Finance is about numbers but Personal Finance should not be about hard and complex numbers. Here are 10 numbers/formulae I believe you should know and track.
50:30:20 is a good start on how your budget should look like. You can tweak it to fit your lifestyle & current situation as long as what you save/invest does not go below 10% of your income.
1/4 or below is the ideal amount of your income that should go towards housing, rent or mortgage. If you are above this either move to a cheaper place or look to increase your income.
5 – 6% is the average inflation rate, have majority of your net worth in places that pay you returns above this. Don\’t avoid the investments that match or are below the inflation rate, just make sure it\’s a small percentage of your net worth and have little risk on your capital.
11-14% is the interest rate banks charge on loans, be very wary and skeptical when someone is offering/selling you investments where guaranteed returns are higher than this eg 25-40% ask why they can\’t take a bank loan instead and keep all the profit? Why do they want your money?
72/R where R is the annual interest rate, this is the number of years it will take you to double your money if you let it compound, understand this when making investment and let the money work for you. Don\’t interrupt the process.
Rule of 72
(I*12) * 25 where I is the monthly income, this to me is a good target to set as your FIRE number amount you need to comfortably retire. Some people use 16 or 10 as a multiplier whatever works for you.
(4% * P) where P is the amount of money saved in your retirement account, widely accepted retirement rule, you should be able to live off 4% of your retirement and leave the rest in the account to continue earning interest.
(2 * Price) from Jay Z, if you can\’t buy it twice then you don\’t afford it. Use this rule to justify & control your spending.
If you spent 15K partying, deposit the same amount in your MMF or Investment account to prove you really can afford to splurge a bit.
0 (zero), This is the total number of people who care more about your money, success, career, family and well-being than you. Be on the lookout for people with better ideas on how to spend your money and time. Educate and equip yourself with the right knowledge and mentors.
1 (one), Yes, you only have one life. You can YOLO or take good care of health either is a good choice.
Adapted from https://twitter.com/mtucreativity/status/1441534116399300609?s=19