What is the 75 15 10 Rule?

When it comes to managing money, things can get complicated fast. You hear about budgets, savings, investments, and debt, and it can all feel a bit overwhelming. But what if there was a simple rule to help you make sense of it all?

Enter the 75/15/10 rule.

The 75/15/10 rule is a straightforward budgeting guideline that helps you divide your monthly income into three simple categories: living expenses, savings, and wants. It’s designed to be flexible and realistic, especially for those who find stricter budgets, like the popular 50/30/20 rule, a little too tight.

This guide will break down everything you need to know about the 75/15/10 rule, showing you how it works, who it’s for, and how you can use it to take control of your finances today.

What is the 75/15/10 Rule, Exactly?

The 75/15/10 rule is a simple percentage-based budget. It suggests how you should allocate your after-tax income (the money you take home after taxes are deducted from your paycheck).

Here’s the breakdown:

75% goes towards your needs and living expenses. This is the biggest chunk, covering all your essential costs.
15% goes towards savings and paying off debt. This portion is for building your financial future.
10% goes towards your wants. This is your fun money, to spend on things you enjoy but don’t necessarily need.

The main idea is to give you a clear, easy-to-follow plan for your money without needing complicated spreadsheets or tracking every single penny.

Breaking Down the Three Categories

Let’s take a closer look at what goes into each of these categories. Understanding this is the key to making the budget work for you.

75% for Your Needs: Covering Your Essentials

This is the largest part of your budget, and it’s dedicated to the things you absolutely must pay for to live. If you stopped paying for these, your life would be significantly impacted.

Examples of “Needs” include:

Housing: Rent or mortgage payments.
Utilities: Electricity, water, gas, and internet.
Transportation: Car payments, gas, car insurance, or public transit costs.
Groceries: The food you need to eat at home.
Insurance: Health insurance, renter’s insurance, or life insurance premiums.
Childcare: Costs for daycare or babysitters so you can work.
Minimum Debt Payments: The minimum amount you must pay on student loans, credit cards, or personal loans. (Note: Extra payments go into the 15% category).

Because this category is so large (75%), it offers more flexibility than other budgets. It’s especially helpful for people living in high-cost-of-living areas where housing and other essentials take up a bigger portion of their income.

15% for Your Savings and Debt: Building Your Future

This is arguably the most important category for your long-term financial health. This 15% is focused on getting ahead financially.

This category includes:

Building an Emergency Fund: Saving 3-6 months of living expenses for unexpected events like a job loss or medical emergency.
Saving for Retirement: Contributing to a 401(k), Roth IRA, or other retirement accounts.
Paying Off Debt Aggressively: Making extra payments on your credit cards, student loans, or car loan to pay them off faster and save on interest.
Saving for Big Goals: Putting money aside for a down payment on a house, a new car, or a college fund for your kids.

This 15% is your “get ahead” fund. Consistently putting this amount aside can have a massive impact on your financial freedom down the road.

10% for Your Wants: Spending on What You Enjoy

This is the fun part! Your “wants” are things that improve your quality of life but aren’t essential for survival. This is guilt-free spending money.

Examples of “Wants” include:

Dining Out: Restaurants, coffee shops, and takeout.
Entertainment: Movie tickets, concerts, streaming services (like Netflix or Spotify).
Hobbies: Gym memberships, craft supplies, sports equipment.
Shopping: New clothes, electronics, and other non-essential items.
Travel: Vacations and weekend trips.

Having a dedicated category for wants is crucial. It prevents you from feeling deprived and makes it easier to stick to your budget in the long run.

How to Get Started with the 75/15/10 Budget Rule: A Step-by-Step Guide

Ready to try it out? Here’s how to get started in four simple steps.

