The 70-20-10 Budget Rule: How It Works & How to Use It

There are plenty of budgets that promise to help you manage your money more efficiently, and some of them can be complicated. That’s why many people opt for the 70-20-10 budget rule. It’s a simple, percentage-based formula for getting and keeping your personal finances in good order.

This system can help you get a good sense of exactly what you earn and where it goes, while tracking your daily spending (that’s the 70%), plus saving and investing (20%), and debt and donations (10%). These aspects of the 70-20-10 budget are part of its appeal, and it may guide you to better money habits.

Read on to learn how the 70-20-10 rule works and the ways it can be adapted for your particular needs.

How Does the 70-20-10 Rule Work?

The 70-20-10 rule is a way to allocate your monthly after-tax income into three categories:

•   Living expenses

•   Saving and investing

•   Debt and donations.

Using these categories can help organize the way you think about your income — how it comes in, and importantly, how it goes out. It’s a simple way to put a personal budget in place.

Now, take a closer look at each of the three components of the 70-20-10 budget template.

70% for Spending and Living Expenses

Living expenses are exactly what they sound like — expenditures you need or want to make each month. To see how much of your post-tax dollars go toward these costs, just add up the monthly payments that cover essentials such as housing, utilities, food, childcare, and medical expenses.

This category also includes expenditures made only once or twice a year, such as auto or home insurance premiums or yearly car tune-ups. In those cases, you simply figure the total paid for the year, divide by 12, and add that number to the monthly figure.

For the purposes of the 70-20-10 rule budget, living expenses also include discretionary spending on things like shopping, entertainment, travel, gym memberships, and other non-essential items.

To get started, scan through a couple of months of your bank statements, credit card, utility, medical, housing, insurance, and internet bills to see how you’re tracking. Use the common living expenses listed below as a guide.

•   Housing: rent or mortgage and property tax, utilities, maintenance, and insurance

•   Transportation: car payments, car maintenance, gas and tolls, parking, public transportation costs, and taxis and ride shares

•   Childcare: day care, after-school programs, tuition, baby sitting, and clothes, personal care and related expenses for children

•   Insurance: health insurance premiums (if not deducted from your paycheck), auto and home insurance premiums, life insurance premiums, and disability income insurance premiums

•   Food: groceries, takeout and restaurant meals

•   Health: deductibles, copays, and coinsurance; medical and dental appointment costs not covered by insurance; prescriptions and over-the-counter drugs; glasses and contacts

•   Entertainment: travel; movie, concert, and theater tickets; paid streaming services and podcasts; books; magazine and/or newsletter subscriptions

•   Pets: food, equipment, accessories, and toys; flea and tick prevention/other medications; vet bills; pet insurance

•   Personal: clothing/shoes/accessories, hair care and other grooming, toiletries/cosmetics, gym membership

If your monthly number hits the 70% mark or less, congratulations. You’re living within your means. For many people, however, this first calculation may exceed 70%. Find out what to do when that happens below.

20% for Saving and Investing

Next, you want to calculate how much it will take to hit the 20% goal of saving for the shorter term and investing in your future.

For retirement, contributions to an IRA, 401(k) or 403(b), or other long-term, tax advantaged savings plan are typically best for working to build wealth over time.

For more immediate goals, make sure you have an emergency fund in place for any unforeseen expenses that crop up (aim for at least three to six months’ worth of expenses). You can also save for near-term objectives such as a vacation or down payment for a home.

Depending on what and why you are saving, different kinds of savings accounts may make sense. Consider these options:

•   High-yield savings accounts make sense if you need your money liquid (accessible) but want to earn more interest than the current rate on traditional savings accounts.

•   A certificate of deposit (CD) is another option. These accounts lock in your money at a specific interest rate for a period of time, usually from six months to a few years. With a CD, you’ll know how much money your money will earn, but keep in mind, if you pull your money out early, you’ll typically face penalty fees.

•   Money market accounts (MMAs) combine some aspects of a savings account with features of a checking account. You’ll earn interest (often a competitive amount) on your savings, and you may be able to access funds via debit card or checks.

10% for Debt and Donations

The remaining 10% can be allocated to paying off debt, especially high-interest debt. If you have credit card debt, you’ll likely want to focus all or part of this 10% on paying it down so you can avoid the high interest payments. If you have student loan debt, that monthly repayment amount should be included as well.

