What Is The 70-20-10 Budget Rule?

Are you looking for a budgeting system that can help you achieve your financial goals? The 70-20-10 budget rule might be just what you need. This popular budgeting strategy has been gaining traction among individuals and households alike, and for good reason.

The 70-20-10 budget rule is a simple yet effective method that suggests allocating your income into three categories:

  • 70% for living expenses
  • 20% for savings and debt repayment
  • 10% for investments

In this article, we’ll discuss “What Is The 70-20-10 Budget Rule?” and the benefits of using the 70-20-10 rule, how to get started with it, tips for sticking to it, and alternatives if it doesn’t work for you.

Key Takeaways

  • This rule is a method for allocating funds towards investments, savings goals, and debt repayment.
  • It emphasizes efficient use of available money and helps in financial control and resource maximization.
  • The percentages in the rule can be adjusted based on individual priorities and goals.
  • It is important to take advantage of tax deferred savings plans like 401(k) or IRA and set aside money for retirement savings.

What Is The 70-20-10 Budget Rule

What Is The 70-20-10 Budget Rule

This is a popular method for allocating your budget.

  • According to this rule, you should allocate 70% of your budget to everyday expenses. This includes necessities like rent/mortgage payments, groceries, and other daily bills.
  • The remaining 20% should be put towards your financial goals. This can be savings or debt repayment.
  • Finally, the last 10% of your budget should be used for fun and enjoyment. This can include going out to dinner with friends or taking a much-needed vacation.

By following this budgeting rule, you can ensure that you are making the most of your spending money and staying on track with your financial goals. It is a simple yet effective way to manage your finances.

Benefits of 70-20-10 Budget

Benefits of 70-20-10 Budget

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Discover the advantages of the 70-20-10 budgeting approach while exploring various budgeting methods. The 70-20-10 budget offers you the benefit of stability, allowing for long-term planning and growth. It enables you to budget your income efficiently while paying down debt and saving for future investments. Here are some key benefits:

  • You can distribute your income into three categories: 70% on living expenses, 20% on debt installment, and 10% on savings or investments.
  • This budgeting strategy creates a balance between short-term needs and long-term goals.
  • You’re more likely to stay out of debt because you’ll always have money saved for emergency expenses.
  • It provides a steady stream of cash flow that can be used to make timely payments without relying too heavily on credit cards or loans.

With this approach, you can create financial security in the short and long term by making wise decisions with your income.

How to Get Started with the 70-20-10 Rule

How to Get Started with the 70-20-10 Rule

Getting started with the 70-20-10 rule is easy if you break it down into its three component parts.

First, aim to allocate 70% of your income towards living expenses. This includes things like rent or mortgage payments, utility bills, groceries, transportation costs, and other essential expenses.

Next, allocate 20% of your income towards saving and investing. This is an important step in building wealth and securing your financial future. Consider setting up automatic transfers to a separate savings account or investment portfolio to make this process easier.

Finally, allocate the remaining 10% of your income towards either debt payment or donation. If you have any high-interest debt, such as credit card debt or student loans, use this portion to make extra payments and reduce your overall debt burden. 

Alternatively, you can choose to donate this amount to a cause or organization that you care about. By following this simple guide, you’ll be well on your way to a secure financial future.

70% for Living Expenses

Living frugally means adhering to the 70-20-10 rule for living expenses. This rule allocates 70% of your income towards necessities, 20% for savings and investments, and 10% for leisure. To follow this rule, take an honest look at your monthly variable expenses. 

Allocate a portion of your paycheck towards rent (or mortgage) and bills. Then, break down the remaining funds into three categories: necessities, savings/investments, and discretionary spending. 

Necessities should include items like food or transportation costs. Savings/investments are best suited for sinking funds or a savings account. With the 10%, you can choose how to use it on anything from hobbies to dining out – just make sure not to overspend! 

Following the 70-20-10 rule will help ensure that you can live within your means while still saving money in the long run.

