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You’re ready to start a budget but you’re looking for the right budget FOR YOU.
It’s really easy to get caught up in finding the “perfect” budget.
But honestly, the perfect budget is one that’s rigid enough to have a structure, but flexible enough to fit your ever changing financial situation.
A couple pretty popular budget rules are the 50/30/20 budget and the 30/30/30/budget rule.
Today I’m going to focus on the 70 20 10 budget and why it’s a good fit for most anyone just starting to budget. It provides a loose structure and plenty of flexibility to meet your big financial goals and REDUCE MONEY STRESS.
You won’t need to spend hours pouring over a budget spreadsheet (unless you want to of course), and you’ll be able to focus on saving more money, paying off debt, all while getting all of your bills paid on time.
I’d be willing to bet you’ll be able to plan for fun spending too.
What is a 70 20 10 Budget?
All good budgets help you focus on your goals and priorities. Of course you also want to make sure you pay all of your bills on time too.
The 70 20 10 budget splits your monthly income into three buckets to make budgeting simple. Here’s the breakdown of your budget percentages in a 70 20 10 budget:
- 70% for living expenses
- 20% for savings and investments
- 10% for giving and debt
The great news about the 70 20 10 budget is the budget categories make it easy to organize the way you spend money based on your take home pay.
There’s also a lot of variability in the 70 20 10 budget.
I’ve seen it broken down a few different ways. 70% is ALWAYS for living expenses. But the 20% can focus on ONLY savings, both savings and retirement, or soley on debt if you have a lot of high interest debt.
The same goes for the 10% bucket. I’ve seen examples of the 70 20 10 budget that gives 10% fully to debt, 10% for giving, or a combination of debt and giving.
This is why I LOVE budgeting.
Budgets are designed to be flexible and focused on your financial goals. That means something different for every person. The 70 20 10 budget allows you to adapt the budget rule to fit your money needs.
70% for Living Expenses
Okay, here we go. Let’s get into the 70 20 10 budget rule!
70% of your income is designated to cover ALL of your living expenses. That means everything that isn’t savings, retirement, investments, giving, or debt.
Take a minute to think about your expenses right now. I’m guessing most of your thoughts circle around bills, groceries, gas, fun money, and other daily living expenses.
Here are a few examples of living expenses that fit into the 70 20 10 budget:
- Cell phone
- Student loans
- Credit card debt
- Date night
- Dining out
- Car insurance
- Medical bills
Of course there are WAY more budget categories that fall under living expenses, but this should give you an idea of where to start when making your own 70 20 10 budget.
Fixed vs Variable Expenses
In any budget, it’s important to break down fixed and variable expenses.
Fixed expenses are the same every single month. They never change. Some examples include your rent or mortgage and cable bill.
Fixed expenses are easy to plan for because they don’t change. The downside is you can’t really do anything to cut or lower these expenses in your budget.
Variable expenses are your bills and spending that vary from month to month. It could be a few bills like electricity or your gas bill, but most variable expenses are general spending you do throughout the month.
Examples of Variable Expenses:
- Dining out
- Gas for your car
- Entertainment (movies, plays, etc)
When you’re looking at your budget and want to lower your expenses, your variable expenses are the best place to start.
Especially if you realize you spend money on things you don’t really care about.
What if My Living Expenses are Higher than 70%?
I love this question. It speaks to the personal nature of money and budgeting. First off, there’s nothing to be ashamed of if your living expenses are greater than 70%.
Seriously. Nobody should be ashamed if you’ve made money mistakes or if you spend more money than you make. It’s more normal than you think.
If you’re reading this article, it’s likely that you want to make changes to your spending, and finding a good budget is the BEST step you can take.
It can feel really disheartening to be overspending and not saving money, but I have some tips to help you lower your expenses and increase your savings.
In fact, I wrote an entire article on 17 expenses to cut from your budget.
Like I mentioned before, the best place to make changes and cut expenses is your variable expenses. Remember, most of these expenses aren’t bills, and therefore you can change how much you spend in some of these budget categories.
It’s easy to tell yourself to stop buying stuff, but it’s easier said than done. Finding specific things to stop spending money on is a great first step to optimizing any budget.
You can also try implementing the cash envelope system to limit spending in a few key areas. You can do this with physical envelopes with cash in them or use digital cash envelopes through Qube Money.
