A New Rule for New Budgeters: 75/15/10
Budgeting can be tough when it’s your first time. The 75/15/10 rule is there to guide you, setting spending goals and boundaries that set you up for success.
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What is the 75/15/10 Rule?
The 75/15/10 rule is a way to breakdown your spending into three major categories: daily living, future growth, and emergencies. Each category takes its fair share of your take-home pay, accounting for every dollar you earn.
These categories and their limits help you understand what balance looks like in your budget. It gives you clear guidelines on how much you should spend on the typical expenses, so you aren’t overspending in any one category.
Let’s see how these categories shake out below:
Daily Living | 75%
The daily living category is a broad bucket that collects the majority of your monthly expenses, so it’s no coincidence it takes up three-quarters of monthly income. A mixture of essentials and discretionary spending fall under this category, including your housing costs, groceries, clothing allowance, and takeout.
Your outstanding personal loans and lines of credit fall in this category, too. The online lenders at Fora recommend you always budget to cover the minimum payments on your personal loans.
When it comes to a Fora Credit line of credit and other revolving credit accounts, it’s a good idea to pay as much as you can whenever possible. Paying above and beyond the minimums releases your available credit and may reduce what you have to pay in interest.
Future Growth | 15%
Ideally, you aren’t grinding constantly just to make ends meet; you earn enough to cover future goals like home ownership and retirement. Both of these goals may seem like forever away, but the earlier you start saving, the more potential interest you earn. Tax-advantaged accounts benefit from a long-term approach.
Your future growth category is also a sinking fund for any big purchase you want to make in the future — from vacations and new cars to home renovations and weddings.
Emergencies | 10%
The final 10% of your take-home pay should go into an emergency fund. After all, you never know when something will go wrong, and your line of credit may not always be free to help. Having a pile of cash available in emergencies can help you cover unexpected expenses that you don’t think to include in your typical daily living category.
Ideally, you should be working toward six months of living expenses in your emergency fund. However, you may save less or more depending on your living situation and risk tolerance.
Do You Have to Stick to These Percentages?
The 75/15/10 rule isn’t set in stone, so there’s some flexibility to it. You can make it your own by tweaking the breakdown, increasing or decreasing spending limits to reflect your unique financial situation and goals.
Whether you follow it closely or not, your aim is to be mindful about your spending. Start thinking about your long-term goals along with your everyday spending. This twin focus can help you strike a balance with your budget so that you can enjoy life now and later.