20% for Saving and Investing

Set aside 20% of your income for saving and investing–it’s a great way to secure your financial future!

Investing this money in stocks, bonds, mutual funds or other investment products can help you build wealth over time.

You can also invest in yourself by contributing to a college savings plan or IRA, which will reduce the amount you need to pay in taxes.

Depending on your income level, you may be able to make tax-deductible donations as well.

It’s important to have an overall plan for investing and saving that takes into account your personal goals, such as retirement planning or saving for college tuition.

By following the 70-20-10 rule when it comes to saving and investing, you’ll be able to maximize the amount of money you have available for these purposes while still having enough left over for everyday living expenses.

10% for Donation Or Debt Payment

Donating and paying down debt are two great ways to make a difference in your finances and the world around you! It’s important to figure out which should be prioritized first, as both can have a positive effect on your financial situation. When deciding whether to donate or pay off debt, it’s helpful to consider:

  • The debt avalanche method – Paying off debts with the highest interest rate first.
  • The debt snowball method – Paying off debts from smallest to largest balance.
  • Repayment terms – How long will it take you to pay back the loan?
  • Cash back rewards – Can you get any cash back for making certain payments?
  • Credit score impact – Will paying off this particular debt help raise your credit score?
  • Emergency fund – Are you adequately prepared for any unexpected expenses?

No matter what decision you make, remember that maintaining an emergency fund is key in order to protect yourself financially.

Tips for Sticking to The 70/20/10 Rule

Tips for Sticking to The 70/20/10 Rule

As a savvy budgeter, it’s important to use the 70/20/10 rule to structure your finances. To make sure you stick to this budgeting plan, I suggest following these tips:

  • Use after-tax income to calculate your budget. This will give you a more accurate picture of your available funds for spending, saving, and investing.
  • Track your expenses using an app or spreadsheet. This will help you keep a close eye on where your money is going and make it easier to adjust your percentages if needed.
  • Be flexible with the percentages. While the 70/20/10 rule is a good guideline, it’s not set in stone. If you find that your financial situation or priorities change, don’t be afraid to adjust the percentages to better suit your needs.
  • Take advantage of the 10% savings allocation. This is a great opportunity to build up an emergency fund, save for future goals, or invest in your financial future. Make it a priority to set aside this portion of your income every month.

Remember, sticking to the 70/20/10 rule requires discipline and consistency. By following these tips, you can make the most of your money and stay on track with your budgeting goals.

Use After-Tax Income

To maximize your savings, it’s smart to use after-tax income. This is the money you have left after taxes and deductions are taken out of your paycheck. When following the 70/20/10 rule, it’s important to focus on your takehome pay rather than your gross income. This net income will be used to allocate funds according to the rule.

Interest earned from investments can also count towards the 10% portion of this rule, as long as it comes from after-tax dollars. By using after-tax income, you’ll be able to accurately assess how much money you have available and plan accordingly when creating or sticking to a budget that fits the 70/20/10 rule.

Track Expenses

Staying on top of your expenses is essential if you want to ensure you’re living within the 70/20/10 guideline. It’s important to understand and track all of your expenses, including any payroll deductions, mortgage payments, ETFs, or contributions to an Individual Retirement Account or Student Loan repayment plan.

To get the most out of this budgeting rule, try using a debt avalanche approach and prioritize paying off high-interest debts first.

Start tracking all your monthly expenses:

  • Payroll Deductions
  • Mortgage Payments
  • ETFs
  • Contributions to IRA & Student Loan Repayment Plan

Prioritize paying off High Interest Debt with Debt Avalanche Method.

Adjust the Percentages When Needed

It’s important to remember that the 70/20/10 budgeting guideline is not set in stone; it can be adjusted when needed to best suit your individual financial circumstances. Managing personal finances requires a great deal of discipline and planning, and the 70/20/10 budgeting rule may need adjusting depending on your current financial statement.

