There is a thumb rule for every activity which involves efforts and systematic work. The first step which you take should always be good. Even if the first step is not the right step, following certain measures will yield good results for the investors.
Every investor will have an aim to invest and grow money faster with less losses. To make the investment process easy there are various apps, bank websites that provide easy access to investment, brokers and other sources available to the investors. Factors such as investment in mutual funds, retirement benefits, emergency fund investments are things that investors consider before investing. Here in this article, we present you with most famous thumb rules
Rule 72
Everyone wants to increase their wealth and money in different ways and also expect it to happen in a short period of time. The number of years it takes to increase your wealth is calculated using Rule 72. Suppose an investor wants to invest in any investment product and wants to know the expected returns then it can be found out in this way.
Consider rule 72, take number 72 and divide this with the rate of return of the product of investment. The resultant figure that you get is the number of years in which investment money will increase. Suppose you have invested your money AED 100,000 in any investment product which gives you rate of return 6% now dividing the 72 with 6 you will be getting 12. Here the investment amount AED 1,00,000 will increase to AED 2,00,000 in a span of 12 years.
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Rule 114
The above discussed rule 72 will give you information about how many years it will take to double your investment. This rule number 114 will give you detailed information on how many years it will take for you to triple the money. The formula and the calculation is similar to rule 72.
For this calculation take 114 and then divide it by the rate of return which you have on your investment item. The remaining number will give you the number of years when your investment will get tripled. Let us consider the same example discussed above for rule 72. An investor has made an investment of AED 1,00,000 in an investment item then by making a similar calculation with 6% rate of return then you will AED 3,00,000 in the span of 19 years.
Rule 144
It is clear that rule of 144 will assist you in finding out the number of years it will take for you to grow your money 4 times with the rate of return. Suppose AED 1,00,000 is the amount for investment and the rate of return is 6%, you will get AED 4,00,000 in the span of 24 years according to this rule. Just divide 144 with interest rate to find out the number of years it will take to increase the investment amount 4 times.
Finding out how your money gets faster is important for the investor, it is equally important to know how your money will decline.
Rule 70
Rule 70 will help you to find out how faster your money will reduce its value. This rule will help you to find how money will be after 10 or 20 years. If you do not spend money, the value of money will become less compared to which it has its value today. The factor that influences the investment world is inflation.
The rise in prices for general commodities will reduce the value of the money because of inflation. Here to find out the magic figure consider the rule 70, take 70 and divide with the inflation rate as of date. The resultant figure that you get will give you the number of years that your money will be half of what its value is today.
Suppose, if an investor has AED 50,00,000 and there is 5% inflation, here following the rule 70 AED 50,00,000 will be worth AED 25,00,000 in the next 14 yrs. Just divide 70 by 5 and you will get the number of years.
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10,5,3 rule
This rule will help you in finding out the average rate of return on investment that an investor will get in the process of investment. The first look will always be how much I will get in an investment. Here it is important to note that there is no guarantee that ensures returns on investment.
Like in mutual funds there is no guaranteed return on investment. According to this rule you can anticipate to get 10% of returns in the long term investment and 5% from debt instruments. The average return on savings amount investment can be expected at 3% from your bank.
10% retirement rule
Making savings for retirement is the last thing that many people think about, but it is very important to save funds for your retirement. From your first salary that you earn if you plan for retirement then it will create a huge amount which can be used during retirement.
It is advised that 10% of your salary should be invested in your retirement and it should be increased by more than 10% each year. By following this rule you can secure the future with a good corpus amount for your retirement.
Emergency fund rule
The name itself suggests that you set aside a certain amount for emergencies. Anticipate 6 months to one year expenses as your emergency fund and set aside a certain amount towards it. While making estimation consider the expenses for food, utility bills, rent, maintenance, loan EMI and others. The emergency fund rule will make funds available to you when you require the most.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
