Thumb rules for personal finance
Thumb rule is often referred to as the guideline, which has broad application. However, this is just a generic guideline and hence, the actual ideal situation might differ from person to person. Knowing these thumb rules may often help you in assessing your situation at the initial level. Thus, the next step would be to assess these rules with respect to your own personal situations. Below are some of the thumb rules that will help you to have a first-level assessment:
Paying yourself
“Don’t save what is left after spending. Spend what is left after saving”. This is very aptly quoted by Warren Buffet. Therefore, pay yourself first! The thumb rule is that you should save at least 20 per cent of your income. Now, this is generic in nature and would depend upon your level of income, your expenses and the overall personal situation. Say for instance, A and B earn Rs 50,000 per month. However, the family of A consists only of three members including A but the family of B consist of five members. Here, the expenses of B will certainly be greater than A. Therefore, the thumb rule is generic in nature and one should also check his/her own financial and personal situation before taking any decision!
Saving for retirement
Retirement is something that one must not in any case take casually. To save for retirement, there is a thumb rule that you should at least dedicate 10 per cent of your income towards building a retirement corpus. Even this is generic in nature. Therefore, calculate and review your retirement corpus periodically. Some might have a higher requirement and some may have lower. Hence, do assess your own requirement. But yes, this thumb rule becomes the bare minimum thing that one should do than not doing it at all!
Emergency planning
The thumb rule for how much money you should hold as an emergency corpus depends upon having at least three to six months of expenses as emergency corpus. This is the bare minimum amount one must have as their emergency corpus. However, the actual requirement might differ depending upon one’s occupation, insurance, debt and savings dedicated towards needs. Therefore, it is advisable to calculate your own requirement and review it periodically to account for changes in requirement.