Use the 70/20/10 Budget to Build Savings and Crush Debt

Living paycheck to paycheck leaves no room for saving, investing, paying down debt or donating to causes you care about. But a paycheck-to-paycheck lifestyle isn’t always the result of not earning enough money.

A 2022 survey from Willis Towers Watson found that 36% of six-figure earners lived a paycheck-to-paycheck lifestyle, a percentage that has doubled since 2019. And while record-breaking inflation certainly isn’t helping, a lack of a solid money management strategy can also be the culprit.

Making bank but still living paycheck to paycheck? You’re definitely not alone. See our tips for breaking the cycle and getting your personal finances back on track.

When you spend-spend-spend money without a plan, it’s easy to quickly blow through your monthly income with no relief until the next payday.

That’s where the 70/20/10 budgeting method comes in to disrupt that paycheck-to-paycheck cycle. The 70/20/10 budget is a percentage-based money management style that helps you make room for saving, investing, paying down debt and donating.

How the 70/20/10 Budget Rule Works

Following the 70/20/10 rule of budgeting, you separate your take-home pay into three buckets based on a specific percentage.

Seventy percent of your income will go to monthly bills and everyday spending, 20% goes to saving and investing and 10% goes to debt repayment or donation.

Use 70% of Your Income for Monthly Spending

With this budgeting plan, 70% of your net income — the money you make after taxes and other payroll deductions — will go to living expenses such as:

Mortgage payment or rent

Utilities, phone, internet

Debt payments (car, credit cards, student loans)

Insurance (car, life, homeowners)

Groceries

Gas

Dining out

Entertainment

Clothing

Personal care items

Child care

Medical costs

Travel costs

Gifts

You don’t have to get into specifics on what percentage you’ll spend in each of your budget categories, especially as it pertains to fixed expenses like utility bills. If a large portion of this becomes spending money for traveling and eating out, you’re welcome to do that as long as your bills and necessities are covered.

Set 20% Aside for Savings and Investments

Set up your future self for success. Following the 70/20/10 rule, you’ll divert 20% of your pay to saving and investing. This could include the following personal finance priorities:

Emergency fund

Sinking funds for future purchases

Retirement savings

529 college savings plans for your kids

Seed money to start a business

Investing in stocks and bonds

Investing in real estate

If you have little to no money in your savings account for emergencies, you should focus on building up your emergency fund until you have enough to cover three to six months of essential expenses. Savings are also important to handle variable expenses that might come up when you’re paying bills.

However, it’s also OK to save money for multiple savings goals at the same time. You may feel like retirement is a long way away but it’s best to start as early as possible to take advantage of the power of compounding .

Earmark 10% of Your Take-Home Pay for Debt or Donating

The remaining 10% of your income will go to either paying off debt or donating (or both). You might want to:

Make an extra mortgage payment

Pay down credit card debt

Make extra payments toward your student loans

Pay off outstanding medical debt

Repay personal loans

Tithe to your house of worship

Donate to a cause you care about

Give money to your college alma mater

You should be covering your minimum bill payments with the 70% of your income reserved for monthly expenses. This money, however, is for making additional payments that’ll help you crush your debt faster.

If you’ve got multiple debts you’re working to pay off, consider using the debt snowball or avalanche methods . With the snowball method, you’ll start with the debt with the lowest balance. With the avalanche method, you’ll first focus on the debt with the highest interest rate.

If you are debt free, use the extra cash to give to organizations or causes that matter to you. Many budgeting plans don’t specifically factor in donating, which makes the 70/20/10 method unique.

An Example of the 70/20/10 Budget

You do have to do a little bit of math to figure out how much money to set aside for each of these three main categories, but it’s simple.

Just whip out the calculator app on your phone and multiply your monthly income by 0.7 to figure out how much money you can spend each month. Multiply your take-home pay by 0.2 to determine how much you’ll save, and multiply your earnings by 0.1 to find out how much to put toward debt or to donate.

For example, if you made $4,000 a month, your monthly budget would look like this:

$2,800 would go to covering your living expenses

$800 would go toward savings or investments, and

$400 would go toward debt or donations

Once you’ve come up with those three amounts, use the money in each category how it best works for you.

How the 70/20/10 Budget Compares to the 50/30/20 Budget

The 70/20/10 budget is similar to another money management method you may have heard about — the 50/30/20 budget . With the 50/30/20 rule, half your income goes to needs, 30% goes to wants and 20% goes to savings and other financial goals like investing or paying off debt.

These two budgeting methods are both percentage-based budgets. They divide your take-home pay into three broad categories. And they prioritize saving money and contributing positively to your financial future.

