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Did you know that the majority of Americans live paycheck to paycheck, and financial stress is at an all-time high? Over 55% of those state they’ve been facing financial challenges in the last year.
Getting a handle on your personal finances can seem daunting, but it doesn’t have to be. The 75/15/10 rule is one strategy you can try, regardless of whether you’re taking your first steps into budgeting or looking to tighten your financial grip.
Read: 6 Genius Things All Wealthy People Do With Their Money
It’s a simple yet powerful approach, and even has money experts like Jaspreet Singh stating its the formula for helping people on the way to becoming a millionaire. helps you allocate your income wisely across expenses, savings, and investments, paving the way for a more secure and stress-free financial future. Here’s how it can transform your approach to money management.
What Is the 75 15 10 Rule and How Does It Work?
The 75/15/10 rule is a simple way to budget: Use 75% of your income for everyday expenses, 15% for investing and 10% for saving. It’s all about creating a balanced and practical plan for your money.
75% to Daily Living
This major portion of your income goes towards your daily living costs. From rent and groceries to your Netflix subscription, this 75% is designated for all your regular expenses.
15% Invested for Future Growth
This segment is your future-focused fund. By putting 15% of your income into investments like stocks or real estate, you’re not just saving — you’re growing your wealth.
10% Saved for Emergencies
The final 10% of your income should be your safety net. This is your emergency fund, meant for unexpected expenses. The aim is to build a reserve that can cover around six months of living expenses, giving you peace of mind and financial security in case of something unforeseen.
How the 75/15/10 Rule Fits Into Your Life
The 75/15/10 rule is fairly flexible, meaning it can work for lots of different financial situations. If your income goes up and down a lot, or if you live in a city where everyday items cost more, you can adjust the rule to fit your needs.
If you often have months where you earn more, you might want to save or invest a bit extra during those times. This way, you have a cushion for when money is tighter. On the other hand, if you’re in an area where rent and living costs take up a big chunk of your budget, you might need to tweak the percentages a bit. The main idea is to use the 75/15/10 rule as a starting point and then change it up as needed to match your own financial picture.
The 75/15/10 Rule: A Step-by-Step Guide to Getting Started
- Know your income and expenses. Start by getting a clear picture of your monthly take-home pay and where it’s currently going.
- Adjust your spending. Look at your current expenses and see if they align with the 75% guideline. If not, identify areas where you can cut back.
- Explore investment options. If you’re new to investing, start small and educate yourself on different investment types that not only fit your risk profile, but also your interests.
- Build an emergency fund. Aim to gradually save up to six months’ worth of living expenses, starting with whatever amount you can afford regularly.
- Being flexible with changes. As your life circ*mstances change, be ready to modify your budget to keep up with your needs.
75/15/10 Rule Strategies if You Have a Tight Budget
When you’re working with a tight budget, following the 75/15/10 rule can seem challenging, but with the right strategies, it’s achievable. Here are some practical tips to make the most of every dollar, even when funds are limited:
1. Track Every Expense
Begin by meticulously tracking your spending, using budgeting apps or a simple spreadsheet. This step helps you gain a clear understanding of where your money is going and can highlight areas where you could potentially save.
2. Prioritize Essential Expenses
Focus on what’s essential. Housing, utilities, groceries and transport are necessities. Luxuries and non-essentials should take a backseat when you’re budgeting on a tight income.
3. Cut Unnecessary Costs
Look for expenses you can eliminate or reduce. Maybe you can cancel some subscriptions, eat out less or switch to a cheaper phone plan. Small savings can add up significantly over time.
4. Shop Smart
Use coupons, take advantage of sales and buy in bulk where possible. Opt for generic brands over name brands. Be mindful of spending on groceries and household items – these are areas where smart shopping can lead to substantial savings.
5. Increase Income Sources
If possible, look for ways to increase your income. This could be through a part-time job, freelance work or a side hustle. Even a few extra dollars can give you more financial breathing room.
6. Automate Saving
Even if it’s a small amount, automate your savings. This ensures that you consistently set aside money for your emergency fund. Over time, these savings can grow and provide a cushion for unexpected expenses.
7. Focus on Low-Cost Investments
If investing 15% seems too steep, start lower. Look into low-cost index funds or micro-investing apps that allow you to invest small amounts. The goal is to get into the habit of investing, not the amount.
8. Utilize Community Resources
Take advantage of community resources and programs designed to help those with limited incomes. This can include food banks, utility assistance programs and free financial counseling services.
9. Pay Down High-Interest Debt
If you have high-interest debts like credit card balances, focus on paying these down. High interest can quickly eat into your budget. Consider strategies like debt snowball or debt avalanche methods.
10. Educate Yourself Financially
Knowledge is power, especially when it comes to finances. Read books, follow financial blogs and watch educational videos to learn more about budgeting, saving and investing.
11. Be Patient and Persistent
Finally, remember that financial management is a journey. Progress may be slow, but consistency and patience are key. Celebrate small victories and stay committed to your financial goals.
These strategies can help you stretch your budget further and gradually improve your financial situation. Remember, the 75/15/10 rule is a flexible guide, not a rigid framework. It’s about finding a balance that works for your unique circ*mstances and adjusting when you need.
Are There Any Downsides to the 75/15/10 Rule?
While the 75/15/10 rule offers a straightforward framework for managing finances, it’s not without its pitfalls. One major challenge is its lack of flexibility for those with variable incomes or living in high-cost areas, where the designated percentages may not realistically cover expenses or allow for adequate savings and investments.
Additionally, this rule might oversimplify financial planning if you have more complex issues to tackle, such as a large amount of debt. It assumes a one-size-fits-all strategy, which might not suit everyone. It could be limiting for those who strictly adhere to it.
For example, someone with a large amount of debt may find the 10% savings guideline too small to both build an emergency fund and pay down debt aggressively. On the other hand, the 75% allocated for daily expenses might not be enough if you live in an area with a high cost of living, forcing you to dip into savings or investment portions to cover basic needs. Consider what would happen if you used that money to save or invest? You’ll need to consider this so that it doesn’t become a source of stress rather than gain.
Final Take
The 75/15/10 rule as more than a budgeting method— it’s a way to make sure you’re spending, saving and investing your money wisely. This plan is flexible, so you can adjust it to fit your own money situation. Whether you need to adjust for high living costs or save more for unexpected expenses, this rule can guide you.
To get started, take a close look at your current spending and see how it lines up with the 75/15/10 rule. Revise as needed and take that first step towards managing your money better. It’s all about making the rule work for you and your financial goals.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
