PERSONAL FINANCE — SOME INTERESTING NUMBERS

72, 114 and 144:

Doubling of principal: If interest is compounded at quarterly intervals and the rate is r%, it will take approximately 72/r years for the principal to double. For instance, if the rate of interest is 6%, it will take about 12 years; for 9%, it will take about 8 years.

Three times the principal: It will take about 114/r years for the principal to grow three-fold.

(How have these been worked out? Suffice it to know that binomial theorem has been applied.)

Four times the principal: It will take about 144/r years for the principal to grow four times. [Edit: Given the above rule of 72, nothing earthshaking there, I discover now!]

70

Assuming the rate of inflation to be r%, the purchasing power of your corpus will be reduced to half in approximately 70/r years. (That is, if you do not touch it. If you withdraw, the doomsday is closer.)

25

If your present annual expenses are x, you need a corpus of 25x so that assuming a return of 6.5% and inflation rate of 8%, my excel sheet says, the entire corpus will be wiped out in less than 22 years. The corpus will stretch for a few more years with a lower inflation rate.

100 minus age

The ideal percentage of equity in your financial assets is around 100 — age. As one grows up, the percentage should decline.

20-50-30 rule

While at least 20% of your income should be saved, about 50% can be allocated for your needs and about 30% for wants. The proportion of savings can go up, but not down.

4

You should have an emergency fund of four times your monthly income to cover unforeseen eventualities.

40

Your EMIs should not exceed 40% of your gross monthly income after income tax.

0

After every credit card bill is paid, the amount due for the previous billing period should always be 0. Ignore the "minimum due" printed on the bill; it is a trap.