The 70/20/10 rule is a guideline for managing personal finances that suggests individuals should allocate their money in the following manner: 70 per cent for essential expenses, 20 per cent for financial goals, and 10 per cent for leisure and miscellaneous expenses.
The first category, essential expenses, includes the things you need to pay for in order to maintain your basic standard of living. These include housing, transportation, food, utilities, and any other bills or expenses that are necessary to maintain your current lifestyle.
The second category, financial goals, is intended for saving and investing. This might include paying off debt, saving for retirement, saving for a down payment on a house, or saving for a child's education. This category is crucial for long-term financial stability and security.
The final category, leisure and miscellaneous expenses, is for non-essential spending. This could include vacations, dining out, entertainment, and other discretionary expenses. While these expenses are not essential, they can still be a part of a healthy financial plan as long as they are within the 10 per cent budget limit.
Also read: Check your PF balance instantly: A step-by-step guide to online EPFO balance enquiry
The 70/20/10 rule is a flexible guideline that can be adjusted to suit individual needs and circumstances. For example, if an individual is struggling with a lot of debt, they may choose to allocate a higher percentage of their budget to paying off debt and a lower percentage to leisure and miscellaneous expenses. Or if someone have a high earning and significant savings, they might put more money into financial goals or leisure and miscellaneous expenses
It's important to remember that the 70/20/10 rule is a guideline, not a strict rule. Each person's financial situation is unique, and it's essential to adapt the principle to suit your individual needs and goals. However, by following the basic principles of the rule, individuals can gain a greater level of control over their finances and work towards achieving long-term financial stability.
To use 70/20/10 rule, first you need to track your expenses for a few months, then see where your money is going. Once you have a good idea of your spending habits, you can make a budget that adheres to the 70/20/10 principle. It's also a good idea to regularly review your budget and make adjustments as needed. By keeping your expenses in line with your income, and allocating your money in a way that aligns with your goals and priorities, you can ensure your financial success in the long run.
