What Is The 70-20-10 Budget Rule? Will It Work For You?

 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

By following this rule, you can prioritize your spending, build up your emergency funds, pay debts faster, and start investing in your future.

But is this budgeting approach right for everyone? Let’s take a closer look at the 70-20-10 budget rule and see if it could work for you.

Understanding The 70-20-10 Budget Rule

Understanding The 70-20-10 Budget Rule

The 70-20-10 budget rule is a popular approach to money management that allocates funds into three categories:


  • 70% for essential expenses,
  • 20% for savings and debt repayment,
  • and the remaining 10% for discretionary spending.

The principle behind this method is to prioritize financial stability and responsible spending by limiting non-essential purchases.


The first category, essential expenses, includes bills such as rent/mortgage payments, utilities, groceries, transportation costs, and other necessary expenditures. These are the items you need to pay for every month to maintain your standard of living.


By allocating 70% of your income towards these fixed expenses, you ensure that you have enough money to cover all your necessary costs without falling behind on utility bills.


The second category of the rule budget dictates that 20% of your income should be put towards savings and debt payment. 


This amount can be split between an emergency fund (3-6 months of living expenses), retirement accounts like a 401(k) or IRA (aim for at least 15% of your income), paying off high-interest debts like credit cards or personal loans, and saving for future big-ticket items like a down payment on a house or a new car.


By prioritizing savings and debt repayment in this way, you can go toward financial security while also being able to manage unexpected expenses without going into debt.


Read more: https://gladstonellc.com/the-70-20-10-budget-rule/


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