If you don’t really feel like you’re dealing with your finances strongly, one possible cause for that is to use budgeting methods that don’t work. Not everyone needs a balanced budget for penny, but if you want to know where your money goes each month, some kind of budgeting strategy or template is really important.
The 70-20-10 budget is one of many budgeting frameworks and may be the tool you are looking for.
If you have tried to budget in the past and “failed” due to budget challenges, it may be time to rethink your plans. You can be successful in budgeting – you need the right way to do it you.
What is the 70-20-10 budget?
The 70-20-10 rule is excellent for those who don’t want to see all the cents of spending in 35 different categories. It’s a split, simplified version of budgeting.
If you’ve ever looked at the sample budget and thought, “This is too complicated,” then this budget is probably a good compromise. Maybe you’re someone who wants to know how to manage your money, but you don’t want to be upset with micromanagement.
A 70-20-10 budget refers to the percentage of takeaway pay that is dedicated to each of the three main categories: expenditure, savings, and donations. that’s it.
(If you want an even number more With a streamlined budget plan, you can check the 80/20 budget and apply it to your budget instead. )
If you choose this budget, you will allocate 70% of your monthly income to spend, 20% to savings, and 10% to donations. (The reward for your debt can be included or replaced by the percentage of “giving” if that applies to you.)
Let’s break down how this budget works for your life.
70% of your income is due to spending
Using this rule will withstand 70% of your income. More precisely, it’s 70% of takeaway wages, or net income after tax, not pre-tax income.
Therefore, all essentials in this category must be fitted with luxury items that you spend money on.
Once you know your weekly or monthly income, you can do some simple math: calculate how much 70% will be. That’s the number you need to keep all the costs of your life down.
Types of expenses to include in budgets on 70-20-10
Everything you spend on is under this category. Of course, all budgeting apps and strategies address this.
This is the most common cost starter list included in the 70-20-10 rule.
- Rent/Home loan
- Car costs and payment
- Insurance fees
- Utility (electricity, water, waste removal)
- Fuel/Transportation
- Grocery
- Childcare
- Eating out
- clothes
- Entertainment
- Student loan payments (minimum)
- Other debt payments (minimum)
- Gift (unless you store this just for the 10% offer category)
- trip
- Subscription or membership
- hobby
Feel free to add other discretionary spending categories.
Modification vs. Variable Costs
One way to break down the spending categories is to look at fixed and variable costs.
Fixed costs
Your fixed costs are set to pay monthly. These are “easy” costs to calculate, as the costs remain the same when you live each month.
You can usually keep your mortgage or rent the same month unless your landlord needs to increase your rent every once in a while. )
An example of fixed costs is:
- Rent or mortgage payments
- Car payment or car loan
- Insurance fees
- Membership fees (special organizations, gyms, etc.)
- Subscriptions (magazines, trade publications, etc.)
- Childcare (this is a fairly fixed amount, but I might add an extra babysitting night here and there)
- Utility (usually fluctuates, but can be modified if you pay a more regular amount) as utility companies offer a program to estimate average monthly costs.
Variable costs
Variable costs are costs that can vary depending on the situation. Even if you’re on a budget, you can spend more on eating out during your holiday.
Your utility bills may decrease during the annual temperature season and rise during extreme cold and heat. Variations may be due to spending choices, but sometimes they are due to factors outside your control.
An example of variable costs is:
- Grocery
- Fuel/Transportation
- Eating out
- Utilities
- Entertainment
- clothes
- gift
- trip
The key to remember all your expenses is to maintain below 70% of your total wage for a given month. If you have extra leftovers, you can decide whether to spend it as fun money, send it to fill in your savings, or give it a category.
20% of income for savings
The second category is much smaller, but it is less important than spending. Using this budget will save 20% of your total revenue.
Setting it is a great goal. While American households seem to prioritize some savings on average, savings is not a bad idea.
Starting with saving 10% of your income as part of the 10% rule is better than nothing, but increasing that amount to 20% gives you more undulating room.
Of course, one of the big hurdles many people face when saving money is that they may not know how to save money when their income is low. It’s really hard to save when you live on a salary.
So, if you haven’t been able to throw away your money in the last few years, don’t beat yourself.
However, everyone should aim to save a decent portion of their income. We all need emergency funds and to save more long term (retirement). Consider some of these ways to save.
Include emergency funds as part of the 70-20-10 budget
There aren’t many hard-working, fast personal finance “rules,” but having an emergency fund is always essential. You should start with the emergency fund before any other savings. Your emergency funds are the amount you can withdraw in the event of an emergency.
One example is that you have to tow your car after a breakdown on the highway. Calling a plumber to fix a leaky faucet, paying sudden medical tuition fees, or purchasing tickets for a beloved family funeral plane could all be an emergency.
