. Your comment (or I say a complete article) has added more value to the whole theme.
      I agree with most of your points even including real estate. But would like to add something on buying house – this is one of the biggest financial decision & should not be taken on basis of above mentioned rule or even below mentioned points. 😉 There are lot of points that should be considered before buying:
      1. If you see I have specifically mentioned spouse income (in car I clearly wrote owner) – so if spouse is earning it would have came in the range of 2-3 years.
      2. Buying vs rental is a very important factor before purchasing a house.
      3. Is it a good time to buy a house? I don’t know – affordability index says yes but prices index says no 🙁
      4. Property prices also correct & when someone buys a property on loan – it is leveraged investment. We don’t have great real estate data in India but HDFC shows (Mumbai) that prices in 1998 were down by 50% in comparison to 1995. Prices were flat from 1998 to 2004 before the start of next bull run.
      There can be many more points….

      • Hi Hemant,
        Thank you for your appreciation and very prompt reply and Mr. Kapila as well for his notice.
        1 and 2) Yes you are right that if we assume that both in the couple are earning well then it is possible that home loans could come in the 2x to 3x multiple range. But, even after so many years of liberalisation and many women entering the workforce at higher levels, this proportion of equally (or almost equally) earning couples will be very less compared to the aspirants in the home loan sector.
        Buying v/s. rental is sure a VERY imp point. Like in my friend’s case i cited earlier, his rental was increased abruptly to 8K pm from 5.5K pm. The EMI for his loan is around 12.5K and he received his annual increment of about 3.5K in the next month of his purchasing home. so the additional burden (the opportunity cost) was only 1.5K to 2.5K pm. But, like in my own case it would be more than 7.5k to 9K pm (almost 20% to 28% of my monthly income), therefore i am sticking to investing in high growth investments like equities or in future planning (like term plan or ppf). Many tenants (usually small families) in India are still occupying their present houses at affordable rentals because of amiable relations with their house-owners and will continue to do so, unless inevitable. But now because of growing aspirations (read GREED) many house-owners are charging exorbitant rentals so switching to the EMI would increasingly look a more viable and better solution.
        3) Yes I agree completely. but these decisions are many a times more impulsive than logical.
        4) No idea so you are right.

        thanks

        • Hi Mudit
          I would like to share my experience here.
          My brother in law and his wife live in their own house in Chandigarh. Both are working. After getting married they had to live for about three years in rented houses. During this period they had to change their house three times. Ultimately they decided to go for their own house. They purchased a small house after taking a bank loan. They took almost 25 years to payback their loan. During this period around 50% of their income was used for paying back their loan so they could not afford to maintain a car. Only now after paying back their home loan they are feeling financially comfortable. They have recently purchased a car and started buying other household goods.
          I rented my house five years back to a small family. Although I could have got more rent by giving to a large family but I preferred not to do so.
          Greed to get high rent can land you in trouble. I know many instances in my locality where the house owners had to pay large amounts to get their houses vacated from high rent paying individuals.

          • Dear Mr. Kapila,
            from you comment i think that (please don’t mind my assessment) that your said relatives did not get any increments (assuming they were salaried) or any other kind of raise in their income over such a long period. So i believe that in their earlier stage of life the home loan EMI took a larger proportion of their total income and later due to new expenses of raising a family and providing for education did not help matters financially and took up all the additional resources/incomes.

            In many cases the house owners also rent out to students and single working persons who prefer to pay more rent for more comfort, less inconvenience and less interference. This drives up rentals for even many families who are already strained with other spiraling expenses.

            • Hi Mudit
              Your assessment is correct.

              Yes in my locality also many house owners provide paying guest accomodation to such people.

      • Hi Hemant
        Yes I also felt that Mudit’s comment was a full fledged article in itself. A lot of thought has gone into this comment.
        I agree that decision to buy a house is a very important thing and no two persons can have the same reasons for buying a house.

      • Hi Hemant ,

        Fantastic Article !!!
        Its a another gem of an article from your side … 🙂

        About point No 6 , I also agree with mudit

        Here i would like to speak on behalf of young guys who buy home ,i would like to give my own example ,
        About 3 years back when i was bachlor and was looking for home in pune
        The 2 BHK prices were in range of 27 Lakh to 35 Lakh depending on locality

        I liked one flat in nice locality from reputed builder ..

