Saving Strategies: 70-20-10 Rule

When developing a budget there should always be a line item for savings. We all know savings is important for not only emergencies, but also for cars, homes, retirement and other hopes and dreams.

But how much should you really save? A great baseline for saving is the 70:20:10 rule. This rule is great because it can apply to any saver, at any income level. It is also a great concept because it accounts for not only long-term saving, but the short term as well.

To take advantage of the 70:20:10 rule you should allocate your income as follows:

70% – Expenses/Spending

• Rent
• Heat & Electric bills
• Cable & Internet bills
• Food
• Clothing
• Gasoline
• Medicine

20% – Savings

• 5% Emergency Fund
• 5% Goals
  • Computer
  • Vacation
  • Tuition
  • Car
  • Special Event
  • Designer Apparel
• 10% Long-term (Retirement)
  • IRA
  • 401(k)
  • 403(b)
  • Company Pension

10% – Debt Payments

• Credit Cards
• Student Loans
• Car Payment
• Other Financed Debt

Saving Strategies to Remember:

Although it seems obvious, you should be aware that if you increase or decrease the percentages in any one category, another will be affected. This can be used either positively or negatively for your savings depending on whether you exceed the rule for spending or debt payments.

Once your emergency savings fund equals 9-12 months of your current income, depending on your comfort level and situation, feel free to put money into other investment vehicles such as stocks and bonds.