Day 12 - Learning Thumb Rules of Money

The distance between the edge of your middle finger and elbow is known as "Muzham" in Tamil and Malayalam.

CubitIt is a unit to measure length, widely used in Tamilnadu and Kerala even today. 

Sumerians, Egyptians, and Israelites also used this unit of measurement (cubits). 

It was difficult for ordinary people to get exact measurement tools in the past, so they relied on approximate measurements like Cubit(Mulam), Span, and Thumb.

It was easier for people to understand when measurements were expressed in units they could relate to.

In fact, Noah's ark was also built using the same unit of measurement. 300 cubits long, 50 cubits wide, and 30 cubits high

Noahs ark-compared-to-other-shipsImage Source:

Thumb Rules

Similarly, we use Thumb Rules or Rules of Thumb to express, understand, remember and apply complex concepts(like personal finance) in our day-to-day lives.

Here are some helpful Thumb Rules you can use to win with money.

1. Thumb-rule for Rent: 

Rent is one of the biggest expenses of Residents in the UAE.

The general rule of Thumb for rent is that it should not be more than 30% of your household income.

2. Rule of Thumb for buying a home using a mortgage:

3 - 5 times your annual household income. 

    1. Five times if you are debt free
    2. Four times if the existing debt repayments are less than 20% of your income
    3. Three times if the repayments are more than 20%
3. Emergency Savings Thumb Rule:

3 - 6 months of income

4. Budgeting Thumb rule: 

We have seen this already on Day 5

50/20/30 budget rule

      • 50% of your income toward Needs(Maximum)
      • 30% Towards wants, loans, luxuries, and short-term goals(Maximum)
      • 20% towards long-term savings(minimum)

5. Life Insurance 

Minimum 10 Times your annual income

6. Critical Illness Insurance Thumb Rule:

Minimum 3 - 5 times your yearly income and 2 - 3 times your annual income for your stay-at-home spouse.

7. Retirement Savings:

Minimum 10% of your income

8. Retirement Corpus Thumb Rule

You would need at least Twenty Times your annual income as a corpus to fund your retirement. 

9. Retirement Savings Benchmarks

To determine if you are on the right track to reaching your retirement goal, you can use the following benchmarks;

Retirement Savings Benchmarks (1)Image Source:

10. 100 minus Age Rule

To help you determine your ideal asset allocation between equity and debt. For example, if you are 30, your equity investments can be up to 70% of your portfolio, and the balance can be in debt/cash and gold. 

100-minus-age-rule-en (1)Image Source:

11. Rule of 72

To help you determine how long it will take to double your money. For Eg: If your investment is growing at 6.00%, it will take 12 years(72/6) to double your money. 

You can use these 11 thumb rules to easily understand and apply complex financial concepts to budget, save, invest and grow wealth. However, 

Have you heard of these before?

Which ones did you find most relevant?

Let me know by dropping a comment on our Facebook group. Also, let me know if you have any questions on the above. 

Please be aware that these are only general guidelines. For exact numbers, please consult a financial advisor.

Click here to build a bespoke Financial Plan with pre and post-retirement cash flow projections. 

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