        The flat total cost was going around 30 lakhs … and it was almost 9 times of my annual income at that time
        But with savings from onsite trip from company & some help from parents , i was able to do the downpayment of around 40 %
        And took the loan on 60% of amount

        At that time EMI was around 18k and this was almost 60-65 % of my monthly take home salary .. ( i know its too huge 🙁 )
        But as i was bachlor .. my expenses were bit low .. so i was able to manage this situation till my next hike in salary

        Now after 3 years , below is the situation

        Current 2BHK flat price in my area , 40-42 Lakhs
        Current EMI : 19k
        % of portion of my monthly take home salary today : 33 %

        Here I am not supporting any builder nor i am sure that property prices will go down or up in near future

        But today i think , i made better decesion at that time instead of waiting my salary to increase
        ( coz in that case even though my salary is increasing every cycle the property rates were also increasing .. )

        Also i have seen similler kind of situation for most of my friends who are buying home ,
        At some point or other they have to stretch themselves to able to complete the purchase , ( sad but true .. 🙁 )

        So this principle of 2-3 or even 4 times of anual income is very hard to achieve

        • Hi Rohan,
          There is no right or wrong answer – if we are talking about home. (where you listen to heart rather than mind)
          But there is one more rule – which says “When you take debt or risk – you should be paid for it”. 🙂

    • Hi Mudit
      I find your observations very interesting and tend to agree with most of what you have said.

  17. This is excellent and very informative article Hemant. But I’m kind of not completely agree with Rule no. 1 about allocation. May be I’m alone here with this thought but how come a newbie who in general don’t have any knowledge/experience about equity should have higher allocation to it and while with age (if he is genuinely interested) when he get more knowledge and experience, instead of increasing.. should decrease allocation to equity? In other words its like saying when you are immature at driving bike in young age, you should ride it at 80km/h while with experience/practice after years, should reduce your speed to 30km/h (for person aged 70). Equity is best money grower in long term and in my opinion, a person should have considerable size in equity whether through MFs or direct (of course, its much more risky).

    • Dear Jagbir,
      i believe that one should dabble into equity directly only after one understands about it. We are allured towards equity/mfs when there is a bull run (remember Power On toh India On)….THAT MUST NOT BE THE CASE AT ALL.
      Bulls and bears are for hunters(traders) to tame, and hunt…not for commoners like u and me. But don’t we enjoy the security of being in a safe neighborhood! That safe neighborhood is nothing but a result of our own discipline – we toil daily to erect a fence around our small farmland, to irrigate our crop daily and with accurate amount of water, we turn soil and put in manure for nutrients at proper time. That is what is discipline all about.
      for a newbee like u, i would suggest a few things:
      1) Invest in equity or equity oriented hybrid MFs through SIP or in tax saving schemes. Invest only that amount which u will NOT NEED AT ALL in coming 3-5 years. Tax-saver MF have a lock-in to help in this discipline. Forget about this money. It could be about 25% to 505 of you investible surplus depending upon the particular choice.
      2) Open a demat account to Invest in gold ETFs BUT NEVER IN STOCKS DIRECTLY. Be regular to purchase 1 unit (i gm of gold) every month on a fixed date. As you will not indulge in any trading of stocks, go for a no-frills account with least transaction costs and AMC. DO NOT go for Gold funds. Gold should initially be about 25% to 50% of your investments is meant as a very long-term asset for purposes like marriage (which I assume will be atleast 3-5 years away). If you start investing in gold right now, you may loose some of the value as i think that gold prices have been very high and may correct in a period of 18 months. Dont’ worry…this loss will be covered in equities and you should not buy more gold at that time….BOOND BOOND SE HI GHARA BHARNA HAI…..
      3) Start a PPF a/c for pension and retirement planning with as little as 1000/- pm. Again be regular.
      4) Keep the balance in FDs (not very much recommended), as the rate of interest is very high now, for a period of 1-2 years. It should not be more than 25% of your total investible surplus. Or you can go for a RD.

      In 2-3 years of time with more experience and guidance you will write something like this for another Jagbir.

      • Hi Mudit
        This is another masterpiece. I admire your style of writing. Writing appears to be your passion. You must be a professional writer. I can already predict it. You are going to be easily Hemant’s best commentator of this month. Your advice appears to be very sound.

    • Hi Jagbir
      Unfortunately, it is a fact that we see a lot of crazy school going teenagers driving bikes at 80 km/h and rarely a middle aged person doing so.

  18. Hi Hemant ji,

    I thank you for your informative article.