In addition to emergency cash to cover you when one or two unexpected expenses arise, you need to build something called a “full” emergency fund.
For example, you could start with a small fund with either $500 or $1,000 as your first milestone. It provides a little peace of mind.
But what if you are worried about losing your job? Or will you and your spouse be fired? You may need money to cover your bill for weeks or months.
More robust emergency funds are usually three to six months’ worth of basic living expenses.
A budget can be useful when calculating the amount you need for three or six months’ expenses. For this, I would like to stick to the naked bone budget, including mortgage/rent, transportation to workplace or employment interviews, groceries, and other non-negotiable expenses.
Note: Make sure to keep your emergency funds in an account that is easily accessible. (Don’t put it in a retirement account that you can’t pay for for years.) A high-yield savings account is a good option for a basic emergency fund.
Sinking funds (future costs)
Another type of savings account to consider in a budget of 70-20-10 is what we call sinking funds. These are due to a variety of large costs that can sometimes occur. You may not always need $50 a month, but you may need to cover $500 in six months.
It is usually unwise to pour all the sinking funds into regular emergency funds. It might be too easy to use it on the wrong thing. Different types of bank accounts can be set up in the same bank for different types of sinking funds.
Then simply set up an automatic deposit for each. Over time, the sinking fund will grow whether it’s $5 a month, $50 a month, or even a few hundred a month. The goal is to have enough money to cover the costs that you can reasonably expect, but you cannot always calculate it in advance.
Examples of subsidence funds
- House Sinking Fund (for regular repairs and updates of your home and appliances)
- Automobile Deposition Fund (excluding the next car you buy and future car repairs)
- Self-Employment Tax Subsidence Fund (Freelancers and self-employed individuals must pay their own quarterly taxes)
- Wedding Sinking Fund (to host the costs of attending weddings or future weddings)
- Gift Thinking Fund (for example, you might save all year round for sustainable Christmas presents)
- Kids Activity Subsidence Fund (Save all year round for these summer camps and club fees and experience gifts for kids)
Suspension funds may seem like they’ll deal with a lot after filling up emergency funds, but they’re well worth the effort. With these types of expenses prepared, you are less likely to immerse yourself in the emergency fund. What’s more, the “frequent” costs are not such a surprise.
Resignation savings
Within a budget of 70-20-10, you can also include a portion of 20% in the retirement fund. Once you have set up an emergency fund and some sinking funds, you will be working on resignation.
Resignation is a big goal to prepare, but the more you learn tips for planning your retirement, the better you will be. Time is one of the most powerful tools in retirement savings. I want to give my investment time to grow through compound interest and stock market returns.
401 (k)
401(k), 403(b), and 457(b) are some of the most common retirement accounts. These are great retirement savings tools, but you need one option through your employer.
401(k)s offers the opportunity to save money for retirement before tax. Money will be sent from your salary to your direct investment account, reducing your taxable income. Some employers offer 401K matching for your contributions. This is basically free money!
Please note that these accounts are tax deferred and not tax processing. So you will now save taxable income, but when you retire and start withdrawing your money, you will pay taxes.
Plus, there is a 401K alternative. The next section covers some of the best.
IRA and ROTH IRA
In addition to plans sponsored by 401(k) or similar employers, many people in the United States can save individual retirement accounts (IRAs). There is a traditional IRA and saves every year for tax-deductible contributions.
The Roth IRA is another option and works similarly. The difference between a traditional IRA and a Roth IRA is that a Roth IRA is taxed when it comes to contributions, but once you retire, you can withdraw money with tax-free.
Other types of IRAs exist, including SEP-IRAs, for self-employed people.
For Ross and traditional IRAs, the government limits the amount that can be contributed annually. The maximum value for 2025 is $7,000. Alternatively, if you are over 50, you can donate up to $8,000, according to the IRS.
College savings for kids
Another big savings “bucket” to keep in mind when starting a family is that you might want to start a college account for your kids. While paying college is generally not mandatory for parents, parents will want to help your child if possible.
After covering all the costs and other essential savings (and don’t ignore retirement), you can move on to college savings. Help your child get a great education and also learn how to avoid student loans.
As with all kinds of savings, when it comes to university planning, the earlier the better. That doesn’t mean that if your child is already in high school you shouldn’t save anything, but it’s best to start when they’re young.
The custody account and 529 plan are two of the best options for parents of children who may one day attend college.
Supervisory account
One strategy parents can use to save college is custody accounts. This is an investment account that parents or other adults can start on behalf of their children in their lives. Children will take over accounts at a certain age (usually 18 or 21).
Before opening a book for your child, you should read all the details of the storage account. There may be gift taxes involved, and the child may ultimately need to pay taxes on his income. But one great thing about custody accounts is that they don’t need to be used only for university.
If you want to keep options open for your kids, an admin account can be great.
