The 75/10/15 Rule: A Financial Framework Worth Considering

For any person who wishes to simplify and straighten out financial matters, the 75/10/15 rule presents a structured manner of taking charge of income. The rule is not a guaranteed road to wealth but rather a good starting point for better management of finances. Splitting income into three major elements— spending, saving, and investing—the structured approach encourages discipline in habits as well as sound thought processes in money management.

Spending 75 per cent of Income

A key aspect of the 75/10/15 rule is to limit living expenses to 75 per cent of your income. This includes rent, groceries, entertainment, and other daily expenditures. By doing so, you leave room for other financial priorities.

With this rule, one might, for once, change their thinking from extravagant expenditure to value in spending. For instance, selecting affordable options or refraining from unnecessary spending could help save money, which will then be meant for saving and investing. Still, the percentage can vary depending on the situation of the individual. Spending below 75 per cent can save or invest faster.

Saving 10 per cent for Emergency Savings

Save 10 per cent of the income as a reserve for emergency needs. Such reserve becomes a cushion during an unfortunate situation such as medical emergencies, job loss, or unforeseen expenses.

A simple way to determine this corpus is to multiply your monthly expenses by five. If you spend Rs 50,000 a month, for example, then your savings should be Rs 2.5 lakh. This money can remain in instruments such as fixed deposits or low-risk mutual funds that provide both ease of access and returns.

However, it’s essential to view this as a fund for true emergencies rather than discretionary expenses like vacations. Once the target is met, you can redirect funds toward investments or other goals.

Investing 15 per cent for the Future

Thus, the residual 15 per cent of income should be invested, under this rule. Investments can take various forms, such as stocks and mutual funds or even real estate and an entrepreneurial venture.

Here, one should aim to create wealth-generating assets that have the ability to generate value over time by compounding. It might be possible to begin with SIPs in mutual fund schemes as it is not too difficult for beginners. Diversifying one's portfolio may fetch better growth over time as learning and confidence increase.

A Recommendation, Not A Solution

While the 75/10/15 rule would provide a structured framework, it might not suit everyone's financial situation. Some people have big debts, irregular income, or just special financial priorities and may require their own form of customization. It works best as a guideline to cultivate discipline instead of being used strictly as a formula for wealth creation.

According to Arijit Sen, SEBI Registered Investment Adviser in Kolkata, Co-founder of merrymind.in, this strategy can be a good starting point. He says, "Its applications are quite simple and easy to keep track of. However, each family will have their own uniqueness. As a result, thumb rules may not hold good always. Commitment levels within the family will determine what percentage should be considered for basic and discretionary expenses. Those who are beginning their careers and need a straightforward approach to balancing spending, saving, and investing, may consider the aforesaid thumb rule. Family expenses for a couple having no kids will differ from that of a couple having children and dependent parents. For obvious reasons, savings capacity for the couple with no kids will be higher provided the lifestyle expenses are well within limits. For them, the thumb rule may not give proper direction. Families having higher liabilities will definitely face issues in following the thumb rule. Those with fluctuating incomes, such as freelancers or commission-based workers, might find it challenging to stick to fixed percentages. Life events, changes in income, and financial goals may require you to tweak the allocations. Hence, flexibility in following any process/rule is the basic need".

An individual earns wealth, but the art of managing it provides the crux of what would make an overall difference. Whether you follow the 75/10/15 rule or not, the power of mindful spending, regular saving, and smart investing will never get old.