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Finance

Everybody wants to increase their income and increase their savings but doubling money requires patience and discipline, one needs to look out for a suitable option or investment, where he can remain invested for a particular time. Different types of investments are essential to double your money quickly. For example,  Investing in stocks can double your money in the shortest possible time, but at the same time, it will take more time to double your investment in safer options like fixed deposits, bonds, and other schemes. The magic of compound interest and the power of patience together can double your wealth.

Investing is an art that can be learned through patience and discipline and certainly from a successful investor's mistakes; however, some personal finance rules can help you make better financial decisions, and these rules can also help you in doubling your money. Here are nine personal finance rules that can help;

## Nine Personal Finance Rule

### 1 Rule of 72:

The Rule of 72 will help you examine how quickly an investment will double at a certain rate of return. According to this Rule, to determine the number of years it will take for your investment to double, divide 72 by your annual compound interest rate. The mathematical formula is as follows:

Time for investment to double = 72 / Annual compounding Rate

If you wanted to know, for example, how long it would take your money to double at 9% interest, you would divide 72 by 9 to get 8 years. Similarly, it will take 12 years at a 6% growth rate and 9 years at an 8% growth rate. The quickest method for calculating how long it will take for your money to double at a specific fixed interest rate is the Rule of 72. It is easy to learn and use, so it is a great tool for all investors. This will help people calculate the time required to double their salary and prepare them for their retirement and long-term financial planning in general so that they do not have to face a shortage of money. Although you will eventually need to use a more elaborate projection method at some point, the Rule of 72 can serve as an excellent starting point. While this is not the most accurate way to present returns, it does allow you to see if you are keeping pace in a quick and basic way.

### 2 Rule of 70:

The Rule of 70 is a formula for estimating how long it will take for a given rate of return on an investment to double in value. Understanding how to use this basic formula can provide investors with valuable financial insight. In the Rule of 70, "70" represents the dividend or divisible number in the formula. So, to calculate the time it will take for your investment to double, divide 70 by the yearly rate of growth or return.

Mathematically, it is represented as:

Number of years to double/Doubling Time = 70 / % of Growth Rate

Consider an investor who invests 10,000 at a fixed annual interest rate of 10%. He wants to calculate how long it will take for his investment to increase to USD 20,000. According to the Rule of 70, his investment will double in around seven (70/10) years. This Rule is commonly used to compare investments with different annual compound interest rates to quickly examine how long an investment will take to grow. This makes it easy for investors to gauge how long it may take to see the same return on their money from each investment. The Rule provides investors with a rough estimate of exponential growth over a given period and works well when the annual growth rate remains unchanged. However, if growth or annual interest rates change, it may not generate an accurate estimate.

### 3 Stock Allocation Rule By Age – 100 minus your age rule:

The 100 minus age rule is one of the oldest rules of asset allocation, which gives a sensible solution for deciding the debt and equity ratio in your portfolio. Based on this idea, asset allocation is carried out. According to this guideline, each shareholder should hold a stake in the company equal to 100 minus their age. Therefore, subtract your age from 100 to determine how much of your portfolio should be allocated to equities. Suppose your present age is 35 years. Now, 100-your age (35) = 65. This means that 65 percent of your investment should be in equities, while 35 percent should be in debt. However, it's crucial to remember that this formula shouldn't be the only one you use to guide your investment choices, especially given that your risk tolerance may differ from that of someone your age based on other variables like personality, financial objectives, dependence, etc.

### 4 10-5-3 Rule – Asset Allocation Rule:

When we invest or think of investing money, the first thing we usually look at is the rate of return we will get from our investment. The 10,5,3 rule tells you how different asset classes give you different types of returns. As an investor, you must diversify your money across all these asset classes to generate the expected returns. According to the 10-5-3 Rule, an annual return of 10% is expected from stocks, 5% from bonds, and 3% from cash (as well as investments such as liquid cash). It is important to recognize that this Rule is best used for long-term investments.

### 5 50-30-20 Rule – About the Allocation of Income to Expenditure:

The 50/30/20 Rule can be applied to split your spending for various purposes, such as needs, wants, and financial goals, and monitor so that someone doesn't overspend and control their budget and personal finances. The guideline indicates that you should devote up to 50% of your post-tax income to necessities (groceries, rent, EMIs, etc.), 20% to savings and debt repayment (equity, MFs, loans, FDs, etc.), and 30% to all other possible wants and desires (Entertainment, vacations, etc.). The Rule aims to help individuals manage their money and save for emergencies and retirement.

### 6 4% Rule for Withdrawals in Retirement:

The 4% rule is useful for retirees to determine how much money they should take out of their retirement savings each year. According to this rule retirees can safely withdraw 4% of their savings during the year they retire and thereafter each year they can adjust for inflation for the next 30 years. For example, on retirement at 60, you have invested ₹5 crores. If you withdraw ₹20 lakh or 4% of your portfolio every year, your money can stay with you till the age of 90.

The objective of adopting the Rule is to establish a steady and secure income flow that will meet a retiree's present and future financial needs. Therefore, withdrawals will mainly include interest and dividends on savings.

### 7 40℅ EMI Rule:

While we always think of saving and growing our money, assessing one's debts or loans is equally important. The 40% EMI rule is to protect your money against such liabilities. According to this Rule, the total EMI to be paid for all the loans should not exceed 40% of the income. For example, if a person earns ₹ 50,000 per month, his EMI should not exceed ₹ 20,000.

### 8 3X Emergency Rule:

Emergency fund refers to the money that is put to use in times of financial crisis. By establishing a safety net that can cover unneeded expenses, an emergency fund aims to increase financial security. An emergency reserve of at least three times your monthly salary is recommended. That's the minimum. It will keep you financially safe in the circumstances like job loss, an unexpected need for travel, an injury, etc. You can continue developing that money for another six months if necessary. Getting started early is the key to setting up an emergency fund.

### 9 Life Insurance Rule:

The Rule of life insurance can also be used to manage personal finances. You can use a variety of rules to figure out how much life insurance you need. The easiest technique to determine the minimum sum assured for life insurance is to multiply it by 10 times your yearly income, which implies that if your current annual pay is 7 lakh, you should have at least 70 lakh in life insurance coverage.

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The best way to double your money by investing in a diversified portfolio of stocks and bonds is probably a method that applies to most investors. This can also be done safely over many years. But for those who are impatient, the risk of losing most or all of the money is high.

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Personal finance is defined as the process of planning and managing personal financial activities such as income generation, savings, spending, investment and security.

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Personal finance is an important part of not only managing day-to-day financial needs but also planning for the financial future. As you get a grip on personal finance, your long-term financial prospects will improve for things like investing or planning for retirement.

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