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How to master financial freedom formulas and become an intelligent investor

Financial freedom formulas can help you estimate the returns, time, and amount of your investments. Here's how.

financial freedom formula

Becoming financially independent may seem like an impossible dream for many. However, with some planning and following some rules, it can be achievable. 

For example, there are vital financial formulas, like the rule of 72, that can help you estimate how quickly your investment will double and help you plan your path to financial independence. Or, the “rule of the emergency fund” gives you an idea of how much you need to put aside for emergency costs.

In today’s article, we will learn essential rules around saving, investing, spending, and more to take control of your money and work towards securing your financial future. Let’s begin!

Also read: What is a systematic deposit plan?

What are the 3 steps to financial freedom?

There are many stages of financial independence, but being able to live without having to work for an income is the supreme level. You may become financially independent regardless of your present situation. 

Earning, saving, and investing are all that is needed.

  1. We all work to make a living. Having said that, we need to grow not just our profits but also their trajectory. In this case, putting money into learning new skills is a more effective way of earning more revenue.
  2. Next, get a head start on saving if you want to secure your future financially. Set an attainable savings goal based on your earnings and keep that amount of money for savings first. Use the remaining funds to cover all of your expenses. 
  3. Investing in equities, mutual funds, or anything else that yields higher returns than your savings account or fixed deposit plan may lead to being financially independent. Plus, with a systematic investment plan (SIP), you can divide up your investments into manageable monthly amounts.

When investing, make sure to diversify your portfolio according to your asset allocation plan. Equity should be the primary investment vehicle for achieving long-term objectives. In this case, the 100-minus-age rule could help determine the ideal asset allocation ratio. We’ll discuss this in detail later.

Also read: SIP investment: Your path to wealth building

Financial freedom formula: Top rules to be financially free

As investors, we may use some broad rules to estimate the rate of return on our investments or the depreciation rate of an asset. In short, here are the formulas to “calculate financial freedom” with specific rules of thumb: 

Rule of 72 

The first of three rules that might help you understand how quickly your money may grow is the rule of 72. Applying the rule of 72 makes it a breeze to determine the time it takes for your investment to increase by 100% or double.

For example, you decide to invest ₹2,00,000 and expect a yearly return of 10%. 

The formula is: 

Doubling time = 72/rate of return.

Divide the figure 72 by the product’s return rate. The number you get is the number of years it will take for your investment to grow by 2x. 

Consider the following scenario: You have invested 2 lakh rupees in a product that yields a 10% return. You get 7.2 when you divide 72 by 10.

Put another way, after 7.2 years, your 2 lakh rupees will grow into 4 lakh rupees.

Rule of 114

Similar to the “rule of 72,” this rule indicates how many years it will take to triple your investment amount. 

The rule of 114 calculates similarly to the rule of 72. To calculate this, divide 114 by the product’s rate of return. Following the rule of 114, an initial investment of ₹2 lakh at a 10% interest rate would grow into ₹6 lakh after 11.4 years.

Rule of 144

If you want to know how many years it will take for your investment to quadruple, you may apply the rule of 144, which follows the same principle as the rules of 72 and 114.

According to the rule of 144, an investment of 2 lakh rupees in an asset yielding 10% interest will grow to 8 lakh rupees in 14.4 years (144/10). 

Rule of 70 

After learning the rules of growing your money, it’s time to examine the formula that tells you how quickly money will depreciate.

This is a great rule that will help you figure out how much your current wealth is worth in the next ten or twenty years. Its current value will be much less even if you refrain from investing or spending a single rupee on it. And that’s because of inflation. 

You may get the answer by dividing 70 by the present inflation rate. The number you get is the number of years it will take for your investments to be 50% of what they are now. 

For example, suppose you have ₹10 lakh and the inflation rate is 7%. Following the rule of 70, your initial investment of 10 lakh rupees would become ₹5 lakh rupees after 10 years. The calculation for this was as easy as dividing 70 by 7. 

The emergency fund rule

An emergency fund, as its name suggests, is an amount of money set aside in case of unforeseen expenses. Before you start any investments, it’s a wise decision to build an emergency fund to cover any unforeseen expenses. An emergency reserve of six months to a year’s worth of costs is a fair rule of thumb. 

Items like food, utilities, rent, EMIs, and more need to be considered when you calculate your costs. Moreover, try investing in liquid funds rather than holding funds in savings accounts. This means that the money is accessible right away if an emergency arises. 

100 minus age rule

An excellent method for allocating assets is the 100-minus-age rule. That is the ideal proportion of equity and debt investments. It works on the idea that an investor’s risk appetite is high when they are younger and keeps reducing as they age. Hence, with age, the proportion of investment in debt increases. 

To find out how much of your portfolio should be invested in equities, subtract your current age from 100. The remaining funds need to be put into debt.

Suppose you want to begin investing when you are 25 years old. Your portfolio’s asset allocation will seem like this when you use the 100-minus-age rule:

Equity investments = (100-25) = 75%

Debt investments = 25%

However, be cautious about using this or any other rules only after doing thorough research.

Also read: Mutual funds or stocks: Which is a better investment?

4% withdrawal rule

The 4% withdrawal rule is meant to help people make sure they have an ongoing source of income without spending all of their savings quickly. 

By this rule, you should be able to cover your living costs if you take out 4% of your retirement fund every year. 

For example, the rule says that if you have a one crore rupee retirement fund, you can take out not more than ₹4 lakh per year to cover your living costs. 


By following critical rules around saving, investing, and spending, financial freedom is within anyone’s grasp. Stay disciplined, educate yourself, create a plan, and track your progress to gain control over your finances and live life on your terms.

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