We have previously talked about budgeting and the different rules and scenarios that you might face. Budgeting is not easy though, and these “standard” rules are often hard to follow unless you have a great income. There is a budgeting rule that has been becoming more popular in recent years that is called the “70/20/10” rule. But what is it
How is it divided?
The 70/20/10 rule is divided in 3 main categories:
- Living expenses (70%)
- Savings (20%)
- Debts (10%)
You will see below how flexible this budgeting method is and you will surely find a way of adapting to it:
- Living Expenses
This includes “everything”. From rent, bills, gas, to nights out or for that item you have been thinking about buying. This 70% basically includes everything that takes you from one month to another and helps you set a structure for your savings and debt repaying plan. As you can see, unlike the 50/30/20 rule, you do not have to choose between your needs and your wants, you are able to take control over your money and how you use it as long as it is in a wise way.
- Savings
This section accounts for 20% of your net income. For your savings you should take a look at the different retirement plans and choose wisely to get the best out of your money. In this section, you should also save money for an emergency fund, as well as for any goal you might have, like weddings, expensive trips, etc.
- Debts
You should prioritize and be smart about paying your debts. Every debt you have is different. Some of them have higher interest rates and others have a higher amount to repay. So you should learn to prioritize your debts and focus on paying the ones that have higher interest rates first while paying at least the minimum of your other debts.
Remember that the most important thing is to find a budgeting system that works for you and your short and long-term goals.