However, the 70/20/10 budget rule does not separate needs from wants when it comes to spending. It also stands apart by designating a portion of your pay to go toward donations or giving to others.

How 70/20/10 Compares to a 50/30/20 Budget

70/20/10 Budget

50/30/20 Budget

Doesn’t track every expense

✔

✔

Prioritizes savings

✔

✔

Prioritizes debt repayment

✔

X

Focuses on wants vs. needs

X

✔

Prioritizes giving

✔

X

The Benefits of the 70/20/10 Budget

There are some great benefits to using the 70/20/10 budget rule.

It’s a pretty simple money management method to follow — similar to the “spend-save-share” money jars for kids. Once you’ve separated your take-home pay into the three categories, you’re free to spend how you like without worrying that you’ll derail your savings goals or debt payoff plans.

While this budget has some structure, it’s not super strict or restrictive. You don’t have to zero in on exactly how you’ll spend every dollar.

Another benefit of this budgeting style is that it prioritizes your financial future. You’ll be building up your emergency fund, investing for retirement, paying down debt and giving back to others consistently.

Think you’d benefit from a different budgeting approach? Take our quiz to find out which budgeting method is your best match.

The Downsides of the 70/20/10 Budget

Despite the benefits of this budgeting style, it’s not for everyone.

If you’re living paycheck to paycheck because you don’t earn enough money, you won’t be able to squeeze out 20% for saving or 10% for extra debt payments. This budgeting method is only for those who can realistically spare using 30% of their income on something beyond essential living expenses. For a more structured budget, try a bare bones approach.

Conversely, if you’re someone who can comfortably spend less than 70% of their income and you want to use a much larger portion of your income to pay off debts or to save up to retire early , the 70/20/10 budget may not be the best fit for you.

It’s also important to note that while some people appreciate a budget that isn’t rigid, others thrive better with more detailed guidance on how they should spend their money. They might prefer to set a limit on fun spending or to have a specific goal for emergency fund contributions rather than setting aside a broad amount for all savings.

If you’re someone who often overspends on impulse buys , you might benefit from a more structured budget, like a zero-based budget .

Not sure which type of budget is best for you? Learn more about the pros and cons of 9 popular budgeting methods .

5 Tips to Help You Be Successful With the 70/20/10 Budget

Put this advice to use to truly excel using the 70/20/10 budget.

1. Use Direct Deposit to Your Advantage

Set up separate bank accounts for each percentage bucket. One account will be for spending, one will be for savings and investing and the third will be for debt and donating. Adjust your direct deposit allocations to match the 70/20/10 rule.

2. Automate Your Bills

Put your bills on autopay with the date set for right after you’re paid. This way, your financial obligations are covered every month before you start spending on takeout or new shoes.

3. Track Your Spending

Since there is no further guidance on how you should spend that 70% of your income, it’s a good idea to track your spending so you know where your money is going. Review your spending periodically to make sure you’re striking a good balance between needs and wants. A budgeting app can help you keep track of your spending with little effort on your part. Using cash envelopes can be helpful to make sure you don’t overspend in certain categories.

4. Tweak the Percentages to Best Fit Your Situation

If you want to save a bit more, you might find value in making it the 65/25/10 budget. If you’re paying child care expenses for multiple kiddos (or college tuition), you might need to do an 80/10/10 breakdown.

5. Split Up the 70% Pool When Budgeting With a Partner

After you’ve covered paying the bills and other necessities with your combined income, split the remainder of that 70% with your significant other. It could be a 50/50 split or you may choose to structure it based on how much each partner earns. Schedule regular budget meetings to collectively decide what to do with the 20% earmarked for savings and the 10% for debt or donations.

Pro Tip

Budgeting style aside, there are four important money conversations you should have with your partner when budgeting and setting goals.

Final Thoughts on Budget Percentages

The 70/20/10 budget is a good way to manage your money if you want to put funds aside to better your financial future but you don’t want to be super restrictive about your spending.

By dividing your money using the specific percentages, you’re free to spend 70% of your paycheck without stressing whether you’re contributing enough to your emergency fund or making a dent in your high-interest debt.

This money management style is also great for those who are philanthropic and want to share a portion of their earnings with others.

Overall, the 70/20/10 method is a solid budget plan that’ll easily help you break the paycheck-to-paycheck cycle so you can reach your financial goals.

Nicole Dow is a former senior writer at The Penny Hoarder. Senior writer Kaz Weida contributed.

This was originally published on The Penny Hoarder , which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.