High YieldDebt Snowball
Investments, savings goals etc.Pay down debts with highest interest rate first

By allocating funds towards high yield investments or other savings goals while also using debt snowball methods to pay off higher interest-rate debts, you can ensure that the money you have available is being used in the most efficient way possible. This type of budgeting method helps you take control of your finances and make sure that you are maximizing your resources.

Make the Most of Your Saving Allocation

Now that you understand how to adjust the percentages of the 70-20-10 rule when necessary, it’s time to talk about making the most of your saving allocation.

Saving is key for achieving financial goals, and I recommend taking full advantage of tax deferred savings plans like a 401(k) or IRA.

You should also set aside money each month towards retirement savings in order to ensure a comfortable future.

Additionally, if you have any extra funds left over after paying bills and setting aside money for savings, use it to reach short term financial goals such as purchasing a car or going on vacation.

By properly allocating your monthly income into these categories, you can make the most of your saving allotment and achieve long-term financial success.

Alternatives To The 70/20/10 Rule Budget

Though it’s the most popular budgeting rule, there are alternatives to the 70/20/10 Rule budget that may be better suited for your financial needs.

Fixed ExpensesMonthly SpendingSavings Goals
Housing & UtilitiesGroceries & Dining OutRetirement or College Fund
Insurance PaymentsClothes & Personal Care ItemsEmergency Fund
Vehicle CostsEntertainment & VacationsLong-Term Financial Goals

The other method is one which divides funds into categories of need, wants and savings. This allows you to allocate funds based on your priorities and goals. You can adjust the percentages as needed to ensure your fixed expenses and monthly spending needs are met while still working towards your long-term financial goals.

The Envelope Budgeting System is a simple and tangible method that involves placing cash in envelopes labeled for different spending categories. The digital version of this method, known as the Digital Envelope System, incorporates modern technology to provide a similar categorization of spending but in a virtual environment.

The 50/40/10 budget method, on the other hand, allocates funds by designating 50% to needs, 40% to savings, and 10% to personal wants. The Sub-Savings Account method encourages setting up multiple savings accounts for different goals, thereby promoting a focused approach to saving.

Alternatively, the 30/30/30/10 rule provides a balanced distribution of income, dividing finances equally into living expenses, discretionary spending, and savings, with the remaining 10% for charity or debt repayment.

The Zero-Based Budget System ensures that every dollar is allocated a job, balancing income against expenses until the budget equals zero. The 50/30/20 budget method is a more relaxed approach where income is divided into needs (50%), wants (30%), and savings (20%).

The 60/40 budget rule offers a slightly different approach by designating 60% of income to committed expenses and the remaining 40% to be divided among retirement contributions, irregular expenses, and fun money.

The 80-20 budget method is an appealing alternative to the 70/20/10 budgeting rule. Also known as the Pareto Principle, this budgeting strategy simplifies personal finance by dividing income into two major categories: 80% for living expenses and 20% for savings or debt repayment.

Rather than the more intricate division of expenses in the 70/20/10 rule—70% for living expenses, 20% for savings, and 10% for debt— the 80-20 approach reduces financial planning to two broad categories, making it easier for some individuals to adhere to.

It still fosters the habit of saving and encourages fiscal responsibility without being overly complex. This streamlined approach may be more appealing to those who are new to budgeting or who prefer a more simplified personal finance strategy.

Frequently Asked Questions

The 50-30-20 rule is a popular alternative to the 70-20-10 rule. This method suggests allocating 50% of your income toward necessities, such as rent and groceries. It recommends allocating 30% towards discretionary items, like entertainment or travel. Additionally, it suggests allocating 20% towards savings.

Another budgeting rule similar to the 70-20-10 rule is the 10-90 rule. This rule recommends saving 10% of your income and spending the remaining 90%.

Another option is the envelope system. This method suggests splitting your money into envelopes labeled for different categories – such as food, transportation, etc. – then only using cash from those envelopes for that purpose.

Ultimately, it’s important to choose a budgeting method that works best for you and helps you reach your financial goals.

