70/20/10 Saving Rule: Is This One a Better Fit for You?
Written by
Cindy Lamothe
Edited by
Elizabeth Constantineau
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We’ve all heard of different budgeting rules to live by. Some just don’t work for our needs, while others might make more of a dent.
Take, for instance, the 70/20/10 savings rule. According to David Kemmerer, CEO of CoinLedger, it’s a budgeting strategy that a lot of people today are forced to go by, when the popular 50/30/20 rule is simply unrealistic.
He notes that the categories for these two methods are slightly different: The 70/20/10 way involves putting 70% of your earnings to living expenses, 20% to savings and 10% to debt or charity. The 50/30/20 savings rule involves 50% to needs, 30% to wants and 20% to debt.
Kemmerer said, “The 70/20/10 is a reality for a lot of people today, where our cost of living is so high, student loans are crippling and salaries don’t offer the same ability to spend on ‘wants’ nearly as much.”
Here’s how to know whether this approach will work better for you.
It All Depends on Your Objectives
“The 70/20/10 rule, though simplistic, may offer significant advantages for certain people,” said Gianluca Ferruggia, general manager of Design Rush.
He notes that allocating 70% of income toward living expenses, 20% toward savings and 10% toward debt or additional savings instills economic discipline within a basic framework.
“However, its effectiveness varies depending on one’s financial situation and objectives,” he said.
For individuals carrying high levels of debt, or those aiming to aggressively save for significant financial milestones (like buying a home or retirement), he said this rule may fall short.
“It doesn’t allow for personalization based on changing needs or goals,” he said.
Therefore, while it serves as a desirable starting point for those new to budgeting, he said he believes in the necessity for a more tailored approach as financial literacy increases and personal situations evolve.
It’s Not Ideal If You’re Swimming in Debt
“The 70/20/10 rule can be a great option for people who need to pay off debt but don’t have a significant amount to repay,” said Jake Hill, finance expert and CEO of DebtHammer. “Using only 20% of your income for debt repayment is more than reasonable if your debts are minimal.”
However, he said this budget doesn’t have a built-in bucket for savings unless you have zero debt, which makes it impractical for some people.
“The 70% bucket for living expenses and essentials is, unfortunately, also not practical for everyone.”
He explains that those living paycheck to paycheck in areas with a higher-than-average cost of living likely will have to dip into the “fun” bucket to make ends meet.
It Works Best for Those Starting Out in Their Careers
True Tamplin, CEPF and founder of Finance Strategists, said this approach is particularly beneficial for young professionals and those early in their careers, especially in jobs with regular and stable incomes.
“It’s also suitable for freelancers or gig economy workers due to its adaptability to fluctuating incomes,” he said.
However, he noted, it might be less ideal for individuals in high-paying or well-established professional roles who might benefit more from a more detailed and aggressive saving and investment plan.
“Sometimes this strategy doesn’t work because of its inherent flexibility and lack of detailed expense tracking,” he said.
Tamplin said individuals with high living costs or significant debt might find the 70% allocation for living expenses and 10% for debt repayment insufficient.
“Also, those who prefer a more detailed, categorized approach to budgeting might find this strategy too broad,” he said. “The success of this method relies heavily on the individual’s discipline in sticking to the allocated percentages.”
Who It’s Best Tailored For
According to Mikayla Reynolds, owner of Cash Offers, this approach will work great for you if you fall into the following categories.
Structured Planners
“If you thrive on structure and love having your spending categories neatly defined, this strategy could be your financial BFF,” Reynolds said.
Goal-Oriented Savers
“For those with a vision, this plan aligns perfectly,” she added. “It provides a road map to channel a significant chunk towards those big financial goals.
Seekers of Stability
Finally, Reynolds said, “If financial stability is your jam and you want to ensure your essential needs are consistently met, the 70/20/10 rule has your back.”
