The world of personal finance has rules and restrictions that people must take into consideration. At times, it can get seriously complex. But I've encountered five fun money rules you can use in various situations and implement quickly. Keep in mind these are designed to be simple. Use them as tools or general guidance rather than a final say. If your situation is complex, look for a more detail-oriented answer. But for a quick calculation as a reference? These are fun to keep in your back pocket.

The Rule of 72

Want to know how long it would take for your money to double? Consider the Rule of 72. It’s a simple formula: take 72 and divide it by your expected return. It’s that easy!

For example, if you expect an 8% annual return:

72 / 8 = 9 years to double your money

See the visual for more examples like this:

This rule is a handy tool when you want a quick estimate for how long it will take to double your investment.. Keep in mind, this calculation assumes a consistent average return, so consider this when running the numbers.

The Rule of 120

When choosing the amount of risk in your portfolio, it's often a good idea to correlate it with your age. This is because the time you have until retirement or when you need access to your funds often influences your risk tolerance. But how much risk should you take on?

When we talk about “risk” in investing, it often refers to the balance of equities vs. fixed income in your portfolio.

• If you want more risk, you might include more equities (like stocks).
• If you want less risk, you might include more fixed income (like bonds).

To get a rough idea of your ideal risk level relative to your age, try the Rule of 120. Simply subtract your age from 120. The result typically indicates the percentage of equities you might hold in your portfolio.

For example, if you are 30 years old:

120 - 30 = 90% exposure to equities

Like the Rule of 72, this is very simple and not perfect. There may be reasons to take on more or less risk based on factors like:

• Time horizon
• Risk tolerance
• Risk appetite

These factors will determine the right amount of risk for you. This rule is based on traditional investment advice and may not suit everyone, especially in changing market conditions. But for a quick on-the-spot calculation as a reference, this can be a great tool!

The 4% Rule

When it comes to retirement, a big question is how much wealth you can withdraw without draining your portfolio. The 4% Rule was designed to give you a starting point: withdraw 4% of your portfolio in the first year of retirement and continue taking that amount each year, adjusted for inflation. This rule is based on a portfolio consisting of 50% equities and 50% fixed income, with a 30-year retirement horizon, and has been tested in worst-case scenarios.

As I mentioned, this method is reasonable if the variables match your situation. However, it doesn’t account for:

• Better or worse market scenarios
• Needing more or less than 30 years of retirement
• Starting retirement earlier

While the 4% rule has been met with both praise and scrutiny, it is not flawed. It can be a great way to get a quick reference point for your retirement planning. This rule does not account for other income sources like Social Security, pensions, rental income, or other streams, as it applies specifically to portfolio distributions.

So if you need somewhere to start, the 4% rule gives you a good picture of what to aim for.

The 50/30/20 Rule

When it comes to organizing your income, budgeting can be a tough challenge. The 50/30/20 rule suggests breaking down your net income (income after taxes) into three simple categories:

• 50% for essential expenses
• 30% for discretionary expenses
• 20% for savings goals (investing, saving, debt repayment)

For many, this breakdown won’t be perfect. But it can be a great way to understand how to allocate your funds and simplify the budgeting process.

The 20/4/10 Rule

Transportation costs, particularly auto expenses, rank among the highest in many households. Often, I find that those buying cars don’t have a general guideline for knowing how much car they should afford. The 20/4/10 Rule can serve as a great blueprint.

It breaks down as follows:

• 20% down payment: A higher down payment means a lower monthly payment.
• 4-year loan: While the standard is 6 years, sticking with a shorter duration reduces the amount of interest paid over the term.
• 10% of income: Ensure all transportation costs don’t exceed 10% of gross your income so it reasonably fits within your budget.

Similar to the 50/30/20 rule, this ensures you can buy a car you can afford without overly restricting your income.

Using These Rules in Practice

As I mentioned before, these rules are meant to serve as simple guidelines, not a final say. Make sure your situation works based on your unique variables. But if you need something quick (and fun) to use? These rules can be handy for a quick calculation.