If they decide to pursue another path like the military or open their own business right after high school, this may be more useful than the 529 plan.
529 Plan
The 529 plan is often seen as a top investment vehicle to help parents send their children to college. If you are a parent, you can open 529 accounts for your child very early and grow your funds until they are ready to hit campus.
The 529 plan has major tax benefits. Account revenue is exempt from federal income tax, as long as you withdraw money just for eligible education expenses.
The longer your money, the better your profits you can earn from your money. This means savings will grow even more.
Therefore, a portion of the 70-20-10 budget includes savings for your child’s university education. Remember that in this budget, you are contributing to the University Fund from a 20% bucket. You can only use 5% of your income here, but stick to up to 20%.
Stock Investment
Investing in the stock market is another pathway for you to start building wealth. It is best to focus on other steps, such as investing in emergency funds and employer-sponsored retirement accounts. But investing yourself in the stock market is another option if you’re at that point.
Sign up for a robo-advisor and try your hand at investing more stocks. This is to choose a bundle of stocks to purchase based on the information you give. You can check out the best stock research websites and invest your money in the stock market.
Another way to get some money in the stock market is to use index funds. Investing in index funds is a way to invest in a basket of stocks or bonds intended to function similarly to the entire stock market.
In other words, you have stocks in different companies, so you invest in the fund to own multiple companies, hoping to get a good profit with your money.
As you’re preparing to dig deeper into the stock market investment job, check out these investment terms to understand!
Real estate investment
If investing in real estate sounds intimidating, then that doesn’t have to be.
Real estate investments for beginners include buying property to rent for income, but people can invest in real estate in a smaller way.
Real estate is attractive to some investors because unlike the stock market, real estate is a concrete asset. In theory, it is the real property that always has some value.
Starting with real estate, you may put a portion of your saved money into a real estate investment trust or REIT. It’s very similar to investing in the stock market, but especially companies that work in real estate. The process of being an investor is much like buying an index fund, and is easier than buying a property and becoming a landlord.
Crowdfunding is another easy way to dip your toes into real estate syndication investments on a 70-20-10 budget.
Of course, you may be ready to pursue a physical property purchase. Do a lot of research because it’s not a truly passive form of income and not for everyone.
However, property owned is a advantageous way to begin accumulating wealth over time.
10% of your income is to pay back or give debt
In a 70-20-10 budget, the last 10% of your money is allocated for payoffs of additional debt. Alternatively, you can use this 10% for your donation. It may mean giving to charity or gifts to a loved one for a wedding, graduation, etc.
Refunds on debt
Depending on your finances, this 10% category can include debt repayments.
However, this does not mean that you can only spend less than 10% of your income on debt. You may remember that student loans and other debts were included in the 70% cost category.
Student loans and other obligations are obligations, so we would like to include minimum payments needed for expenditures.
Plus, if your minimum payment doesn’t get out of debt quickly enough, you can send extra money to speed up that process.
You can choose how to calculate this last 10% of your income. If you are facing a lot of debt, you can focus on how to pay off your credit card faster, rather than giving it. Especially if you have high debt, it’s best to pay it off immediately.
If you have a lot of debt, you probably have experienced some levels of debt stress. Understanding the right game plan with the 70 20 10 rules will help you take the path to living debt.
How to do a debt snowman
One popular way to pay off debt is known as the “debt snowball worksheet.” As popularized by many personal financial influencers, debt snowman means paying off debt in order from smallest to largest.
The magic of debt is to start with the smallest of all debts, whatever the interest rate is. That might mean paying back your $75 parking ticket first. It may be small, but it gives you a sense of accomplishment.
Snowball is all emotional victory. When you have a lot of debt, it can be felt suffocated. You may think that you will never break freely. However, each time you pay off your debt, you can be proud of yourself, gain motivation to save money, and face the next debt.
It takes time, but these small wins can help your drive as your debt grows.
Debt Avalanche Act
Some people praise the debt avalanches and snowball debt in return. It is the interest rate of each debt and amount of each debt.
Your interest rate on debt is how much you are being charged by your lender to borrow their money. The higher the interest rate, the overall payment is possible.
In a debt avalanche, we want to look at all our debts and see the interest rates for each. Next, focus on the extra money that can first be repaid on the best profit debt. For many, this is credit card debt.
In a debt avalanche, you generally pay less.
However, if it takes a long time to repay your best profits, you may be disappointed. The debt reduction strategy you use depends on your personality and which methods will help you succeed.
If you use a budget of 70-20-10, please note that minimum debt payments come from the expenditure category. Included in the extra 10% debt category Extra Payments to get out of debt quickly.
Give or share
Some of your last 10% category can go towards giving to something meaningful to you. It’s an official type of donation, and you may want to regularly include monthly amounts to the same organization, or you may want to change your donation each month.