Yes, there are risks associated with using the 70-20-10 rule.

One risk is that it requires strict adherence to an exact ratio of spending and saving, which may not always be feasible.

Another risk is that allocating too much to one area can lead to problems in another. For example, if you allocate too much to current expenses, you may not have enough to save for retirement or cover unexpected expenses.

If your circumstances change and you’re unable to stick with the 70-20-10 plan, it could lead to financial hardship in the future.

Furthermore, without proper planning or guidance from a financial advisor, it’s easy to fall into bad habits or make decisions that undermine your goals.

Overall, it’s important to consider these risks and make adjustments to the 70-20-10 rule as needed to ensure it aligns with your individual financial statement and goals.

The 70-20-10 rule is an effective way to allocate funds within a business. However, it may not be suitable for all types of businesses. Factors such as the size of the business, its current financial position, and its long-term goals need to be considered when deciding whether or not this strategy is right for you.

If implemented correctly, the 70-20-10 rule can provide an optimal mix of spending. This can help ensure your business remains financially healthy and profitable in the long term. However, there are some risks associated with using this approach. It is important to be aware of these risks before committing to the 70-20-10 rule.

Ultimately, whether or not the 70-20-10 rule is suitable for your particular business will depend on many different factors.

The 70-20-10 rule should be reviewed periodically, depending on the size and complexity of a business. As businesses grow, their financial needs change and the budget allotments should adapt to reflect this growth.

I recommend reviewing this budget at least annually for small businesses, and more often for larger corporations that experience significant growth or changes in their industry.

Additionally, during times of economic uncertainty it is important to stay up to date with current market conditions in order to make informed decisions about where to allocate resources.

Ultimately, it’s essential to regularly assess your budgeting strategy so you can maintain a healthy financial plan for your business.

I find the 70/20/10 budget rule to be a helpful guide when creating and managing my budget. It encourages me to make sure that I am not overspending in any one particular area.

To incorporate it into my existing budget, I start by allocating 70% of my income towards expenses such as housing, utilities, and groceries.

Next, I allocate 20% of my income towards financial goals such as retirement savings or paying off debt. This helps me prioritize my long-term financial security and go toward achieving my financial goals.

Finally, I allocate the remaining 10% of my income for discretionary spending. This includes things like entertainment, dining out, or any other non-essential expenses.

By following the 70/20/10 budget rule, I am able to stay mindful of where my money is going and track progress on reaching my financial goals. It helps me maintain a balanced approach to budgeting and ensures that I am not neglecting any important areas of my financial life.


The 70-20-10 budget rule is a popular method for managing personal finances. It suggests allocating 70% of your income to living expenses and necessities, such as rent or mortgage payments, utilities, groceries, and transportation. This portion ensures that you cover your basic needs and maintain a comfortable lifestyle.

The next 20% of your income is dedicated to savings and investments. This portion is crucial for building an emergency fund, saving for retirement, or achieving other long-term financial goals. It allows you to secure your future and provides a safety net for unexpected expenses.

The remaining 10% is for discretionary spending or personal enjoyment. This portion can be used for entertainment, dining out, hobbies, or any other non-essential expenses. It allows you to enjoy your money and indulge in activities that bring you joy without compromising your financial stability.

Following the 70-20-10 budget rule requires discipline and careful planning. It may take time to adjust your spending habits and find the right balance. However, by prioritizing your financial goals and making conscious choices, you can gradually align your budget with this rule.

It’s important to note that the 70-20-10 budget rule may not work for everyone. Each individual has unique financial circumstances and priorities. If this rule doesn’t suit your needs, there are alternative budgeting methods available. It’s essential to find a budgeting approach that aligns with your lifestyle and helps you achieve your financial objectives.

Remember, consistency is key in maintaining any budgeting strategy. Regularly reviewing your expenses, making adjustments when necessary, and staying committed to your financial goals will help you stay on track and achieve financial success.

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