Interesting Thumb Rules (Part-2)

* The 10% Savings Rule – Minimum Savings to be done for the future

Most experts believe that the savings rate should be a minimum of 10% of your gross household income. A better goal is to aim higher. Another popular rule is to start saving 10% for meeting basic needs, 15% for comfort and 20% for freedom when you are young.

* 3 Month Emergency Fund Rule – To meet out any unforeseen emergency expenses

The idea is to have at least 3 months and going up to 6 months, of living expenses as emergency fund in addition to your savings for other goals. This of course depends on the nature of our work, risks and possibilities of finding new source of income soon.

* The 6 Times Life Cover Rule – Adequacy of Life Insurance Cover

This rule simply says that your life insurance policy should be at least 6 times of your total household income so that the family’s continuance of income is maintained even in the absence of the bread-winner of the family.

* The 20% Down-payment, Two Times Home Loan Rule:

This rule says that while buying a home, we should put down 20% as down-payment and avoid taking a loan over 2 times of our total household income. If we cannot afford the 20% down-payment rule, it probably means that we cannot afford that home itself.

* 20 times Income Rule For Retirement Kitty – How much Corpus is enough for Peaceful Retirement?

How much retirement kitty you will need is a big question. There are many calculations available but this simple rule says that it is 20 times of your gross total income at the time of retirement.

* Pay Highest Interest Rate Debt first:

This rule points out which loan has to be repaid on priority first – it is the one that carries the highest rate of interest. Usually, the order would be credit card first, then bank overdraft, personal loan, vehicle loan and lastly home loans – preferably home loans can be left to continue till the end of the tenure.

* Don’t Take An Education Loan More Than The Expected First Year Salary: 

With rising education costs, this one rule can help decide whether to pursue an education course on loan or not. Following this rule will help avoid the struggle to repay loan after the education is completed.

Source: NJ Publications

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