Dear
friends
Wish you
and your family very Happy New year 2020 !!!
We have master health check up schemes to check
our health yearly once. I thought there is a need for financial health check up
also yearly once. In medical health we have BP, Sugar tests etc with “ normal “
level indicators. Likewise I have identified a simple & easy system to measure
our Financial Health with indicators which a layman can also apply easily. If
You are pass on all the indicators then you
are financially secured & if you are not pass even in minimum indicators,
don’t worry and get it stabilized during 2020.
1. 50:20:30
We do not know how much we can spend and how
much minimum amount we need to save out of our monthly income.
50% can be spent on household
expenses such as rent, electricity, groceries etc
Minimum 20% must be saved/invested for future
in Mutual Fund SIP, Gold ETF, PPF,RD & FD etc Balance 30% shall be utilized for conveyance, garments,
entertainment, hotel expenses etc.,
2. Insurance
An earning person should be sufficiently
covered for his life. If a sole earning member is no more then his dependents
will be suffering financially to meet out their day to day expenses and will be
in debt risk of home loan, car loan etc
Hence, earning member of a family should be covered minimum 35 times of
his annual income. For example If a person is earning Rs.10,00,000 per annum
then Rs.10,00,000 x 35 = Rs.3,50,00,000. I strongly suggest to have only Term
Policy because you can be covered for higher amount at lesser premium. That too
you need to take this policy at early stage of life atleast before age of 30.
3. 20 Times Annual Income for Retirement Life
After the age of 40 only many of us will think
about retirement life. If you want to live your retirement life peacefully with
same present life style without anyone’s financial support then 20 times of
your present Annual income should be made available as corpus money. Hence plan
early and start save under National Pension Scheme, MF retirement schemes etc
4. EMI’s should be within 40%
We used to buy right from Air Conditioner to
Home everything under EMI. Make sure total EMI’s are maximum 40% of your
monthly income. Whenever you want to pre close loans make sure to close higher
interest loans first.
5.20/4/10 Car Formula
If you want to buy car then apply this
formula. 20 is 20% of car price you
should keep as cash reserve towards down payment. 4 is “with in maximum of 4
years close your car loan EMI”. 10 is “ your car loan EMI, fuel expenses should
be maximum 10% of your monthly income”
6.How much risky investment ?
Most of us want to invest in Equity shares
directly because it’s return is huge at the same time risk also high. But do
not know how much we can allocate out of available sources. Simply deduct your
age from 100. If your age is 35 then you can invest 65% of funds in equity
shares.
7.How much we can use out of Retirement funds
in case of emergency ?
Out of Corpus money created for retirement you
can use maximum of 4% in case of emergency “in a year”. Otherwise you may fall
short after retirement.
8.20/5 Formula for Home Loan
Here 20 is 20% funds you should keep as Initial
Down payment. Your total payable EMI amount should be maximum of 5 times of
your annual income. For example Annual Income is 15 lakhs hence for 5 years it
is 75 lakhs. You are planning to buy house costing 80 lakhs. 20% of 80 lakhs is
Rs.16 Lakhs which you need to keep for initial down payment. 80% of 80 Lakhs is
Rs.64 Lakhs. Here 64 lakhs is well within 5 years Annual Income.
9.Investment return Doubling Formula “ 72 “
Do you want to know after how many years your
investment will be become double ? If you invest @ 8% interest per annum then
72/8=9. I.e after 9 years your investment will be become double.
10.Investment return triple Formula “114”
Do you want to know after how many years your
investment will be become triple ? If you invest @ 8% interest per annum then
114/8=14.4 I.e after 14 years 4 months your investment will be become
triple.
11.How to find Future value of Money ?
“70” Formula – A price of a product is not
constant and it is keep on increasing. Example : Gold. We need to find out Inflation rate first which
is published periodically by RBI. If you take current Inflation rate as 5.5%
then 70/5.5= 12.7 i.e after 12 years 7 months your money value will become half
i.e If you have Rs.10,000 today after 12.7 years its value will be Rs.5000
only. The reason to find out this, is to calculate how much you should save
after adjusting inflation rate.
Normally a business Organisation is valued by
its Networth. Likewise For an Individual also Net worth can be measured. Your
age should be multiplied by annual income divided by “10” For example Your age
is 30 and Annual Income is 10 lakhs then 30x10/10 = 30 Lakhs must be the
Networth. Networth is the total of your bank & cash balance, shares, MF
& FD savings and gold etc., When calculate Networth as a thumb rule
ancestral property and house property should not be considered.
13.Portfolio Restructuring Formula 5/25
For example if you keep 10 Lakhs in portfolio consisting
70% Equity shares 10% Gold & 20% in Debt funds. When there is valuation
change of 5% in equity shares you need to restructure it. Because major 70% is
the allocation for equity shares. But In the case of gold the overall
allocation is only 10% hence 5% change itself is 50% of it . Hence we should
restructure it when there is change of 25% value itself out of total money
invested in gold.
14.Emergency Fund
Your Minimum Monthly expenses +EMI X 6times
you need to keep as emergency fund then only you can manage without taking
loans. Your Monthly fund requirement is 50K then 6 times of it i.e Rs.3 Lakhs
must be kept as Emergency fund in FD, Liquid MF etc
15.Bonus 10:90 Formula
Whenever you get Bonus you can utilize only 10%
of if for your expenses. Balance 90% must be used to payback higher interest
loans. If there is no loan then must be invested for future requirements.
16.60:40 Asset Allocation
Whenever you invest allocate 60% in Liquid
assets ( convertible to cash quickly ) and only 40% in Illiquid assets
17.Credit Card Formula “30”
Whatever be your Credit card limit, use only
30% of it. This will help you to keep good credit score and will be a standard
discipline in utilization of card.
18.Maximum of 2 Credit cards
Do not accept Credit cards even some says it is
free. Each card you need to pay annual charges and multiple cards may hit your
CIBIL score. Maximum 2 Credit cards only suggested to an individual person.
19.How much should you Owe ?
You should take loan maximum of 50% of your
total assets. That also when you are approaching retirement age, you need to
make Loan Zero and assets must be debt free.
20.How to invest Retirement Funds ?
Out of retirement funds, 70% should be invested
in risk free standard return investments and balance 30% only can be invested
in high risk/high reward investments.
Apply these formulas during 2020 and
have a wealthy future.
Thank You.
Courtesy : Vikatan
