What is the story about?
It’s not always about reckless spending; there are genuine cases in which one earns reasonably, pays their bills on time, and still finds that there is
nothing left at the end of the month. The problem is usually not income alone. It is the absence of a simple structure that tells your money where to go before it disappears. The 70/10/10/10 formula isn’t a magic solution or a strict rule, but it provides clear guidelines that simplify everyday decision-making.
How 70/10/10/10 formula works and why it helps
Think of your monthly take-home income as being split into four categories.
70% for living expenses: This covers day-to-day life—rent, groceries, utilities, transportation, insurance, school fees, and other regular spending. Essentially, this bucket supports your life as it is now.
10% for long-term investing: This portion is for building wealth over time, not for immediate needs. It can go into equity mutual funds, retirement accounts, or any other disciplined long-term investment strategy.
10% for short-term savings: This is your safety net and flexibility fund. It covers emergency expenses, upcoming costs like travel or appliances, and medical buffers, money you can rely on when unexpected needs arise.
10% for debt repayment or personal growth: Depending on your situation, this portion can go toward paying off high-interest loans or investing in yourself, through skills, education, or even therapy, that can boost your future earning potential.
How this formula helps you stop living paycheck to paycheck
When all your income sits in one account and expenses come first, saving becomes optional, and optional savings usually get delayed. The 70/10/10/10 approach changes that. It makes you decide ahead of time how much of your income can actually be spent.
If your expenses regularly go over 70%, it’s not a failure; it’s a signal. It shows that either your lifestyle is outpacing your income, or your income needs to grow. Without a system like this, that reality often goes unnoticed.
Over time, the two 10% buckets, for short-term savings and long-term investing, create breathing room. Even small investments grow over time, and even a modest emergency fund prevents panic spending on credit cards or loans.
