Personal Finance
Guideline for allocating money: essentials, savings, leisure expenses.
 "Financial tips: How the 70/20/10 rule can help you manageyourmoney (1)")
TRENDING NOW
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 EPFObalanceenquiry
The 70/20/10 rule is a flexible guideline that can be adjusted to suit individual needs and circ*mstances. 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.
Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed- Follow DNA on WhatsApp.
As someone deeply entrenched in personal finance, I've not only studied but actively applied various financial principles, including the 70/20/10 rule, across different circ*mstances. This guideline suggests a strategic allocation of funds: 70% for essential expenses, 20% for financial goals like saving for retirement or paying off debt, and 10% for leisure and discretionary spending.
Essential expenses encompass the basic needs—housing, transport, food, utilities—that sustain your standard of living. The second segment, financial goals, is pivotal for securing long-term stability. It involves saving and investing for retirement, education, or a house down payment. The final 10% is for discretionary spending, from vacations to entertainment, adding quality to life without compromising financial health.
This rule isn't rigid; it adapts to individual financial landscapes. For instance, those tackling debt may prioritize allocating more than 20% toward that goal. Conversely, high earners with substantial savings might focus more on leisure spending or increasing financial goals.
Adherence to the 70/20/10 principle begins with tracking expenses over a few months to understand spending habits. Subsequently, a budget aligning with this allocation can be crafted. Regular reviews and adjustments ensure it stays relevant to your evolving financial situation.
In essence, this principle offers a structured yet flexible framework for managing personal finances. By aligning spending with income and tailoring allocations to individual priorities, it fosters financial control and long-term success.
The concepts encompassed in this article span a spectrum of personal finance:
-
Essential Expenses: These are necessary costs for maintaining one's standard of living, encompassing housing, transport, food, utilities, and essential bills.
-
Financial Goals: This category involves saving and investing towards long-term objectives like retirement, paying off debt, saving for a house down payment, or a child's education.
-
Leisure and Miscellaneous Expenses: Discretionary spending on non-essential items such as vacations, dining out, entertainment, and other indulgences.
-
Financial Stability: This refers to the state of one's finances where income and assets are sufficient to cover expenses and support one's desired lifestyle.
-
Budgeting Guidelines: Strategies for managing and allocating funds effectively to meet financial goals.
-
Debt Management: Techniques and practices aimed at reducing and managing debt effectively.
-
Long-Term Financial Planning: Planning and strategizing financial activities over an extended period to achieve specific financial goals or milestones.
Each concept is integral to the holistic management of personal finances, contributing to overall financial health and stability.
