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What is the 70/20/10 Money Rule?
“Money rules” are popular ways to focus and organize a budget to achieve personal financial goals!
There are many rules out there, and none are perfect – but there is one that can work for you!
In short, the 70/20/10 rule separates your fund allocations in your budget into three categories: Expenses, savings and debt payoff, and investing.
The expenses category takes up 70% of your monthly income in the 70/20/10 budget rule. Your monthly income is your take-home pay, after taxes. These expenses can include:
- Home mortgage
- Car payments
- Utilities, water, gas, electric, etc.
- Daycare
- Any other regular expenses you incur every month
Payment toward debt and savings go toward the 20% portion of the 70/20/10 rule. This can include:
- Student loan payoff
- Credit card debt payoff
- Building an emergency fund
- Payments into a sinking fund
Lastly, the remaining 10% in the 70/20/10 budgeting rule goes toward investing for your future! This can include allocating money into:
- RothIRA
- 401k, 403b
- Stocks, bonds, mutual funds
- College funds
- Other investment funds
How Does the 70/20/10 Money Rule Work?
If you are going to follow this money rule in order to budget, this is how it works!
Expenses (70%)
Each month, plan out the major expenses that you’ll pay in the month. This includes anything from birthday and wedding gifts, to subscriptions, to the items listed above!
The trick here is managing your expenses so that it is NO MORE than 70% of the income you bring in.
If you end up needing more money, you’ll need to find out how to cut out expenditures!
Here are some examples to spend less money to fit your budget:
- Quit subscriptions for digital videos (i.e. Hulu, Netflix), makeup (i.e. Ipsy), and services you really don’t need
- Do meal prepping
- Spend less on gifts. Try a thoughtful gesture or hunt down something on sale instead
- Shop thrift for clothing instead of buying brand new
Additionally, you could seek ways to earn more money. Here are a few ideas!
- How to start a blog and pay off all of your debt with monthly income
- Genius ideas to earn passive income as a young adult
- How to retire early by investing in real estate as a millennial
Savings and Debt Payoff (20%)
Saving money is critical, yet so many people don’t adequately save!
According to financial gurus like Dave Ramsey, having an emergency fund should be your very first goal when saving cash.
An emergency fund is money saved in one of your accounts specifically for emergencies! It is important to have this money set aside because emergencies always happen.
Tires get blown, the refrigerator stops, the lawn mower breaks, you trip and fracture your wrist…the list is endless!
There are also other savings accounts that gurus recommend, like “sinking funds” (i.e. money set aside) for vacations, purchasing a new car, or even making house updates.
Secondly, within the 20% of the 70/20/10 rule, it is important to focus on debt payoff.
If you are working toward or looking into debt payoff, I highly recommend reading this book about the snowball method in order to set a plan for getting rid of debt.
Investing (10%)
It is common to read in books to allocate 10% or more of your monthly income to invest.
Many people, especially young adults, don’t begin to think about investing. It’s so far away…why set aside money now?
Investing early can make the difference between retiring at 45 and retiring at 75. It can mean having extra income each month to go on trips. Investing can give a family amazing opportunity to live a life free of debt – but it has to be done strategically and effectively.
Every person and every family is different. No “way to invest” is better than the other.
I usually recommend learning how to microinvest, making sure to max out matched 401k’s, funding a RothIRA, and looking into rental investing.
The way I am investing for financial freedom is much different than yours, but it’s highly recommended to start SOMEWHERE! Placing a few extra dollars a week into an Acorns account can add up to huge numbers down the road, for example!
How Can I Achieve Financial Freedom With the 70/20/10 Rule?
#1. Find Ways to Make Extra Cash
I discovered survey sites awhile back and have been able to make a handful of extra cash to save up for expenses.
Now, this won’t pay for all your bills and expenses, but being able to pay for things like birthday gifts or an electric bill by simply filling out surveys is pretty awesome!
I know of people who use dozens of survey sites, but I only stick to two. (Honestly, I just don’t have a ton of free time.)
I have a step-by-step article here about how to start with one of my favorite sites!
If you want to double your earnings, check out both of my two favorite apps:
Some extra dollars will always be helpful, and it will be smart to keep on earning after achieving financial freedom, too!
#2. Learn How to SAVe CASH NOW
I use a popular free app called Acorns to set aside money for a savings fund.
Acorns works by linking to your bank and helping set aside “cents” to a savings account after you make purchases.
It’s a really neat way to save up money without even thinking about it – and you could literally save up hundreds in a year!
If you’re interested in checking Acorns out, go get your free $5 credited to your account here!
#3. Know your Credit Score Well
Understanding your credit score is a critical part of understanding your personal finances!
My best piece of advice is to know your credit score before starting to rack up debt. Then, regularly check it using an app that won’t affect your score.
I use Credit Karma, which I’ve loved for years! Not only is it free, but checking your credit score through them won’t make any difference on your score (unlike some other services out there!).
#4. Track Your Spending!
For starters, to follow the 70/20/10 budget method, you need to start tracking your expenses and income!
I use a free, beginner-friendly platform called Personal Capital, but any will do!
Once you input your assets and liabilities, you’ll have an idea of your net worth. This is an important step for this process!
You can then set up a budget and track all of your expenses!
Check out my full review of this free app here!
Ready to start your financial journey? Learn more!