Once you’ve worked your way through some of your debt, part of the 10% allocation can go to charitable donations if you wish. Perhaps there’s a cause you want to support, from animal rescue to medical research, or you like to donate to your college; it’s your call.

Once you’ve taken a look at your full debt/donation picture, you can determine how best to handle the 10% rule. Depending on the size of your debts and your living expenses, you may need to temporarily allocate more or less funds to this category.

How to Use the 70-20-10 Budget in 4 Steps

The 70-20-10 budget is a streamlined approach to budgeting, and it requires just a few steps to get started.

1. Calculate Your Monthly Net Income

Determine your monthly income after taxes (also known as your net income). This includes your salary, as well as any steady side hustles or other regular earnings you have. Calculating net income from all those income sources will give you a total monthly amount.

While you’re at it, consider using a monthly budget calculator, which can help you keep tabs on what you’re bringing in and what you’re shelling out.

2. Review Your Last 3 Months of Spending

Pull out your bills, credit card statements, and bank statements for the last three months to track your expenses. Review how much you spend and what you spend it on. Looking at three months’ worth of expenses, instead of just one month’s worth, will give you a clearer sense of how much you spend monthly.

3. Categorize Your Expenses

Next, put your expenses into categories. Note which expenses are fixed — in other words, the costs you need to pay each month. This includes rent, utilities, groceries, and so on. Then determine which expenses are discretionary — meaning the things you choose to spend on, like clothes, entertainment, and dining out. Look at where you could cut back. For example, the cost of subscriptions can really add up. Between streaming services, meal delivery, music platforms, and gym memberships, you may have more of them than you realize, and you may be able to eliminate a few.

Trimming discretionary expenses is a way to avoid overspending. It can free up more money for you to devote to things you really need — or to put in savings.

4. Automate Your Transfers

Automating your finances can help keep your budget on track, ensure that your bills are paid consistently and on time each month, and help your savings grow. You can set up direct deposit for your paychecks, which may even allow you to get your paycheck early.

You can also establish automatic transfers from your checking account to your savings account to help hit your 10% savings goal. And you can automate bill paying so that you don’t have to remember to pay your bills, which could save you from late fees or penalties.

70-20-10 vs. 50-30-20: Which is Right for You?

The 70-20-10 rule may not be the best fit for everyone. Another popular budget method is the 50-30-20 rule. With 50-30-20, you allocate different percentages of your monthly income to three main categories: 50% to needs (like your rent), 30% to wants (like going to the movies), and 20% to saving money and paying off debt. A 50-30-20 budget calculator can help you divide your income into these categories.

Here’s how to determine which budget is best for you.

When Should You Choose the 70-20-10 Rule?

Because of its simplicity, those who are new to budgeting may find that the 70-20-10 budget works well for them. The budget’s framework provides structure without being overly complicated by combining wants and needs in one (70%) spending category. It allows a user to get organized without having to devote time and effort to tracking every expense.

The 70-20-10 budget can also be helpful to those who live in an area where the cost of living is high. In other words, if your expenses add up to 70% of your income, this budget may be a good fit for you.

When Should You Choose the 50-30-20 Rule?

The 50-30-20 budget may be a good choice for those whose needs or essential expenses are no more than 50% of their income, and who have discretionary spending that adds up to 30% each month. By dividing necessary and discretionary spending into two different categories, this budget adds an additional layer of structure, which some individuals may find helpful. For those interested in trying the method, these tips for using the 50-30-20 rule could come in handy.

Also, with its emphasis on savings and reducing debt, the 50-30-20 method could work well for those who prioritize saving money and who are looking to use strategies for paying off debt to reach their financial goals.

Real-World Example of a 70-20-10 Budget Rule

To see how the 70-20-10 rule might work (hypothetically speaking), let’s say your monthly income is $6,000. Here’s how that money would be allocated on the 70-20-10 budget plan.

•  For living expenses, you would multiply 6,000 x 0.70 (for 70%), and end up with $4,200 of after-tax dollars for housing, utilities, food, entertainment, and all the other items listed above.

•  For saving and investing, you would multiply 6,000 x 0.20 (for 20%), to get $1,200 to put toward savings and investments.

•  Lastly, you would multiply 6,000 x 0.10 (for (10%). That’s $600 to put toward debt and/or donations.

Here’s how it all divides up: $4,200 (for expenses) + $1,200 (for savings and investment) + $600 (for debt and donations) = $6,000.

