What Is The 70-20-10 Rule For Money?
If you’re living from paycheck to paycheck, it may seem impossible to manage your finances and improve your station in life. If you constantly find yourself in a sticky situation, it doesn’t necessarily mean that your income is lacking. At times, you may earn a lot! But you may not always know where all the money is going.
According to experts, it’s all about how you spend your money and what you prioritize in your life. Balancing your income and expenses might mean you have to cut down on some luxuries and focus on covering the basics. Luckily, there is a method to help.
What is the 70-20-10 rule money, and how does it help you manage your finances? The rule states that you should allocate 70% of your income to monthly rent, utility bills, and other essential needs to improve your financial well-being. 20% of your income should go to savings. The remaining 10% can go towards your investments or to debt repayment.
Breaking Down The 70-20-10 Money Rule
We have already mentioned that when you fail to meet your financial obligations, it’s not always because your salary or earnings aren’t up to par. For example, if you are a small business owner, you could also be thinking, “how do startups pay employees?”. A business has to allocate its resources smartly, prioritizing primary operations, and having the funds needed to pay out salaries for its staff.
So let’s break down the 70-20-10 rule. That way, you’ll know precisely how to split up your money and mirror successful companies.
70% To Your Essentials
It’s cool to pamper yourself when you get that paycheck or when you collect your profits from your small business. But before you do that, you may want to consider your essential needs. You must have money to cover rent, food, and other typical living expenses such as fuel for your vehicle. Of course, you can adjust these percentages depending on how much you earn or your living expenses.
20% To Savings
Saving money is rewarding in the long run. Putting aside 20% of earnings allows you to plan a more financially stable future. If you have pressing debts, you can allocate this portion of your budget to debt repayments. Once you’re out of the red, you can start building your nest egg.
10% To Debts And Investments
This remainder is for investments. If you’re a natural entrepreneur, you could use this cash to start a side hustle and supplement your income. You may also use these funds to save up for things like your kids' college fees or for donating to a cause that feeds your passion.
How To Make The Most Of The 70-20-10 Rule
Having a proper budget will help ease any financial frustrations you may have. Additionally, with a financial plan, you can better manage your debt. If you have a financial emergency, you won’t need to rely on debt, which takes months, if not years, to pay off. You won't have to worry about overspending and consumptive borrowing, as most payments are predetermined. However, to make this strategy effective, you may want to keep track of all your income and expenditures. Record every dollar that you spend and what you spend it on. That way, you know where you need to cut your spending next month.
Final Thoughts
The 70-20-10 rule helps you manage your finances and plan for the future. It is an excellent opportunity to maintain the luxuries you enjoy and still pay the bills, while evening putting some cash aside for a rainy day. If your earnings are barely enough to get by, you will have better chances of getting out of a paycheck-to-paycheck cycle with the 70-20-10 rule. As a small business owner, you’ll manage to cover pressing expenses while growing your company. A thoughtful budget can pave your road to success.