6 Financial Rules to make you Rich!

Summary

This video provides essential financial rules for car and house buying, emphasizing the importance of down payments, loan durations, and income ratios. It outlines the '20-40' rule for car purchases, suggesting at least 20% down payment and a maximum loan term of four years. For home buying, it introduces the '3-20-30-40' rule, advising that a house should cost no more than three times annual income, with similar down payment and EMI guidelines. Additionally, it stresses the need for term and health insurance, an emergency fund, and prudent budgeting, guiding viewers towards sound financial management.

Takeaways

• 😀 Ensure at least 20% down payment when buying a car to build savings habits.
• 😀 Your monthly car loan EMI should not exceed 10% of your monthly income.
• 😀 When buying a house, it should not cost more than three times your annual household income.
• 😀 Limit your home loan tenure to a maximum of 20 years for better financial management.
• 😀 Your home loan EMI should ideally be no more than 30% of your monthly income.
• 😀 Maintain a down payment of at least 40% for purchasing a house.
• 😀 Prioritize obtaining term insurance to cover 10-15 times your annual income.
• 😀 Health insurance is crucial to cover medical emergencies and avoid financial strain.
• 😀 Establish an emergency fund equivalent to 6 months of living expenses.
• 😀 Follow the 50/30/20 budgeting rule: allocate 50% to needs, 30% to wants, and 20% to savings.

Q & A

What is the financial rule for buying a car?

The car buying rule suggests making at least a 20% down payment on the car's cost, keeping the monthly EMI within 10% of your monthly income, and ideally financing the car for a maximum of four years.

How can I determine how much car I can afford based on my income?

You can afford a car priced up to your annual income, ensuring that you apply the 20% down payment rule to facilitate savings habits.

What are the key points of the house buying rule?

The house buying rule states that the house price should not exceed three times your annual household income, the loan duration should not exceed 20 years, and your monthly EMI should remain below 30% of your monthly income.

How does the 'Buy Rule' relate to financial emergencies?

The 'Buy Rule' emphasizes securing term insurance first, followed by health insurance, then establishing an emergency fund to cover 6 months of expenses before making long-term investments.

What is the Rule of 72 and how is it applied?

The Rule of 72 estimates the time required for an investment to double by dividing 72 by the annual rate of return; for example, with a 12% return, an investment would double in about 6 years.

What does the asset allocation rule suggest based on age?

The asset allocation rule recommends that you invest 100 minus your age in equities, with the remainder in safer assets. For instance, a 25-year-old should have 75% in equities.

What is the total EMI rule?

The total EMI rule advises that your total monthly EMIs should not exceed 36% of your monthly income to maintain financial stability.

Why is it important to pay off credit card bills in full?

Paying off credit card bills in full avoids high-interest charges that can accumulate from rolling over unpaid balances.

What does the budgeting rule 50-30-20 entail?

The budgeting rule suggests spending 50% of your income on needs, 30% on wants, and saving at least 20%, helping to maintain a balanced financial life.

What is recommended for those who have not yet secured insurance?

It is recommended to get term insurance that covers 10-15 times your annual income and a solid health insurance plan to protect against financial emergencies.