Favorite financial rules of thumb - 2 ( For Common Men)

Favorite financial rules of thumb :
Financial rules of thumb provide helpful shortcuts for making quick calculations and decisions. You don't always have time (or want to take the time) to create elaborate spreadsheets when choosing a course of action. In these cases, it's nice to have some rough guidelines you can rely on.
You've probably heard of the “rule of 72”, for example. This shortcut says that if you divide 72 by a particular rate of return, you'll get the number of years it'll take to double your money. If your savings account yields 4%, say, it will take about 18 years for your nest egg to increase by 100%. But if you were able to earn 12% on your investment, that money would double in six years.
Like all rules of thumb, the rule of 72 isn't precise. It doesn't give an exact answer but a ballpark figure. Financial rules of thumb don't always hold true. But they're true enough for us to make loose plans based on them.
I have some engineer friends who'd get tense at this sort of sloppy guesswork, but most of the rest of us are happy to trade a bit of precision for speed. That's what rules of thumb are all about!
The trick, of course, is knowing which rules of thumb to use. Most are handy, but some common guidelines do more harm than good

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