Personal Finance: Earning Well but Still Short of Money? Try the 70/10/10/10 Budget Formula

Do you have a decent salary but still feel that money slips out of your hands every month? You are not alone. Many working professionals struggle with financial stress despite earning well. The main reason is often a lack of structured budgeting. To solve this problem, financial experts recommend the 70/10/10/10 rule, a simple yet effective money management formula that helps you balance expenses, savings, investments, and personal growth.

This formula works as a general financial guideline, not a rigid rule. You can tweak it according to your lifestyle, income level, and financial goals. Let’s understand how the 70/10/10/10 formula works and how you can apply it in real life.

What Is the 70/10/10/10 Formula?

Under this method, your monthly salary is divided into four parts, each serving a specific financial purpose. The idea is to ensure that savings and investments are not treated as optional but as a priority.

70% for Living Expenses

The largest portion—70% of your monthly income—is allocated to essential living expenses. These include:

• House rent or home loan EMI

• Groceries and daily household needs

• Electricity, water, gas, and internet bills

• Transportation costs

• Insurance premiums

• School or college fees

• Regular day-to-day expenses

This bucket covers all your necessary spending. The key here is discipline. If your essential expenses consistently exceed 70%, it may be a sign that your lifestyle needs adjustment.

10% for Long-Term Investments

The second 10% of your salary should be dedicated to long-term investments. This portion helps you build wealth over time and secure your future.

Depending on your risk appetite, you can invest this amount in:

• Equity mutual funds

• Retirement-focused instruments

• Long-term systematic investment plans (SIPs)

• Other growth-oriented financial products

Over the years, this small but consistent investment can grow into a substantial corpus, supporting major life goals such as retirement, children’s education, or wealth creation.

10% for Short-Term Savings and Emergency Fund

The third 10% portion is meant for short-term savings. This money acts as your financial safety net and protects you during emergencies.

You can use this bucket to build:

• An emergency fund

• Savings for sudden travel

• Funds for medical expenses

• Money for unexpected purchases

Having this buffer ensures that you don’t need to borrow money or rely on credit cards during emergencies, helping you avoid unnecessary debt.

10% for Debt Repayment or Personal Growth

The final 10% of your income should be used either for repaying loans or for personal growth.

If you have high-interest debt—such as credit card dues or personal loans—this money should go toward clearing those liabilities faster. Reducing debt improves your overall financial health and frees up future cash flow.

Alternatively, you can invest this portion in yourself by:

• Enrolling in skill-development courses

• Paying for professional certifications

• Learning new skills that can increase your income

This investment in personal growth can lead to better career opportunities and higher earnings in the long run.

Use Separate Bank Accounts for Better Control

One common reason people fail at saving is that their entire salary lands in a single bank account. Expenses are paid first, and savings are whatever remains—often nothing.

To avoid this, consider using separate bank accounts:

• One account for essential expenses (70%)

• Another for savings and investments

This system ensures that savings are automated and non-negotiable, making the 70/10/10/10 formula more effective.

Flexibility Is the Key

Experts emphasize that the 70/10/10/10 rule is not one-size-fits-all. It is a flexible framework.

For example:

• If your essential expenses are only 50–60% of your income, you can increase your investment allocation.

• If you are at an early career stage, you may focus more on skill-building.

• If you are closer to retirement, you may prioritize savings and low-risk investments.

Adjusting the formula based on your financial reality can help you create a stronger and more personalized money plan.

Final Takeaway

Earning a good income does not automatically guarantee financial stability. What truly matters is how effectively you manage your money. The 70/10/10/10 formula offers a clear, practical structure to control expenses, grow wealth, stay prepared for emergencies, and invest in yourself.

By following this approach—and modifying it as per your needs—you can reduce financial stress, improve savings discipline, and move closer to long-term financial security.