70/20/10 Budget: A Simple Guide to Managing Your Money

Turning your money over to automated investing tools may be in vogue, but the old standbys still hold up. And, of course, tried and tested ways need to be adjusted for the times. The 70/20/10 budget is a  simple, easy-to-remember method for getting your money organized by dividing it among everyday expenses, saving, and debt repayment.

This approach provides structure that prevents you from going off piste. It’s simple enough for beginners who need a place to start, but useful even if you already manage your money and would simply like a cleaner, more balanced routine. Learning the 70/20/10 rule can help you feel more in control of your money.

Take control of your money, optimize your spending and grow your savings automatically

What is the 70/20/10 Rule?

The 70/20/10 rule splits your income into three easy categories:

• 70% for daily living costs,
• 20% for saving or investing,
• 10% for debt payments or charitable giving.

The aim is to harmonize immediate needs with long-term plans. All your 70% covers food, apartment rent, gasoline, and small  gifts for yourself or others. The remaining 20%  is for saving up against any future emergency or a retirement fund , or a new  investment. The final 10% reduces  debt and also allows you to support cherished causes.

It’s also flexible. You can adjust percentages slightly depending on your situation,  for instance, if your debt load is unusually high, you might temporarily move 5% from spending to debt. The rule provides a starting point, not a strict mandate, and works well with tools like Pocketguard’s budget calculator to track and fine-tune your allocations.

Budget 70% for Spending

The biggest chunk of your earnings takes most of the pie – 70% goes on day-to-day expenditure. Which is all of the essentials and lifestyle expenses → rent or mortgage, food, household bills, transportation, entertainment or hobbies, etc.

We can make it more manageable by breaking this down:

• Housing — rent or mortgage, property tax, and utilities.
• Food: Groceries, eating out, and some treats.
• Transportation, including gas or public transit, car payments, and maintenance.
• Lifestyle & Personal: Clothing, hobbies, subscription services, travel,and entertainment.

Tracking spending is key. People often do not realize just how fast small purchases can add up. Using a simple spreadsheet or an app can help you visualize where your money really goes and enable you to stay under the 70% cap. If you need more help tracking your daily expenses or eliminating unnecessary spending, check out Pocketguard’s tips on how to save money.

Although 70% may seem too small to live on, it can be done with some discipline. Knowing the portion of income spent can help remove guilt and prevent too much critical judgment. In addition, this system advocates putting essentials first and desires second. The capital you’re currently acquiring has a solid foundation to build upon.

Budget 20% for Saving and Investing

The 70/20/10 principle’s 20% function is for making a path into the future. This category contains a number of sound financial plans, including building an emergency fund, planning for retirement, making investments, and pursuing longer-term objectives such as purchasing a home or putting children through school and college.

This 20% investment is critical as it is the only component which remains constant. And if you save and invest regularly, that compounding effect will eventually come through. What this means is, you grow your money even when your income is relatively static.

For instance:

• Emergency Funds: Have 3–6 months of expenses in a savings account (for a job loss or unplanned expenses).
• Retirement accounts: Invest in a 401 (k) plan, or an IRA (or similar plans).
• Investments: Equities, ETFs, mutual funds or other diversified portfolios
• Targeted objectives: Buying a home, traveling, or education
  

Starting small is fine. While you should ultimately save 20%, it is perfectly acceptable  to start with less and gradually increase your contributions once you figure out your spending habits. Our budget calculator or tracking app is the perfect tool, as it will help you consistently reach your goals. 

Having some savings can also take the tension out of unforeseen circumstances.  It instills confidence and financial freedom in you, as you know that a portion of your salary is set aside for a rainy day.

Budget 10% for Debts and Donations

The remaining 10% of your income is dedicated to two areas: paying down debt and giving back. This portion ensures you manage financial obligations responsibly while maintaining a balance that supports others or personal values.

Debt Payments

Debt can be made up of credit cards, personal loans, student loans, car payments, and the like. By setting aside 10% of your income every month, you can build a vantage point for how to pay off or rid yourself of debts over time. If your debt is above average, this percentage can temporarily rise a few points to accelerate.

With a systematic approach, you not only make minimum payments, but you can also set aside improper planning. As you pay off your liabilities, you can channel freed funds back to either savings or personal spending.

Donations and Giving

If you allocate part of your income to charity, it can bring about a huge shift in your life. Keep 10% for local causes, 10% for international work, and another 10% to assist family or friends. Giving an ongoing 10% reinforces your concern for others and channels it into specific action, which is both intentional and sustainable. The nominal giving percentage that many people use not only boosts their happiness and sense of satisfaction but also lowers guilt over impulse purchases.

The dual focus of this 10% – is paying off debts and giving, so it’s a balance between duty and self preservation. You’re helping to make your  financial base  more secure and also adding  to society in this way.

Pros and Cons of the 70-20-10 Budget

Like all budgets, the 20-20-20 spending plan has its strengths and weaknesses. Grasping these will help you use the 20-20-20 plan in a more  practical way.

Advantages:

• Quick and easy to use:  expenditure split three ways makes budgeting less intimidating.
• Balances today and tomorrow at the same time: out-of-pocket expenses, investments and indebtedness can all be calculated together.
• Adaptable: For those who seek flexibility in their life, adjustment of the allocated percentages of income may be a useful feature
• Encourages savings: Setting limits alerts us to overspending

Disadvantages:

• Does not apply to high-debt groups: 10% of income may not be enough if  we are in serious financial difficulties.  
• May lack precision: It does not offer much help for detailed subcategories such as insurance, subscriptions, or irregular costs.
• Dependence on income level: If a high proportion of fixed costs exist, then the 70% expenditure ceiling may be hard to comply with.

While it’s not perfect, the 70/20/10 plan is often a good starting point for people who want clarity without complex spreadsheets or apps. Those looking for more detailed strategies can also compare this with the 50/30/20 rule.

Tips for Success with the 70/20/10 Rule

Following the 70/20/10 budget is easier when paired with some practical habits. Here are some tips to help you make the plan work for you: 

1. Track Your Spending Regularly
   You can use our app, do a spreadsheet, or simply sit down with pen and paper. The purpose is to let you know what you’re spending money on so that easier compliance with the 70% rule is possible.
   
2. Automate Savings
   The remaining one-fifth can go straight into savings or investment accounts each month without you having to touch it.  Automation can prevent accidental overspending and ensure you stay with your goals all the way.
   
3. Adjust Percentages When Necessary
   Life changes – a move, new job, or higher bills – may require temporary tweaks. The 70/20/10 rule is a framework, not a law.
   
4. Prioritize Debt Strategically
   So if you have high interest debt, think about shifting some of the money that is being spent on what you could do without paying it off faster. This reduces expenses, and accelerates financial independence.
   
5. Include Small Wins
   Even modest successes, such as paying off a small debt or achieving certain savings goals, help underscore the habit and build confidence.
   
6. Review and Reflect Monthly
   Budgeting is a dynamic thing. At the end of each month, hold what you actually spent up against your criteria. If necessary, make changes and plan for what is to come.
   
7. Combine with Other Tools
   Pocketguard’s budget calculator or a comparison with other methods, such as the 50/30/20 rule, can give perspective and help refine your plan.