10 personal finance formulas

Something we hear a lot from people in our Spaceship community is, “I wish they taught us this at school.”

So here are some money management sums to learn that might help change the way you think.

1. The 10/10/10 rule

The 10/10/10 rule can help you make money decisions, big and small.

It’s when you ask yourself three simple questions when weighing up your options to buy or pass.

Imagine swiping through your purchase history and feeling as good about your Yeps as you do your Nopes.

Let’s use booking a holiday as an example.

How will you feel 10 minutes after the purchase?

You could feel nervous: airfares cost a lot of money and you’ve never been to that destination before.

Still, it’s good to have some light at the end of the tunnel: you’ve been working hard, and you work to live, rather than live to work.

Plus, you do need a break. And now you can start planning your itinerary!

How will I feel 10 months after the purchase?

You could feel revived: you’re back from holiday with great memories and a validation of your focus on work life balance.

How will I feel 10 years after the purchase?

You could feel nostalgic: For when you could fly around the world on a whim, with less obligations.

It’s not infallible, and obviously you can't predict the future. But giving some thought to future impacts of your choices can help you feel better about your purchase decisions.

2. The rule of 72

This is a back-of-an-envelope sum some people use to work out how long it could take an investment to double.

They start with the number 72, then divide it by their expected annual return.

For example, a person expecting a 5% annual return for their investment could use this sum.

72 / 5% return = 14.5

So, their money would double in 14.5 years if it grew at 5% each year.

Of course, they don’t know for sure that their investment will appreciate that much – it could go backwards, as well. This example also doesn’t include fees or charges.

(Just because an investment has a historical average return doesn’t mean that’ll keep happening in the future. Remember – past performance isn’t a reliable indicator of future performance.)

Here’s some more about the rule of 72.

3. The 24 hour rule

This is when you pick a purchase threshold, for example, $100 – and anytime you want to buy something that’s over that amount, you wait 24 hours.

Leather jacket? Sleep on it.

Impulse trip to Mexico? Sleep on it.

A fancy gadget from the homewares section of a department store? Sleep on it.

See if you still want it tomorrow. Buyer’s remorse is real, and this rule could help you to avoid it.

4. The number of times you use something / what you paid for it = cost per use

You can use the cost per use rule to figure out the true cost of a purchase, and then if it’s worth what you’re paying.

Pay $50 per week for your gym membership, but only use it twice a month? That means you’re paying $100 per workout class. If this is worth it for you – great! If not, it could be worth a rethink.

Check out some other examples of where you can apply the cost per use rule.

5. Life-changing wealth = baby steps x time

Warren Buffett’s famous quote says, “The stock market is a device for transferring money from the impatient to the patient.”

We love the story of Anne Scheiber, who was said to ‘run rings around Warren Buffet’ – she turned a $5,000 nest egg into a $22 million fortune by the time she passed away.

“As an IRS auditor dealing with estates, Scheiber noticed that the very rich tended to own lots of common stock,” wrote the Washington Post.

“This was no fluke. Throughout the century, stocks have beaten all other financial investments by a wide margin.”

She bought companies she believed in, held onto them, and “didn’t care if the market was up or down.”

Read Anne Scheiber’s story.

6. Your monthly living expenses x 3 to 6 = your emergency fund

When Alice (from Wonderland) argues to the queen that it’s impossible to believe in impossible things, the queen answers back:

“Why, sometimes I’ve believed as many as six impossible things before breakfast.”

Now we learn about impossible things happening all the time, each with varying levels of proximity to us.

That’s why keeping a well-stocked emergency fund (some experts recommend three to six months’ worth of your monthly living expenses, but this amount can vary) is pretty much universally recommended.

Then you can say, “Come at me, impossible things!” (Please don’t tempt fate.)

One way to build your emergency fund with an emergency budget.

7. Your annual expenses x 25 = financial freedom

Back in the day a guy named William Bengen did some sums and concluded that a person can withdraw 4% of their investment portfolio each year, (depending on a few factors), without running out of money.

Working backwards, this meant they could figure out how much money they needed to retire with by taking the amount they’d like to live off each year and multiplying it by 25.

We don’t have a position on this – and it does have some caveats. (As always, seek personal advice from a professional before making important money decisions.)

What we know is that as at December 2023, the Association of Super Funds of Australia estimated that single retirees seeking a comfortable retirement needed just over $51,000 yearly to support them.

(That’s assuming they only live to 85 and already own their own home.)

Times that by 25 and you get a lot.

It’s a handy starting point, though.

8. Your money goal / how much you can contribute each month = your payoff date

Circle this one on your calendar and start the countdown.

Putting some tangible metrics around your money goals – making them SMART, for example – can help you pay off your credit card debt, put down a house deposit, invest a specific amount of money, or do all those things.

Then you’ll know that your $10,000 trip to New York which you’ll save $400 per month for will take you 25 months to save for, and you can take it in just over two years. Too easy!

(This is a general example for illustration purposes and not to be relied on as financial advice.)

9. Your personal monthly cash flow ratio

A cash flow ratio is a bonafide finance metric that usually applies to companies, who report on it in financial reports.

But we think it can be handy for you to consider, too.

First, you tally up your total monthly income including from your salary, interest, dividends, side gigs, busking tips, and more.

Then you compare that to the amount you spend on expenses and debt.

So, if you’re making $4,000 per month and spending it all except for your $400 holiday savings, your cash flow ratio would be 90%. You’re spending 90% of what you earn.

Tracking your cash flow ratio can help you see if you’re on track or about to blow out – especially if you pick up a new expense, or get a raise.

There are generally two ways to improve your cash flow ratio: increase your earnings, or decrease your expenses.

10. Your personal monthly savings ratio

This is the amount of money you save and invest, compared to the amount of income you receive.

For example, if you added a shorter-term goal of investing $1,000 by the end of the year; and committed to saving $112 per month to do it (assuming you started in April), you’d be saving and investing $512 each month from your $5,000 income. This gives you a savings ratio of 10.2%.

(Again, this is an example and not financial advice.)