The 10 commandments of personal finance


A simple rule is to prepare a budget for your outflows

How do I keep track of my finances? Are there any basic rules that I can follow. I do not have much background about managing finance.

Managing your own money should not be a challenge, provided you spend some time on a regular basis to keep track of movements, in and out. Some basics may be followed as rules, that we call “The 10 Commandments of Personal Finance”. Individuals may follow these rules from time to time and tweak them depending upon their age, earnings and lifestyle. These rules are enumerated hereunder –

Budgeting rule – 50 / 20 / 20 / 10

Budget brings in financial discipline. A simple rule is to prepare a budget for your monthly / quarterly / annual outflows. Fifty per cent of your monthly earnings be allocated to cater to your housing/living expenses/day to day living expenses. Twenty per cent of your monthly earnings be allocated for discretionary spending. The balance of 30 per cent be divided into two parts, 20 per cent may be allocated for your emergency needs and 10 per cent for large ticket items that you may wish to spend every year.

Emergency fund rule

You may accumulate funds for emergency needs to the extent of up to six months of your monthly cash outflows by allocating 20 per cent of your monthly earnings. This corpus should be accessible for your emergency needs and replenished in case funds have been utilized.

The 300 to 365 rule – for large ticket items

The 300 or 365 rule is for one-time large ticket items. As highlighted earlier, you may wish to allocate funds on monthly basis and accumulate these funds for spending, as per your choice or invested to build up investment corpus or invest in a property for your own dwelling/retirement. Ideally, part of these funds may also be invested by you to enrich your knowledge and learning, that would help you to boost your income going forward. Remember the “LESS rule, that is Learning, Earning, Saving and Spending.

Car – 20/4/10

A rule that is generally followed, 20 per cent downpayment, finance for 4 years or 5 years and 10 per cent is the percentage of your monthly cash inflow, as a threshold that you may wish to allocate for your car loan installment and running expenses. Stretching your needs beyond this threshold would eventually stress the other elements of your budget.

Acquisition of dwelling and borrowing

If you are planning to buy a house, be it for your dwelling or investment, you need to accumulate funds for downpayment first and provide for monthly installments in your budget that you will have to pay against housing loan availed. In case the property being purchased is rented out, rent realised may cover part of your obligation towards housing loan installments, annual service charges and any maintenance work to be carried out. Do not stretch the tenure of housing loan till the planned age of retirement (that you will have to aim for yourself), rather, you may endeavor to repay the housing loan at least five to ten years ahead of your retirement age. Importantly, when there is borrowing against property, you may also wish to avail life insurance cover, that may come to your family’s rescue in case of any eventuality.

Children’s education needs

Expenses for higher education are on the rise and the uptrend does not seem to detrend soon. Given the rising costs, you may wish to allocate funds for child education by selecting an ideal investment plan and contributing on a monthly or quarterly basis and maturity proceeds realised may be allocated for lump sum payment required at the time of enrollment in the university.


Savings beyond emergency fund and education needs may be invested in equities or bonds or other instruments of your choice depending upon your understanding of the markets, risk appetite and return expectations. Defining your return expectation and your ability to sustain risk is the starting point for this investment journey. Please ensure that you only invest funds when you have understood the investment option, the inherent risks and the expected return. Please spend some time on a monthly or quarterly basis to go through and understand reports on investments that you receive and update the list of your investments, properties, bank accounts and obligations. It is ultimately your wealth and your obligation to safeguard your capital, while you pursue this investment journey.

Your aim to build up corpus that would take care of your retirement life

Steady source of income relieves an individual during retirement life. Hence, the necessity to start contributing modestly towards retirement plan of your choice and gradually increase allocation for this investment depending upon your expectation of monthly or quarterly income that would be sufficient for your living during your retirement life.

Maintain documents

With the rising use of tech, most of our documents are in our cellphones in image or attachment form or retained in the email box as attachments to emails. Ideally, these documents need to be collated in one folder and accessible to the next of kin in case of any eventuality.

Discuss the above with your partner

It is important that the next of kin has knowledge of your investments, assets, borrowings and any other important matters. Having complete visibility of these documents, investments and ownership is vital to ensure that the beneficiaries gain access to these proceeds in case of any eventuality.

The above rules serve as basic guidance and individuals are free to tweak the above rules, allocation and order of priority depending on their needs. We wish you the very best for your personal finance journey.


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