We used cash envelopes for years to save money on groceries, gas, dates, and everyday household items like toiletries and kitchen tools.
If all else fails, it’s okay to increase your percent for daily expenses for a few months, maybe to 80% and adjust your savings and debt buckets to 10%.
After a few months, you may find new ways to save money or cut expenses. When that happens, you can adjust your budget again to be more in line with the 70 20 10 budget.
Example of 70 20 10 Budget
Okay, I’m a numbers guy so I like to see real budgets with real numbers. Here’s an example of a 70 20 10 budget rule in action. We’ll use this example throughout this article to help visualize how a 70 20 10 budget could work for you.
Let’s say your monthly household income is $3,500. Here’s the breakdown for the 70 20 10 budget:
- $2,450 for living expenses
- $700 for savings/investments
- $350 for debt and giving
I want to emphasize this one more time.
Just because this is the 70 20 10 rule, doesn’t mean you have to be entirely rigid within this system. If your expenses don’t work right now, be patient and adjust your budget over time as you build self discipline and get better at budgeting. It’s a skill anyone can learn and improve at.
If you want an annual budget spreadsheet that you can set up as a 70 20 10 budget template, click here to get an annual budget spreadsheet for just $5.
20% for Savings and Investing
I’d venture a guess that savings and investing are the most neglected parts of most budgets. It’s easy to get caught up in paying bills, paying off debt, and overall spending money.
I used to be guilty of this too before I started using a zero based budgeting template.
The result is so many Americans don’t intentionally focus on adding money to their savings or start investing.
I love the 70 20 10 rule for budgeting because there’s a specific focus to save money EVERY month and invest.
Okay, so what does saving and investing 20% of your income actually look like.
First, let’s break down different ways to save money and invest money.
What Counts as Savings?
Of course saving money means putting money into your savings account, hopefully a high interest online savings account, but saving isn’t ONLY your savings account.
Here’s a quick list of different ways you can save money in your 70 20 10 budget:
A lot of people also get overwhelmed and intimidated by investing too. I’m here to tell you that anyone can get started pretty easily without needing to know anything about the stock market.
Investing can be really simple. Here’s a few different ways you can invest with 20% of your income:
- 401k (reminder to rollover your 401k from past jobs)
- Roth or Traditional IRA
- 529 College Savings
- UTMA custodial account for your kids (try UNest app to get started)
That’s the tip of the iceberg and how we got started investing.
First things first, check with your employer to see if they offer a 401k. If they do, start investing a little every month, especially if they offer an employer match. That’s like getting free money from your job into your retirement investment.
We also opened a Roth IRA to focus on simple investing for retirement. We contribute the same amount every month with automatic contributions. It’s simple and effective for growing your retirement nest egg.
The point is, you have a lot of options to save money and invest in retirement. The good news is, you don’t need to do it ALL at once. Pick one way to start saving and one way to start investing and stick with it.
You can always add more options as your income increases or as you feel more comfortable in understanding your options.
10% for Giving and Debt Payments
Alright, we’re in the home stretch of your 70 20 10 budget rule, and it’s time to focus on giving your money away and paying off debt.
Let’s start with debt.
If you have debt, I’m guessing you’re hoping and dreaming about the day it’s gone.
Imagine how it’ll feel to make your VERY LAST PAYMENT!
Dedicating extra money to pay off debt every month is a fabulous strategy to get out of debt faster, especially when you use a debt snowball spreadsheet to accelerate your debt repayment.
Debt payments in general fall under the category of living expenses and should be coming out of your 70% bucket. So any debt payments you make from your 10% bucket are EXTRA debt payments directly to the principal.
If you want help organizing your debt and creating a simple, but effective strategy to become debt free, I highly recommend the Debt Free Playbook.
The Debt Free Playbook helps you set up a debt snowball spreadsheet in about 20 minutes. From there, you can start using advanced strategies to use your debt snowball spreadsheet to get out of debt faster.
These are all the same principles we used to pay off $100,000 of debt in 5 years on two teacher salaries.
And the good news, your extra debt payments are good for any kind of debt you have:
- student loan debt
- credit card debt
- home equity line of credit
- medical debt
- paying off your mortgage faster
I promise you won’t regret making extra debt payments. Once you’re debt free you’ll be able to increase your giving, savings, and retirement contributions without impacting the rest of your budget.
