The 70/20/10 Rule for Budgeting

Introduction

A budget can be one of the most powerful tools for maintaining financial stability and building toward your long-term goals. But with so many different budgeting systems out there to choose from, it can be hard to get started on getting started.

If you value simplicity, the 70/20/10 budget rule can help you manage your money without overcomplicating things. It breaks your income down into broad categories so you can cover your essentials and enjoy your lifestyle, all while making progress on your savings.

What Is the 70/20/10 Rule?

The 70/20/10 rule is a budgeting system that divides your income into three categories: 70% for needs, 20% for wants, and 10% for savings. It’s designed to strike a balance between today’s comfort and tomorrow’s financial goals.

70% for needs

This category covers the essentials you need to live and work. Think of things like housing, groceries, utilities, your auto payment or transportation costs, and your minimum debt payments. By keeping these expenses within 70% of your income, you can avoid stretching yourself too thin.

20% for wants

Your “wants” category covers discretionary spending that enhances your quality of life. This can include dining out, entertainment, subscriptions, vacations, or hobbies. Setting aside 20% of your income for wants allows you to enjoy life while preventing overspending.

10% for savings

The final 10% goes toward savings, goals and your future financial security. This could mean contributing to an emergency fund, investing for retirement, or saving for major goals like buying a home. You’d be surprised at how savings can add up over time, especially in a high-yield savings account or certificate of deposit (CD).

An Example of the 70/20/10 Rule

Now that you know what each number in 70/20/10 means, let’s put the rule itself into action.

Assess your income

Start by calculating your take-home, or net pay. This is the amount you receive after taxes and deductions.

Many people budget based on their monthly pay, but if it works better for you to budget on a biweekly basis or even every week, feel free to use that time frame — the principles remain the same.

Calculate your amounts

Break down your take-home pay into each category. We’ll budget for a month with $4,000 income for this example. Using our 70%, 20% and 10% figures, that would come out to: 

• $2,800 budgeted for needs (70% of $4,000)

• $800 budgeted for wants (20% of $4,000)

• $400 budgeted for savings (10% of $4,000)

Once you have your budget’s dollar amounts figured out, you just have to make sure your actual spending and saving behaviors reflect the plan.

Benefits of the 70/20/10 Rule

Not only can a budget help you plan ahead, but it also helps you stay in tune with your finances, since you need to be actively involved in the process. One of the main benefits of the 70/20/10 rule in particular is its simplicity, but there are a few more.

Maintaining financial discipline

A big part of sticking with something — whether it’s a budget, practicing a skill, or any other good habit — is making it as easy as possible to follow through on. Like if you want to jog regularly, you might want to leave your sneakers by the door instead of a hard-to-reach corner in your closet.

With the 70/20/10 rule, ease is built in. It’s easy to wrap your head around how it works and the three categories are broad enough to be simple, yet specific enough to give you structure.

Limiting lifestyle creep

It’s not exactly rare for someone to start spending more because they started earning more after a raise or a new job. Things that used to be occasional luxuries can start to become everyday expenses. This is called lifestyle creep (or lifestyle inflation), because it can creep up on you.

But with the 70/20/10 rule, your percentages remain the same even as your income grows. So, you still have the benefits of more income, with the guidance to avoid falling into the trap of spending more on wants at the expense of needs and savings.

Growing your savings

Without a budget, it can be hard to save money. But the 70/20/10 rule turns saving into a habit. By consistently setting aside 10%, you can steadily build toward your goals.

How To Overcome Budgeting Challenges

There are ways you can make sticking with a budget easier, but depending on your circumstances, that doesn’t always mean easy. Luckily, no rule or budget system is set in stone.

You may need to make some personal adjustments and that’s alright, because some is better than none and progress is better than perfection.

If 10% is a lot, start where you can

Not everyone can set aside 10% for savings. If that’s the case, start smaller and gradually increase over time as your finances change.

Know how to decide on “wants”

Distinguishing between needs and wants can be tricky. But for a simple rule of thumb: if you can live without it, it’s probably a want.

Cut back where necessary

Look for ways to lower costs. This may be easier for wants, but for needs it could mean trying a different debt reduction strategy, or finding ways to reduce your transportation or housing costs.

Track spending and adjust as needed

Budgets are not “set it and forget it.” It’s helpful to review your spending regularly, so you can spot problem areas and see if anything needs to change.

70/20/10 Budget FAQs

How do you calculate the 70/20/10 Rule?

To calculate the 70/20/10 rule, take your net income (this is your take-home pay after deductions) and multiply it by 0.70, 0.20, and 0.10 to find your dollar amounts for each category.

Can I modify the 70/20/10 percentages?

Even though it’s called the 70/20/10 rule, it’s really more of a guideline. You can adjust the percentages to fit your personal situation. For example, you can try 60/20/20 if you want to prioritize savings more.

Bottom Line

The 70/20/10 rule offers a simple framework for managing your money. It ensures your essentials are covered, allows room for enjoyment, and builds consistent savings for the future.

Whether you’re new to budgeting or looking for a simpler system that better fits your life, the 70/20/10 rule can help you stay confident in your finances, both in the present and future.