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What Is The 70 20 10 Rule Of Money And How Is It Used?

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Getting a handle on your finances can seem overwhelming and even intimidating. Plus, budgeting forms can be awkward and confusing. The best budget tool available is the one that works for you and that you actually use.

What is the 70 20 10 rule of money and how is it used? The 70 20 10 rule of money is a budgeting method that allocates 70 percent of your monthly income to necessities, 20 percent to a savings account, and 10 percent to debt repayment. With this system you increase your savings and decrease debt at the same time.

Let’s take a little closer look at the 70 20 10 rule. Below we will discuss the different percentages in more detail, how it is calculated, and I’ll even provide an example.

What Is The 70 20 10 Budget Rule?

In a nutshell, the 70 20 10 budget rule is a simple way to budget your money. I don’t know why they call it a “rule”. If you don’t like to follow rules, you can just call it the 70 20 10 budgeting system.

If your personal finances have gotten out of control, a budget is a great first step to get control back. A budget should fit your needs and help you meet your financial goals.

The internet can provide you with numerous budget plans that tell you how you should handle your monthly expenses. The problem is they don’t know anything about you or your particular situation. 

This is where you have to try to find a budget that you can work with. This is kind of like having a teacher assign a research project but making you guess the right subject.

When thinking about the 70 20 10 budget rule, you have to remember that it is still a budget. No budget will work for you if you do not use it. You either have to find a plan you’ll be disciplined enough to use, or find the proper motivation to use it.

Finding someone to hold you accountable to any budget plan is the best way to start. If you are in a relationship, partners might be able to hold each other accountable. Outside of a relationship, a family member or responsible and trustworthy friend is an option.

Another option is to hire a personal finance coach. Just as with a fitness coach at the gym or a diet coach, a debt coach or personal finance coach might be what you need to hold you accountable. 

Keep in mind that a good coach will not instruct you on what you “must” do, so don’t be afraid that we’ll make you cut everything you enjoy out of your life! Instead, we’ll work with you and guide you to a solution that is right for you.

To recap, the 70 20 10 budget is a simple structure for dividing up your paycheck. If it gets you to start looking at your finances, great. However, I feel it works best for those with just a small amount of debt compared to their income.

Obviously, My Online Debt Coach is my favorite finance coach. This is my blog, so yes, I am going to say I am my favorite! Jokes aside, I have lived paycheck to paycheck, so I understand how it feels and what needs to be done to overcome debt.

Breaking It Down…

As I said in the prior section, the 70 20 10 budget is a basic tool to help you identify how to allocate your take-home pay. In other words, you allocate 70 percent, 20 percent, and 10 percent of your pay to certain areas. 

Let me break it down further and explain each part.

What Is The 70% Rule In Budgeting (And How Do I Calculate It)?

The 70 portion of the 70 20 10 budget stands for 70 percent of your pay (your after tax income). This is the amount you are supposed to use to cover all of your necessities. Normally, necessities are your living expenses, such as your rent or mortgage payment, food, utilities, and transportation costs. 

You might feel that Starbucks or date nights are a necessity. That’s fine, just remember it comes out of your 70 percent. 

If you find that your necessities are more than 70 percent of your pay / net income, don’t fret, yet. Look to see where you can cut back. 

If you find your necessities are under 70 percent, double check your math. If your math is correct, congratulations! 

If you are spending less than your 70% on necessities, you might want to put the extra cash into your savings. Other things to consider are life insurance, health insurance, building up your retirement account, contributing to college savings, or towards debt payments.

Remember, the best budget out there is one you actually use. So if you really like the 70 20 10 budget rule but it is just a little off for you, break the rule. Be a rebel and go with budget categories of 60 20 20 or any other formula – tweaked to your circumstances.

If you cannot find a way to cut back, it might be time to check out My Online Debt Coach. We are 100 percent online so your family or nosy neighbors don’t need to know.

How Do You Do The 20 10 Rule?

So you have now figured out what you are doing with 70 percent of your pay. That leaves 30 percent left. Nope, this is not your party money!

Of this leftover 30 percent, 20 percent of it goes to savings. This is an area where you have to fit it to your situation.

If you have no rainy day / emergency fund, I strongly urge you to consider putting the full 20 percent toward that. If the money stress of the last couple of pandemic years have shown us anything, it is the importance of an emergency fund.

If you already have an adequate emergency fund (you’ve saved up 3 to 9 months of your take home income), consider starting a *college fund, raising your retirement contributions, or building up money for other specific goals.

*Read about what you can do with leftover 529 college savings plan money.

One option is to break the savings up to another split percentage. For example, you could put 10 percent toward retirement, with another 5 percent each to an emergency bank account and specific large purchase goal fund. 

This leaves you with the last 10 percent of your pay.

This is the amount of your pay that goes toward your debt. This could be anything from credit cards or medical costs to personal loans or repaying money borrowed from family members. It also includes long-term debt, such as a mortgage, student loan debt, or paying for a new car.

This is an area to look at very carefully. You have to decide if 10 percent of your pay is sufficient to pay down your debt. If your debt is high compared to your pay, you may want to consider other alternatives. Popular ways to pay credit card bills or other debt fast include the snowball method or the avalanche method.

Read about how removing a derogatory mark affects your credit score

Here’s A 70-20-10 Principle Of Budgeting Example

The 70-20-10 principle might seem a little confusing so I’m giving you an example.

Let’s say that after taxes, your paycheck is $1,000. Under this budgeting rule, you are allowed $700 for necessities, $200 is put into savings, and $100 goes toward your debt.

Here is how that is calculated.

$1,000 x .70 = $700

$1,000 x .20 = $200

$1,000 x .10 = $100

As you can see, for every $1,000 in your paycheck, you are paying $100 towards your debt. If you have a large amount of debt, this might take a while to pay it off.

Again, I think this monthly budget method works best for people who have a small amount of debt compared to their pay and are close to meeting all their financial goals.

Does this seem beyond the scope of things you want to do alone? If so, head over to and schedule a complimentary consultation. 

How To Budget When You’re Broke

It doesn’t matter if we make $1,500 per month or per day. Either way, we all have to live within our means. And, it all starts with the first step: a budget.

A budget does not have to be fancy. A good place to start is by writing down all of your income for the last month. 

The next step is to write down absolutely EVERYTHING you spent money on during the month. Did you include the quick trip for a latte at Starbucks or that energy drink you got at the convenience store? Don’t leave those small purchases out – for a budget to work, you have to include everything

Once you’ve written it all down, then at the end of the month add up everything you spent money on.

If the amount you spent is more than you got paid, you have a problem. You need to find a way to cut expenses.

First, cut out all unnecessary expenses to see if you have enough to cover the necessities. As I said before, necessities are things like a house payment/rent, utilities, transportation, and food.

If your pay doesn’t cover your necessities, you have two choices: either find a way to save on the necessities or find a way to bring in more money. I know it sucks, but it really does boil down to those two choices.

TIP: offers a free budget spreadsheet when you sign up for my newsletter. 

Wrapping Things Up

Hopefully you now have a better idea of what the 70 20 10 budget rule is and how it is used. By breaking down the 70, the 20, and the 10 portions for you and giving an example of how to use this money management method, it should make it easier to apply the rule so you can get your finances headed in the right direction. 

You might also want to check out my article, Tips On How To Save Money When You Are Broke, for more helpful budgeting information.

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