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Budgeting can be tricky when rent, the cost of living, utility bills, and emergency expenses all come together. Most individuals attempt to handle it without planning, which often results in stress.
The 70/20/10 rule is a very straightforward method of organizing your income. It splits money into three manageable segments: 70%, 20%, and 10%. It is a straightforward rule and can be easily incorporated into life.
This approach helps create balance. It supports current needs without ignoring future goals. When unexpected expenses arise, tools like Beem’s Everdraft™ can cover costs without breaking the budget.
Understanding the 70/20/10 Rule
This 70/20/10 categorization divides income into distinct categories, making it easy to manage spending, saving, and planning without confusion. Let’s learn more about this rule.
What Each Percentage Represents
The 70/20/10 rule categorizes income into three distinct groups. Here’s how it breaks down:
- 70% towards daily living expenses: This includes essentials such as housing, groceries, transportation, utilities, phone bills, and school expenses, among others. These are the costs that keep life functioning.
- 20% toward savings and long-term goals: This category forms financial security. It includes emergency funds, retirement accounts, investments, and major future purchases.
- 10% for debt repayment or charitable contributions: This may involve paying off credit card debts, college loans, or personal debts, or making voluntary contributions to society, family, or charitable organizations.
Categorizing these makes it easier to stay on track and to budget more in line with everyday life.
Why This Rule Works for Financial Balance
The easier the budgeting plan, the more effective it will be. The 70/20/10 rule is simple and realistic. It helps ensure basic needs are met first. This rule encourages responsibility while allowing life to be still comfortable.
Read related blog: How to Manage Finances When Raising Kids in the U.S.
Step-by-Step Guide to Applying the 70/20/10 Rule
Using the 70/20/10 rule is easy with clear steps. It is most effective when you have your income figured out, you budget your expenses, and you save regularly. Here are some steps to follow:
Assess Your Monthly Income
First, know your take-home income. This is after taxes and deductions. It may be a result of a salary, gig work, freelance work, small business income, or a combination of several income sources.
For instance, a person’s $3,500 monthly income can then be divided:
- 70% for daily expenses = $2,450
- 20% for savings = $700
- 10% for debt or giving = $350
This breakdown will give a clear picture of how the money should be distributed throughout the month.
Allocate 70% to Essentials
Essentials are the things that keep life running smoothly and stably. They are needs rather than wants.
Typical essential costs include:
- Rent or utility bill
- Internet and phone
- Groceries
- Transportation
- Insurance
- Medical or school expenses
When the essential expenditure exceeds 70, a slight modification can be used to recover the situation. Begin by comparing grocery store brands, eliminating unused subscriptions, or renegotiating utility bills.
If unexpected costs arise, such as a sudden car repair, Beem’s Everdraft™ can provide temporary support.
Allocate 20% of your budget to Savings and Investments
This section builds protection and future stability. The goal is consistency, even if the amount seems modest at first.
This category may include:
- Emergency savings
- Retirement contributions
- Brokerage investments
- College savings accounts
- Home-buying funds
Automating transfers often helps. There’s less temptation to spend money when savings are moved automatically. The small amount, over time, builds up into meaningful financial confidence.
Allocate 10% to Debt or Giving
The remainder serves to either pay off debts or donate cash to causes or individuals.
For debt repayment:
- First, concentrate on high-interest debt such as credit cards.
- The regular short payments decrease the interest in the long run.
For giving:
Any donations made to charity, community organizations, or family support can be made here without affecting the essentials or savings.
This highlights individual values and priorities. It renders the budget significant, rather than confining.
Read related blog: How to Plan Finances When Relocating to Another State
Real-Life Examples of the 70/20/10 Rule
The 70/20/10 rule becomes clearer with examples. Anyone can adapt this framework to their finances.
Scenario 1: Single Professional
Meet Emily, a marketing assistant earning $4,000 a month.
- 70 percent Essentials ($2,800): Rent, groceries, transportation, phone, and internet.
- 20% Savings ($800): E-fund and small investment.
- 10% Debt/Giving ($400): Student loan payments and part of donations.
Emily lives comfortably and accumulates savings. This strategy includes her necessities and addresses her credit card debt.
Scenario 2: Family Household
Now imagine the couple Jason and Maria, who earn them both $7,000 a month.
- 70% Essentials ($4,900): Mortgage/rent, utilities, childcare, groceries, and insurance.
- 20% Savings ($1,400): Retirement savings and the education of kids.
- 10% Debt/Giving ($700): Car loan payments or community giving.
This setup enables them to sustain their family in the present and prepare for the future.
Scenario 3: Freelancers or Irregular Income
Alex is a freelance designer. In one month, he earns $ 3,000. The next month, he earns $6000. His income can fluctuate significantly, so being adaptable is crucial.
