Sometimes, financial rules of thumb can do more harm than good!

Rules of thumb can get in the way of your goals. When it comes to managing your finances, gross generalisations are a problem.

There are many so-called rules of thumb for financial planning, such as you 'need' 80 or 90 per cent of pre-retirement income to live on. Or, your fixed housing costs cannot exceed 30 per cent of your gross income.

As an investor it's hard to decipher which rules to follow, which rules apply to your individual situation, and just what they really mean.

Bob Stammers, director of investor education for the CFA Institute, says that when it comes to financial management everyone is unique and that's why gross generalisation is a problem. "With rules of thumb, you have to be careful because people can get trapped by them. The rules don't take inflation and other factors into consideration."

And these other factors are critical when deciding on a financial plan or asset allocation for your portfolio.

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According to Stammers, one way to incur money for your future is by using age to your advantage. "You want to have enough financial discipline at a young age to save enough money so you can take advantage of compounding returns over a long period of time," he says.

The first thing is to figure out how much you can contribute to your investments and your financial plan. Bear in mind, it is possible to reach your financial goals whatever your age is, but it's a lot easier if you begin at a younger age and regularly contribute, because you can get away with setting smaller amounts aside.

For example, 20-year-old Matt and 35-year-old Debbie both want to set aside money to touch when they reach the age of 60. They both start with zero balance in their accounts and each put away Rs 10,000 per annum with a 4 per cent rate of return. At 60, Matt’s savings will be worth Rs 950,255.16. Whereas when Debbie turns 60, her savings will be worth Rs 416,459.08. In order for Debbie to even come close to Matt's amount, she would have to put away at least Rs 20,000 each year, doubling her yearly contribution.

Looking at this example, of course we all want to start saving early, but it depends on your situation and it also depends on what risk level you are comfortable with. Stammers says this is where the paradox of the young investor comes in: "Because with so much time ahead of them, they can take a lot more risk, but they don't have to take the risk because they have time on their side."

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Figuring out your lifestyle and how to get it to match your savings for the future can be a challenging task. You might not just want a car, but a Rolls Royce.

Stammers says to figure out what money means for you. If money means security for you, then you're more likely to invest in bonds, and put away a reasonable chunk every month toward your savings. You'll likely already have or want to start an emergency fund.

On the other hand, if you view money as a way of being independent, your portfolio will most likely contain more stocks, and you'll want to spend the money on vacations and on a good bottle of wine. Maybe you don't put away as much as you should every month, but it's something you should consider.

The bottom line is that lifestyle is personal and greatly varies from one individual to another. However, it's important to figure out the lifestyle you want to live, so your finances can match your goals.

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Being able to balance your emotional ability to take risk and your financial ability to take risk is an extremely important aspect of handling your finances.

For example, if you are risk-averse, in order to reach your financial goals you won’t aim for the highest return on your investment; instead you would try to take the minimum amount of risk necessary. Risk tolerance is basically your feeling about risk. Risk capacity is essentially how much risk you are able to take based on your personal situation. This is a great starting point but keep in mind that your risk tolerance will most likely fluctuate throughout your lifetime.

In the end, any financial rule of thumb should be taken with a grain of salt. Some can even be dismissed as old wives tales, because when it comes to financial management every single person is unique, as are your goals, your age, your lifestyle and your risk tolerance.