Day 89 : Following thumb rules
We like to use thumb rules to sort out our personal finances. They make things simple for us. If you do a google search, you will find 100s of thumb rules to manage money.
We forget that context matters more in personal finance than magic numbers!
The 100 - age rule is used to find equity allocation. But someone with a massive corpus at 70 can afford to have 80% equity. Someone in their 30s, taking care of children and parents, may prefer 50-50 to keep their portfolio more stable.
10x rule is used to find how much insurance you need. If your income is eight lakhs, you will take a term plan of 80 lakhs based on this, but what if you have a home loan of 50 lakhs?
What if you are in your 60s, have an income of 25 lakhs and planning to retire soon? You will have to pay a large part of your salary to pay the premiums for a 2.5 crore plan.
Just because everyone says you should save 40% of your income doesn't mean it is the best course of action for you!
What if you need to retire soon but are still not financially ready? Or what if you have just started earning and don't have too many expenses? Why shouldn't you save more?
Managing money is less a numbers game and more of a mental game. Thumb rules are not designed, keeping each one of us in mind. Apply context to them.
If something as universal as your inflation is different from others, how can we expect decisions about money to be the same?
89/100
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