Here’s how Alex uses the rule:
- Estimates a monthly average income for budgeting.
- Has a bigger emergency fund during lean months.
- Cuts unnecessary expenses during lean periods.
- Covers temporary gaps without high-interest debt with Beem
The strategy enables freelancers to live well, even in the face of income fluctuations.
Tips to Make the 70/20/10 Rule Work for You
Understanding your spending habits helps you stick to the 70/20/10 rule. There are small changes that can be made as your life and priorities evolve. The following are some ways in which you can ensure that it becomes a part of your life:
Track Expenses Regularly
You should be aware of your spending. Track daily spending using applications such as Beem. This will enable you to identify unnecessary expenses. Make adjustments without waiting until the end of the month.
Adjust Percentages When Needed
Life evolves, and so should your budget. If you have increased medical expenses, new rent, or ambitions such as saving for a car, adjust the percentages accordingly. It is an instruction, not a prohibition. Shape it to meet your needs.
Avoid Common Mistakes
You must not encounter common difficulties, which include:
- Expenditure on unnecessary items that are considered luxuries.
- Skipping savings because it feels small
- Ignoring debt interest
So, by keeping your categories in mind and checking them regularly.
Read related blog: Family Budget Nights: How to Involve Kids in Household Finances
How Beem’s Everdraft™ Supports Your 70/20/10 Budget?
Instant Access to Emergency Funds
Everdraft™ provides immediate assistance when you get a surprise bill, and you do not need to reach into your pockets, nor do you need to use high-interest loans. It serves as an emergency bank account, ensuring your financial goals remain intact even when life throws a curveball.
Staying on Track With Your Allocations
The 70/20/10 rule is most effective when all categories are equal in size. Everdraft™ helps by covering temporary shortfalls. This keeps your essentials, savings, and debt or giving contributions steady every month.
Financial Peace of Mind
A good cushion will alleviate the pressure of unexpected bills, medical expenses, or seasonal costs. You will be able to track your budget, save regularly, and avoid panic when unexpected expenses arise.
Even with good planning, unexpected expenses can pop up at any moment. Beem’s Everdraft™ provides a financial cushion that helps individuals stick to their budget without compromising their savings plan. Here’s how it fits in perfectly.
FAQs on How to Apply the 70/20/10 Rule to Your Finances
Can the 70/20/10 Rule Work for Low-Income?
Yes, it can. You may need to adjust the percentages slightly, but the idea remains the same: prioritize the essentials, save regularly, and manage debt effectively.
How do I adjust the rule for Irregular Income?
Calculate your monthly earnings for several months. Use this figure as your 70/20/10. Indeed, save during months of higher earnings to counter the slower months.
Is the 70/20/10 Rule better than the 50/30/20 Rule?
Both rules work well. The 70/20/10 principle focuses on essentials and savings. It works well when one wants to establish strict boundaries for their expenditure and achieve more savings.
What if my debt is larger than 10% of My Income?
Reduce your debt payments by 70% or 20% temporarily. The first step in paying off high-interest debt will reduce stress in the future and leave more money available for future use.
How Can Everdraft™ Help Me Stay Within My Budget?
Everdraft™ supplies the extra funds when unexpected expenses arise. In this manner, you will not have to withdraw your savings or borrow expensive loans, and your budget categories will always have the same amount, ensuring your savings plan remains on schedule.
Can I Use 10% for Both Debt and Charity?
Yes, you can split the 10% between both. Many people choose to pay down debt first, then increase giving once financial pressure is lighter.
How can I track my spending to stay within the 70% limit?
Monitor daily or weekly costs using a budget program or bank accounts. Small check-ins help prevent overspending before it becomes difficult to correct.
Are there apps that make following this rule easier?
Yes, apps like Beem help track spending, automate savings, and give reminders. Such tools will simplify the process of following your budget, eliminating the need for manual calculations.
How quickly can I build savings with a 20% allocation?
It depends on income and consistency. Even small contributions grow over time. The key is to save regularly, allowing your savings to build month by month.
What happens if unexpected expenses exceed 70%?
Use emergency savings or solutions like Everdraft™ to cover the excess. Avoid high-interest borrowing and return to your standard budget as soon as possible.
Conclusion
The 70/20/10 rule makes money management easy. It splits your money into three categories: daily expenses, savings, and financial obligations. This balance helps you stay organized and confident with your finances.
With Beem’s Everdraft™, unexpected expenses don’t have to throw you off budget. It supports you in times of cash deficiency and allows you to avoid dipping into savings or taking out expensive loans. This keeps your financial targets in check. Download the app now!
Start with the 70/20/10 rule today and watch your financial stress fade away. A more stable and confident financial life can begin right now.