    Please help me to understand this
    “Save 10% for basics, 15% for comfort, 20% to escape”

  20. wow.!!! hemant ji, very well written, Thank you for the article. If not all, i agree with most of the points, the article contains all that what a person needs to focus while investing in different domains. And yea i appreciate your views written about buying a house and a car. I guess many people would actually burden themselves with higher amount home loans and EMIs, this piece of information would actually help us to judge the right time for right asset we want to have in future without having much of headache regarding paying capacity. really u making our lives less complicated .. !!

  21. Excellent article Hemant – You have compiled some of the well known thumb rules (e.g. asset allocatio) as well as some not so well known yet useful rules.

    If only people started planning based on these rules.

    Another one of my favourites – Buy or Rent a home (Again from NY Times)

    If House Value < 300*Monthly rent, it is better to buy the house. This is however US centric and might mean most real estate options in india are ruled out!!

  23. Assume that one of my friend is interested in raising a loan of Rs.20 lakhs for buying a house
    which source would I recommend and why?

  24. That’s quite some mathematics.

    Definitely, if they could be followed they will keep you financially healthy both in terms of assets & liabilities.

    But in today’s rapid growing real estate prices & car prices can the thumb rules be followed?

  25. Dear Hemant,
    I am 48 yrs old and want to invest Rs. 20,000/- per month through SIP. Could you please suggest the ideal assest allocation profile for me considering my age? I want high return from my investment partly within 5/6 yrs for children education and than after 10/12 yrs for my retirement. Also, kindly mention the name of the funds to be invested.

  27. Dear Hemant
    I have recently read something on the subject financial freedom. I really want to be financially free means I don’t want to work further to earn money. I have Rs. 30 lacs cash in my SB a/c, I am of 52 and free from all debt with my own house. Now I need your advice how can I earn atleast Rs.500000 P.M regularly from Rs30 lacs

  28. Thanks a lot for the articles on this site, you are doing a social service for the people visiting your site.

    Regards, Abhilash

    • Thanks Abhilash – you can also do this social service by sharing this with your friends 🙂

  29. Excellent article.I’m paying 50% of salary on my house EMI.it is difficult to get good homes in metro cities at lower rate.

    • Hi Srikant,
      You are right regarding high prices but just think if this decision proves to be wrong – it will harm your financial life.

  30. Hello Hemant ,

    i m so glad to receive the financial related stuff . it is wonderful guideline and education.
    we are getting lots of financial literacy. i liked the Bank EMI and Car loan (basic thumb rule) topic.
    thanks a ton…..

  31. Hi Hemant,
    by introducing these rules,you have made me very comfortable with many calculations ,otherwise seemed so complex.thanks for that

  32. i want to clarify the thumb rule for retirement..

    ”You should have 20 times your income saved
    for retirement and plan to replace 80 percent
    of pre-retirement income.”

    i m not understand what is the 20 times your income and also what is pre retirement income.

    will you please elobarate it …

    regards
    satya

  34. How much I need to invest every month to achieve retirement goal?. Make this more clear.
    Article is too good.
    thanks

  36. Hi,
    I think young married couples with kids should also take a note of rising costs of education and health care. The rate of inflation in these two categories is quite high
    , almost in the range of 15 to 20%. This is a big risk.
    Also with such a high rates of inflation does it make sense to stay out of equity at any stage of life ?
    Cheers,
    Naveen Thota

  37. Hi Hemant and Mudit,
    Nice conversation between you. others like us are trying to understand your depth of knowledge in it.
    Tell me one thing in buying house, should we consider the thumb rule of 5 times to individual income with future increment or only on present income.
    I am planning to buy a house, but i dont have cash in hand to pay my initial amount. So i planned to take a loan on jewels from the bank to pay it. Remaining 80% of house cost from house loan. Is it worth doing. Here I will have 2 intrests to pay for the bank.

  38. Hello sir
    Its a pleasure reading ur articles..I too want to b a cfp professional..my investmnt xam is on nxt week..ur articles hv helpd me a lottttt..thnk u so much..bt i jst hd a doubt..i did nt undrstnd d statemnt “You should have 20 times your income saved for retirement and plan to replace 80 percent of pre-retirement income.”
    Cn u please ellaborate.
    Thnk u once agn.

  39. Hi Hemant,
    Thanks for sharing such a valuable information in a very simple and clear way understandable to every one.

  40. Amazing rules of thumb… Hats off… Am 40 & after reading these rules I think I haven’t done anything in life… This article definitely going to give me new ideas and ways to rethink about my investments… Thanks a lot and keep showering us with these type of useful articles.

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