Rule 1: The 20-20 Rule
This rule simply means that if you are investing Rs. 20,000 per month, for a period of 20 years at a CAGR of 12%, then in that 20 year period, you’re going to have a corpus of 2 crore rupees.
Many people might argue that the inflation rate is going high, so what value will the 2 crore rupees have?
Also, it is difficult to grow money at 12%.
Let us tackle these questions.
It is not difficult to grow your money at 12%. This is because the average NIFTY CAGR for the last 20 years has been 12.2%.
As far as inflation goes, your principal amount will also increase with inflation (as your salary will also increase.)
The objective of this 20-20 formula is to help you become a bit more optimistic about the fact that it is not that difficult to become a crorepati if you have a systematic approach towards investing.
Rule 2: Safety-net rule OR 6x-12x rule
Many of us want to become entrepreneurs, or want to leave our jobs in a bustling city and go live somewhere more quaint.
While taking any kind of risk we need to think of it from a financial point of view and a career point of view.
Creating a financial safety net = Having a saving of 6 to 12 times of your monthly expenses.
Now, what is a career safety net? Well, if today you are fired from your job, is there something you can begin doing to make money from tomorrow itself?
This is what career safety means. You have amped up your skill-sets to such an extent that even if you get fired, you can still do something to start making money immediately.
Rule 3: Don’t boil the ocean
The only key to attaining financial freedom is to increase your earning potential.
To do this, we also need to be a smart consumer of things.
What we buy versus what we don’t, how do we build our thought process, how do we make decisions, all comes to this one rule.
In today’s world there is a lot of information floating around. You don’t need to consume every piece of information out there to make better decisions.
Don’t boil the ocean i.e. don’t try to do a PhD on every single topic.
Here you can apply the 80-20 rule, which states that you need to put only 20% of active effort into completing 80% of a task.
Rule 4: Time >> Money
Theoretically money is infinite, but time is finite.
A mistake many people make is that they overvalue money and undervalue time.
Let us take an example. Imagine you have to get from point A to point B, but the rickshaw guy is charging 500 rupees.
Now you think that 500 rupees is a lot and instead choose to walk an hour to reach your destination, despite having the capacity to pay that amount.
You should not be doing that. Saving an hour would be a much smarter choice.
Rule 5: 8-8-8 Rule
You should divide your day into 3 spheres: 8 hours of work, 8 hours for sleeping and 8 hours for fun.
Now it is important for you to understand that incorporating this rule very early in your life might prove to be troublesome too.
It is important that you hustle in your early years to reach a certain point where you can curate a life which allows you to enjoy 8 hours of your day.
Hence it is important that this rule be aligned with the stage you are at right now in your life.
Rule 6: The 2x Rule
Many a times people are in a fix whether they should buy a certain item or not. Here you can follow a simple rule- If you cannot buy an item twice, do not even think of buying it once.
Let us take the example of buying an iPhone.
If you need an iPhone to film videos, or do something with it that could potentially generate money for you, it can be seen as an investment and not an expense. Hence go ahead by all means, and buy it.
But if you want it only for entertainment purposes, and cannot afford it twice, you might want to step back and rethink your decision.
Even if you incorporate just 3 out of these 6 rules you will soon find yourself living a much more fulfilling and financially free life!