Religious tithing or giving
Many people give priority to worship houses. Some religious traditions call this “tith” (which simply means a tenth of your money). But whether you give 10% to one church entirely or provide a religious organization is really up to you.
Donations to Charity
Another part of your donation may be in the form of a donation to a charity or nonprofit organization.
Whether it helps victims of domestic violence, digs Kenya wells, feeds hunger in your hometown, or one of hundreds of other causes, you can choose one on missions that resonate with you.
advantage
So, what are the main benefits of using this budget to learn how to manage your money? Let me explain some of the main reasons why you might like this budgeting method.
The 70-20-10 budget is simple
The 70-20-10 budget is very easy to understand and use. Keeping only three basic categories makes budgeting less like a chore and more viable, especially if you don’t like budgets.
Generally, spending, savings, and donations are three main categories people talk about when discussing why personal funding is important. Certainly there are many ways to divide these areas, but starting with those broad sections may make budgeting easier for you to manage.
Less limits than other budgets
This kind of budget may work for you as you may feel less limiting than other budgets. Other budgeting tools or programs may require you to create 30 different categories for your money and track every penny you spend.
This budget provides a general framework that will help organized finances. But it gives you a lot of freedom within the framework. You can spend 70% of your income and split your spending categories in any way you like.
Cons
Like most points, a 70-20-10 budget might not work for everyone. Here are some negative aspects of this type of budget strategy:
Some people prefer a more detailed budget
After reading the above section, you may have thought that a 70-20-10 budget is way too easy. You may break through all your income and prefer spending in a much more detailed and concrete way.
If you think your personality is suitable for a more stringent, detailed plan, try a more complex budgeting template. The goal here is to create a better budgeting with money, rather than adjusting yourself to a mold that doesn’t suit you.
Not everyone can live on 70% of their income
Now, here is the harsh truth about finances. For some of us, 70% of our income is not enough to live. If your income is not at a level where you can pay your bills at 70%, this budgeting rule will not work.
You can also try to adjust this plan a little if your income is tight. Perhaps the 80-10-10 budget is a good option (expend 80%, save 10%, give 10%).
A 70-20-10 budget is good for many people, but if you are struggling with your billing, you can’t save 20% or give 10%. And that’s fine.
70 20 10 Examples of budgets
It’s great to know how this budget works and understand the pros and cons. But you might want to see what this budget looks like in a real scenario. Here is an example:
Let’s say your income is $5,000 from taxes. This rule will cover $3,500 and 70% of your income for all expenses. After that, 20% ($1,000) will save you. Finally, $500, or 10%, is in return for a gift or debt.
So your budget might look like this:
Essentials: $3,500
- The housing cost $1700
- Utility $200
- Insurance $200
- Transport and car payments $500
- Grocery $600
- Subscription $50
- Minimum debt payment of $200
- Fun money $50
Savings: $1,000
- Emergency funds of $300
- IRA $300
- Save $200 for your children’s college
- $200 Subsidence Fund for Travel
What to give: $500
- Give religious organizations $250
- $250 for charity
You can use the budget categories that make the most sense for your income and lifestyle. However, this example provides an idea as to what this rule might look like.
Expert Tip: Calculate your income before setting a budget of 70-20-10
A good first step to take before breaking your spending, savings and everything you give? Understand how much money you make with your after-tax income. If you don’t know the exact amount, you can look at the pay stub.
If you are practicing budgeting for couples, consider the income of your spouse or partner if you want to share household income and expenses. If your income fluctuates (for example, if you are undertaking a freelance gig or working in an unpredictable field, make the best estimate of your average monthly salary. You may be on the safe side of that income range.
How does the 70-20-10 rule resemble the 70-10-10 rule?
The 70-10-10-10 rule for money is very similar to the 70-20-10 rule. However, 70% of your income is targeted at expenses, while the other 10 people (10-10-10) are for various categories, including donations, investments, savings, and more. You can choose to focus on a variety of things in each category, such as emergency funds, retirement accounts, etc.
So, as you can see, this rule is very similar to the 70-20-10 rule. It’s just that the way you split the percentage numbers is slightly different.
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Try your budget of 70-20-10!
Now I probably have a good idea as to whether I like this 70-20-10 budget or not. This is a fairly simple and easy budgeting method. Think about the types of budgets you may have tried in the past and think about examples of your financial goals and financial goals, as you have decided.
Experience your current financial situation can help you create a financial planning process. Your money is so important that it’s too important to leave it to coincidentally, so try it out and try new budgeting ideas.
You may also find another approach to managing your money. There are several other different budget rules ideas to try, including:
Learn how to create the best budget for you with our completely free budgeting course! The budget is personal and even if it takes time to find the right one, it’s worth it when your finances are in good condition and you feel like you’re in more control over your money.