What Is the 70-20-10 Budget Rule? A Simple Way To Organize Your Money
Written by
Rudri Patel
Edited by
Elizabeth Constantineau
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The 70-20-10 rule is a simple way to manage your money. It helps you stay on top of spending, building up savings and tackle debt — all without complicated tools or formulas. Whether you’re just starting out or want to simplify your budget, this method offers a clear and practical structure for your income. Find out more about the 70-20-10 budget and decide if it works for you and your family.
What Is the 70-20-10 Budget Rule?
The 70-20-10 rule is a straightforward budgeting guideline designed to help individuals split up their income effectively. The rule suggests dividing your income into three categories:
| Category | Percentage | What It Covers |
|---|---|---|
| Living expenses | 70% | Rent, groceries, utilities, transportation, nonessential spending |
| Savings | 20% | Emergency fund, retirement account and saving for a big purchase |
| Debt or investments | 10% | Paying down a credit card, making extra mortgage payments, stocks |
70-20-10 Rule Example
Here’s a sample breakdown of how the 70-20-10 looks like with a $4,000 after-tax income.
- Rent, food, gas, bills, entertainment: $2,800 (70%)
- Savings: $800 (20%)
- Credit card payments or investment account: $400 (10%)
Key Tip: You can use this as a starting point and adjust as needed.
Step-by-Step: How To Start Using the 70-20-10 Budget
Using the 70-20-10 rule for your budget can be a game-changer. Here are some steps you can follow to get started:
- Step 1. Calculate your after-tax income:
- Begin by determining your total income after taxes.
- Step 2. Apply the rule:
- Divide your income into three categories — 70% for expenses, 20% for savings and 10% for debts or investments.
- Step 3. Adjust as needed:
- Tailor the rule to fit your specific financial situation. For instance, if you have higher debts, you may need to adjust the percentages temporarily.
- Step 4. Track and review:
- Regularly monitor your expenses and savings to ensure you’re sticking to your budget and make adjustments as needed.
What Does the 70-20-10 Budget Look Like for Different Incomes?
The 70-20-10 budget can be applied to any income. Here’s how to split your paycheck with after-tax incomes of $2,500, $4,000 and $6,000.
| Status | Income | 70% Living Expenses | 20% Savings | 10% Debt or Investments | Goals |
|---|---|---|---|---|---|
| College student | $2,500 | $1,750 | $500 | $250 | Careful budgeting and strong emphasis on savings |
| Single mom | $4,000 | $2,800 | $800 | $400 | Family savings goals and building emergency fund |
| Dual-income couple | $6,000 | $4,200 | $1,200 | $600 | More aggressive savings |
Pros and Cons of the 70-20-10 Budget
Want to know if the 70-20-10 budget will work for you? Take a look at the pros and cons:
Pros
- Simple and easy to follow. You divide your budget into three categories. No need for complicated spreadsheets.
- Encourages balance. You are more inclined to reduce spending and save money.
- Boundary setting. You create clear boundaries between living costs, saving and spending on entertainment.
- Flexible approach. The 70-20-10 works for various income levels and may be the best budgeting method for people who prefer simplicity.
Cons
- Low savings rate. Allocating only 20% to savings may be too low for your personal goals.
- May not fit a high cost of living. You may feel too stretched if you are living in places where there is a higher standard of living.
- Difficult if you are in a low-income category. You may need more than 70% for living expenses, so there may be little room for savings.
- No true separation. Wants and needs are not clearly separated. You may want to try the 50-30-20 rule for clearer boundaries.
Can You Customize the 70-20-10 Rule?
You can definitely customize the 70-20-10 rule according to your needs, wants and saving goals. There is an inherent flexibility in this budget.
You may want to use these tips:
- For aggressive savers: If you want to dedicate more income toward savings, you can adjust the rule to 60-30-10. In this scenario, 30% of your income goes to savings.
- Prioritize one bucket over another: If you’re saving for a house, you may want to increase that percentage to reflect that goal.
- Account for high living costs: For those who face higher living costs, a 75-15-10 budget may be more feasible.
- Factor in the life stage you’re in: Younger professionals may want to dedicate more to savings, while retirees may allocate the percentages differently.
Key Tip
The 70-20-10 budget is a helpful starting point — not a hard rule. Adjust the percentages to fit your income, goals and lifestyle.
Is the 70-20-10 Rule Right for You?
Want to know if the 70-20-10 rule will work for your budget? The easiest way to find out is to apply the rule to your current after-tax income.
Use a budget app or printable worksheet to plug in your income and test how this rule fits your lifestyle. Adjust the percentages to meet your needs — especially if you’re tackling high-interest debt or saving for a major purchase.
Whether you’re a budgeting novice or looking to refine your financial plan, this rule provides a clear structure to start with.
FAQ
Here are the answers to some of the most frequently asked questions about the 70-20-10 rule and how it works.- What is the 70-20-10 budgeting rule?
- Under the 70-20-10 rule, 70% of your after-tax income goes to essential and nonessential spending. Wants and needs are not individually separated. You use 20% for your savings or paying off debt, and 10% is reserved for personal development and charitable donations.
- Is the 70-20-10 rule good for low-income households?
- In low-income households, you may need to adjust the percentages. For those who have tight budgets, 70% may not be enough for living costs.
- How is this different from the 50/30/20 budget?
- They are both budget guidelines but they split income up differently.
- With the 70-20-10 rule, 70% is allocated toward needs and wants together, but individual percentages are blurred between the two categories.
- With the 50/30/20 rule, 50% is devoted to needs, 30% is dedicated to nonessential spending and 20% is dedicated to savings.
- Can I adjust the percentages in the 70-20-10 method?
- Yes, you can adjust the percentages based on income, living costs, financial goals and debt.
Elizabeth Constantineau contributed to the reporting for this article.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- MyMoney.Vermont.gov. "Learn How Debt Impacts Credit."
