Thread by Kenny | Accent Investing
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- Mar 29, 2023
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Master these financial rules by the age of 20 if you want to be wealthy in your 30s and 40s:
• Rule of 72
It calculates the number of years it takes your money to double, given a rate of return.
You just need to divide 72 by the interest rate.
If your investment returns 4%, it will take 18 years for your money to double (72/4 = 18).
It calculates the number of years it takes your money to double, given a rate of return.
You just need to divide 72 by the interest rate.
If your investment returns 4%, it will take 18 years for your money to double (72/4 = 18).
• 4% withdrawal rule
This is used to calculate your retirement number.
If you said that you would retire with an annual income of $50,000, divide your annual income by 4%.
In this case, you need $1.25 million saved.
This is used to calculate your retirement number.
If you said that you would retire with an annual income of $50,000, divide your annual income by 4%.
In this case, you need $1.25 million saved.
• Rule of 114
It calculates the number of years it takes your money to triple, given a rate of return.
An investment growing at 7% will triple in about 16.29 years (114/7 = 16.29).
It calculates the number of years it takes your money to triple, given a rate of return.
An investment growing at 7% will triple in about 16.29 years (114/7 = 16.29).
• Pay yourself first
This is a rule that incentivizes you to save money for your future rather than spend it today.
Before you spend any money, pay yourself by investing in your retirement and savings accounts.
This is a rule that incentivizes you to save money for your future rather than spend it today.
Before you spend any money, pay yourself by investing in your retirement and savings accounts.
• Rule of 144
It calculates the number of years it takes your money to triple or quadruple, given a rate of return.
An investment growing at 9% will quadruple in 16 years (144/9 = 16).
It calculates the number of years it takes your money to triple or quadruple, given a rate of return.
An investment growing at 9% will quadruple in 16 years (144/9 = 16).
• The 50/30/20 rule
This is a rule for budgeting.
• 50% of your income should go toward necessities like rent, utilities, and food.
• 30% for wants such as dining, entertainment, and leisure.
• 20% for financial goals, like paying off debt or saving for retirement.
This is a rule for budgeting.
• 50% of your income should go toward necessities like rent, utilities, and food.
• 30% for wants such as dining, entertainment, and leisure.
• 20% for financial goals, like paying off debt or saving for retirement.
• 10-5-3 Rule
This rule tells you how different asset classes give you different types of returns.
• Equity and mutual funds: returns are expected to be about 10%.
• Debt: returns are expected to be about 5%.
• Savings: returns are expected to be about 3%.
This rule tells you how different asset classes give you different types of returns.
• Equity and mutual funds: returns are expected to be about 10%.
• Debt: returns are expected to be about 5%.
• Savings: returns are expected to be about 3%.
• 100 minus your age rule
It is used for asset allocations.
Subtract your age from 100 to know the equity vs. bond allocation.
Age 30: Equity: 70%, Bonds: 30%
Age 60: Equity: 40%, Bonds: 60%
Some people use 110 or 120 to be more aggressive in their allocation.
It is used for asset allocations.
Subtract your age from 100 to know the equity vs. bond allocation.
Age 30: Equity: 70%, Bonds: 30%
Age 60: Equity: 40%, Bonds: 60%
Some people use 110 or 120 to be more aggressive in their allocation.
• Annual savings for retirement
This helps you determine if you have saved enough for retirement.
• By age 30: 1x of your annual salary
• By age 35: 2x
• By age 40: 3x
• By age 45: 4x
• By age 50: 6x
• By age 55: 7x
• By age 60: 8x
This helps you determine if you have saved enough for retirement.
• By age 30: 1x of your annual salary
• By age 35: 2x
• By age 40: 3x
• By age 45: 4x
• By age 50: 6x
• By age 55: 7x
• By age 60: 8x
• The 20/4/10 rule
This is used if you finance a car.
• Put at least 20% down.
• Pay off the car in no more than 4 years.
• Spend no more than 10% of your gross monthly salary on car expenses.
This is used if you finance a car.
• Put at least 20% down.
• Pay off the car in no more than 4 years.
• Spend no more than 10% of your gross monthly salary on car expenses.
• Purchasing a house
Do not purchase a home that is more than 2.5 to 3 times your gross annual income.
So, if you earn $50,000 per year, you should not spend more than $150,000 on a home.
Do not purchase a home that is more than 2.5 to 3 times your gross annual income.
So, if you earn $50,000 per year, you should not spend more than $150,000 on a home.
• Rule of 70
Divide 70 by the inflation rate to find out how quickly the value of your investment will be decreased by half.
For instance, if the inflation rate is 5%, it will take 14 years to reduce the value of your money by half.
Divide 70 by the inflation rate to find out how quickly the value of your investment will be decreased by half.
For instance, if the inflation rate is 5%, it will take 14 years to reduce the value of your money by half.
• 3X Emergency Rule
This rule states that one should have at least three months of their monthly income in an emergency fund.
3X the monthly income should be saved.
Some people save 6X of their monthly income to be more conservative and safe.
This rule states that one should have at least three months of their monthly income in an emergency fund.
3X the monthly income should be saved.
Some people save 6X of their monthly income to be more conservative and safe.
• 40% EMI rule
This rule applies when a person is borrowing money.
It states that a person's monthly income should not go toward their EMI (equated monthly installment).
For instance, if you make $5,000 per month, you should have less than $2,000 of EMI.
This rule applies when a person is borrowing money.
It states that a person's monthly income should not go toward their EMI (equated monthly installment).
For instance, if you make $5,000 per month, you should have less than $2,000 of EMI.
• Life insurance rule
Most financial experts advise investing 10–15 times your current income.
Others recommend 20X annual income.
A variety of factors determine life insurance premiums, but your health has the greatest impact on the final cost.
Most financial experts advise investing 10–15 times your current income.
Others recommend 20X annual income.
A variety of factors determine life insurance premiums, but your health has the greatest impact on the final cost.
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I write about
• Personal Finance
• Investing
• Wealth
Follow me @AccentInvesting for more tips.
Subscribe to receive a free guide on the top 5 ETFs to hold for life: bit.ly/AccentInvesting
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Harsh Makadia @MakadiaHarsh
·
Mar 29, 2023
This thread is solid 🔥 Kenny!