Preventing Household Bankruptcy: The One-Third Rule in Financial Planning with Mathematical Validation and Game-Theoretic Insights

Aditi Godbole (), Zubin Shah and Ranjeet S. Mudholkar
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Aditi Godbole: Independent Researcher, Bellevue, WA 98004, USA
Zubin Shah: Vishria Bird Financial Group, LLC, Memphis, TN 38119, USA
Ranjeet S. Mudholkar: Next League Executive Board LLC, Phoenix, AZ 85048, USA

JRFM, 2025, vol. 18, issue 4, 1-37

Abstract: This paper analyzes the 1/3 Financial Rule, a method of allocating income equally among debt repayment, savings, and living expenses. Through mathematical modeling, game theory, behavioral finance, and technological analysis, we examine the rule’s potential for supporting household financial stability and reducing bankruptcy risk. The research develops theoretical foundations using utility maximization theory, demonstrating how equal allocation emerges as a solution under standard economic assumptions. The game-theoretic analysis explores the rule’s effectiveness across different household structures, revealing potential strategic advantages in financial decision-making. We investigate psychological factors influencing financial choices, including cognitive biases and neurobiological mechanisms that impact economic behavior. Technological approaches, such as AI-driven personalization, blockchain tracking, and smart contract applications, are examined for their potential to support financial planning. Empirical validation using U.S. Census data and longitudinal studies assesses the rule’s performance across various household types. Stress testing under different economic conditions provides insights into its adaptability and resilience. The research integrates mathematical analysis with behavioral insights and technological perspectives to develop a comprehensive approach to household financial management.

Keywords: financial planning; bankruptcy prevention; mathematical analysis for 1/3 rule; game theory; behavioral finance; AI-driven technological solutions; household budgeting (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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