1...time a year you should review your investments. Throw out underperformers and add more to the high performers.
The annual review is critical for maintaining the asset allocation of your portfolio.
2%...is the maximum you should pay as annual fund management expense on an average. A higher expense could prove costly in the long term.
Even a 0.5% difference in the expense can widen the gap to 10-15% over 20-25 years.
3...months' worth of your living expenses should be in a contingency fund, which can be accessed at short notice.
You will not be forced to break other investments in an emergency.
4...is the maximum number of times you should roll over credit card bill in a year. If you do it more often, you could be headed for a debt trap.
Credit card rollovers are costly. More importantly, it shows you are spending more than you can afford.
5...years is the minimum time frame you should have when you invest in stocks and equity mutual funds.
Equities are inherently volatile and may not yield desired results in the short term.
6...times your annual income is the life cover you should buy. Term plans make it possible to take a large cover at a low price.
Rs 1 crore will last 16 years if a family needs `60,000 a month, investment earns 9% and inflation is 8%.
7%...is the long-term inflation rate that you should factor into your financial planning. This is especially important for longterm goals such as child education and retirement.
Education costs are rising by 12% every year. In 6 years, the cost doubles.
8...is the maximum number of funds that a small investor should have in his portfolio.
More than this number will only duplicate the holdings and make the portfolio difficult to track and monitor.
9...years is the minimum term after which a unitlinked plan becomes profitable for the investor.
Ulip charges are high in the initial years, so short-term plans will yield poor returns.
10%...of your income is the minimum you should put away for retirement every month.
Increasing lifespan means you must have enough to sustain for 20 years in retirement.
Points to keep in mind
1- You may not be able to follow all the 10 rules mentioned above. However, even if you have complied with 6-7 tenets, it will ensure that your finances are on the right track.
2- The 7% inflation rate may appear high, but the prevailing consumer price inflation is actually higher at over 9%. It is better to err on the side of caution.
3- These rules will have to be tweaked in certain situations. For instance, if your target price is achieved, you could exit a stock or equity fund earlier or hold for the long term if the goal is far away.
4- A life insurance cover of 6 times the annual income does not include outstanding loans and other liabilities. One needs to take additional insurance to cover one's liabilities.
5- Don't let your contingency fund idle in a savings bank account. Start a sweep-in account or invest in a debt fund, which will pay within a day of submitting the redemption request.
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