What Does Giving Look Like in Your Budget?
Giving money away might seem counterintuitive for budgeting. Isn’t a budget supposed to help optimize your money so you can do more with it?
And one big way you can make a difference in your life is giving your money away.
I’ve experienced this in our own life, and have talked to loads of people whose lives dramatically changed when they prioritized giving money away. I’ve written specifically about how to tithe when in debt. It’s easily one of my most read blog posts.
But giving can apply to a wider range than just tithing to your church. Click that last link for how to tithe when in debt so you can read how giving money away has impacted some of my other readers.
Giving can mean a lot of different things depending on your values and life experiences. Here are a few different examples of what “giving” can mean in your budget:
- tithing to church
- donating to charities and nonprofits
- practical giving to people in your community who are in need
- donate to a child’s college fund
- give to a local food shelf
There are so many ways to use your money to impact your community and those in need. And honestly, giving away money has a profoundly positive impact on your own life and surprisingly, your budget.
Pros of a 70 20 10 Budget
I think every single type of budget has plenty of advantages. The biggest advantage to any budget is it helps you focus on your biggest money goals and priorities.
Here are my favorite reasons to start a 70 20 10 budget template:
- Simple concept with a lot of flexibility
- You don’t need to worry about every little expense (unless you’re like me and really want to 😉)
- Can be automated easily – set up automatic transfers to savings, retirement, 529, etc
- You’re guaranteed to grow your savings and investments.
Sometimes savings is an afterthought in the budget. It’s easy to get to the end of the month with little to no savings left. I spent my entire college years and early professional career sending NO money to savings. Following the 70 20 10 budget rule solves that problem.
In the end, I love the simplicity and flexibility of the 70 20 10 method. And any budget with a focus on savings and investing is a winner in my book.
Cons of a 70 20 10 Budget
One reason there are SO MANY types of budgets is everyone has different needs and goals with a budget. Plus we all have different money philosophies.
Here are a few reasons the 70 20 10 budget rule might not work for your family.
- 70% might not be enough to cover all of your expenses
- Your spending and savings might not be fully optimized if you follow big percentage buckets. There’s a possibility that if you track your expenses more accurately with a zero based budgeting template that you’ll save more money and pay off debt faster.
- If you live well under 70% of your income, a different budgeting method might work better. You don’t want to spend extra money just to “follow the budget rule”.
Comparing 70 20 10 Budget and 30 30 30 10 Budget
One of my favorite budgets is the 30 30 30 10 budget. Let’s see how the 70 20 10 budget compares to the 30 30 30 10 budget.
Here’s how this will work.
I’m going to take the same income as earlier and see what it looks like with each budget rule. That income is $3,500 in monthly household income.
The good news is both of these budgets can transform your life. It honestly comes down to your family goals, values, and priorities.
With a 70 20 10 budget you can make an intentional plan every single month to save money, invest, and get out of debt, all while paying all of your bills on time.
Budgets are Designed to be Flexible and Reflect Your Goals
Always remember this about budgeting.
Budgets are meant to be flexible and focus on YOUR values and priorities.
Read that again 👆🏻
If your budget is so rigid that you want to rip your hair out, think of ways you can add more flexibility to your budget.
Here’s a quick example.
If you’re able to live on 70% of your income to cover all of your expenses, but you want to contribute MORE than 10% to giving and debt, you can. Why not adjust to save and invest 15% and give and pay debt with the other 15%?
Nothing says you HAVE to follow a specific budget rule. And remember that every month is different. Maybe one month your expenses are lower so you can add more to savings, give more, or make an extra payment to debt.
Roll with your budget and always prioritize your needs, values, and goals in your budget.
Are you Ready to Try the 70 20 10 Budget?
If you’re looking to start a budget, there’s no wrong way to do it. The 70 20 10 budget is simple to use and creates a lot of flexibility plus a focus on saving money and getting out of debt.
If you need a budget spreadsheet to help set up your 70 20 10 budget, grab this annual budget spreadsheet for $5. It’s worth the investment.
For more reading on budgets check out two more budgeting methods:
You can also check out my YouTube channel for more help with budgeting and paying off debt.
What do you think about the 70 20 10 budget?