Calculate Your After-Tax Income: Look at your paycheck to see how much money you take home each month. If your income varies, take an average of the last 3-6 months.
Track Your Spending: For one month, track where all your money is going. Use a notebook, a spreadsheet, or a budgeting app. This is the only way to know your starting point. Don’t change your spending habits yet just observe.
Categorize Your Expenses: At the end of the month, go through your spending and assign each expense to one of the three categories: Needs (75%), Savings/Debt (15%), or Wants (10%).
Adjust and Implement: See how your current spending lines up with the 75/15/10 percentages. Are you overspending on wants? Are your needs taking up more than 75%? Make adjustments to align your spending with the rule and follow it for the next month.

Who is the 75/15/10 Rule Best For?

This budgeting rule isn’t for everyone, but it’s particularly well-suited for a few groups:

People in High-Cost-of-Living (HCOL) Areas: In cities like New York or San Francisco, rent alone can eat up a huge chunk of income. The 75% for needs provides the necessary wiggle room.
Lower to Middle-Income Earners: When your income is lower, essentials naturally take up a larger percentage of your budget. This rule acknowledges that reality.
Budgeting Beginners: Its simplicity makes it a great starting point for anyone new to managing their money.
Those Who Feel Restricted by Other Budgets: If you’ve tried the 50/30/20 rule and found the “needs” category too small, the 75/15/10 rule might be the perfect fit.

A Practical Example: The 75/15/10 Rule in Action

Let’s say your monthly take-home pay is $4,000. Here’s how you would divide it using the 75/15/10 rule:

Needs (75%): $4,000 x 0.75 = $3,000
- This $3,000 would cover your rent, utilities, groceries, transportation, etc.
Savings/Debt (15%): $4,000 x 0.15 = $600
- You could put $300 into your 401(k), $100 towards extra student loan payments, and $200 into your emergency fund.
Wants (10%): $4,000 x 0.10 = $400
- This $400 is yours to spend on dinners out, a new video game, or a weekend getaway without any guilt.

How Does it Compare to Other Budgeting Rules (Like 50/30/20)?

The most common alternative is the 50/30/20 rule. Let’s compare them:

Category	75/15/10 Rule	50/30/20 Rule
Needs	75%	50%
Wants	10%	30%
Savings/Debt	15%	20%

The biggest difference is the trade-off between needs and wants. The 75/15/10 rule gives you much more room for essential expenses but less for discretionary spending. It also allocates slightly less to savings. This makes it more realistic for many, but potentially slower for aggressive savers.

The Pros and Cons of the 75/15/10 Budget

Pros:

Simple and Easy to Follow: No complex categories to worry about.
Realistic for HCOL Areas: Acknowledges the high cost of modern living.
Flexible: The large “needs” category can accommodate fluctuating bills.
Encourages Consistent Savings: Dedicates a specific portion to your future.

Cons:

Lower Savings Rate: 15% is a good start, but financial experts often recommend saving more if possible.
Limited “Fun Money”: The 10% for wants can feel restrictive for some people.
May Not Be Aggressive Enough for Debt: If you have high-interest debt, you might want to allocate more than 15% to pay it off quickly.

Frequently Asked Questions (FAQs)

Q1: What if my needs cost more than 75% of my income?

If your needs exceed 75%, it’s a sign that you might be “house poor” or have other essential expenses that are too high for your income. It would be a good time to look for ways to either reduce your major expenses (e.g., housing, transportation) or increase your income.

Q2: Can I adjust the percentages?

Absolutely! Think of this rule as a starting point. If you can save more, you might aim for a 70/20/10 split. If you’ve paid off all your debt, maybe your savings percentage goes up. The goal is to find a system that works for you.

Q3: Where do subscriptions like Netflix and Spotify go?

These are classic “wants.” They aren’t essential for survival, so they should come out of your 10% fun money category.

Is the 75/15/10 Rule the Right Choice for You?

The best budget is the one you can actually stick with. The 75/15/10 rule offers a simple, realistic, and flexible framework for managing your money.

It’s an excellent choice for anyone who feels that life’s necessities just cost more these days, or for those who are just starting their financial journey. By giving yourself a clear plan for your needs, savings, and wants, you can reduce financial stress and start building a healthier, wealthier future.