Common Challenges When Applying Budgeting Frameworks

Like other budgeting plans, the 70-20-10 budget plan is pretty straightforward, but still, there are hurdles and challenges you may face as you work to follow it. These are a few of the possible pitfalls to watch out for.

•  Fluctuating income. The 70-20-20 budget technique works best for those with a steady income. If you are freelance, a gig worker, or a seasonal employee and your income is variable, this may be a tough budget for you to follow since sticking to fixed percentages may be difficult. To try to make it work, look at your income over a period of time like six months or more, figure out your average monthly take-home pay (if possible), and base your budget on that.

•  Lack of distinction between needs and wants. Unlike the 50-30-20 budget, the 70-20-10 rule groups all your expenses together. This could sometimes make it challenging to distinguish between essential spending and discretionary spending. For example, do you really need that new jacket for work, or do you want it because you like it?

•  Dealing with debt. Some people with a higher amount of debt, such as credit cards, car payments, and mortgage payments, may need to allocate more than 10% of their budget to paying it off.

Tips for Sticking to Your Budget

One of the benefits of the 70-20-10 plan is its simplicity — and flexibility. You can customize the allocations within reason to meet your own needs and financial goals over time. Making a budget can help give you peace of mind, because you’ll know you are taking care of your financial health. Here are a few tips for increasing your likelihood of success in following the 70-20-10 budget template:

Include Side Hustle Earnings and Windfalls

If your side hustle brings in income regularly and steadily, include it as part of your base income. But if it doesn’t, group it with other irregular income sources, such as bonuses, tax refunds, and any other windfalls, and factor them in later, as they happen.

The bulk of this extra income can be designated toward the area most in need of attention, such as paying off credit card debt or saving for your goals. You may also want to set aside a small percentage of those earnings as a reward for your hard work.

Recommended: Net Worth Calculator

Adjust the Percentages When Needed

After tracking your spending and making possible cuts, you may find you still can’t fit living expenses into the 70% category. Maybe you are just starting your post-grad life or earn a lower income, for example.

If you have limited funds and lots of bills, you may have to allocate a bit more to that category and put less in short-term savings until that next raise or other income comes through.

Protect the 20%

Whenever you find the need to adjust percentages, try to avoid lowering the 20% category of saving and investing for the future, if possible. The sooner you start saving for retirement, the more that money may grow over time. Older adults who may need to catch up on retirement savings may even want to increase this 10% allocation. One of the reasons the 70-20-10 plan can be successful is that it helps you balance both short-term needs with long-term financial planning.

If you do make percentage adjustments, be sure to continue to track expenses so you can see when you can readjust allocations back to the original 70-20-10 plan.

Prioritize High-Interest Debt

Individuals with high-interest debt such as credit card debt may do better with the 70-20-10 budget if they increase the debt repayment percentage to higher than 10% until their debt is lower. To help pay off their debt, they can reduce discretionary spending, cutting back wherever they can.

In addition, they might need to make more drastic cost-cutting moves too, such as finding an apartment with cheaper rent or ditching the expensive car and switching to mass transit for a while. The goal is to get costly debt under control so you can start saving for your priorities and peace of mind.

The Takeaway

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for saving and investing, and 10% for debt and donations. By allocating your available income into these three distinct categories, you may be able to better manage your money on a daily basis. The 70-20-10 budget could also help you take steps toward achieving your financial goals in both the short- and long-term.

Ideally, as you establish a budget that works for you, you can cover your expenses, pay down your debt, and put — and keep — more money in the bank.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Is the 70-20-10 rule calculated on gross or net income?

The 70-20-10 rule is calculated on net income, meaning your after-tax income or take-home pay. Net income is used for this budget since that’s the actual amount you have available for expenses, paying down debt, and saving.

What if my living expenses are more than 70%?

If your living expenses are more than 70%, you’ll need to adjust the percentages of the 70-20-10 budget. You could take some money out of the 10% for debt and donations, and direct it to your living expenses, for example. But also try to reduce your expenses. Look at your discretionary spending first to see where you can cut back. Then, consider ways to lower your essential costs.

How does the 70-20-10 rule compare to the 50-30-20 rule?

The 70-20-10 rule allocates 70% of your monthly take-home pay to living expenses, 20% to saving and investing, and 10% to debt and donations. The 50-30-10 budget allocates 50% of your take-home pay to needs (essential expenses), 30% to wants (discretionary spending), and 10% to saving. The 70-20-10 plan is considered simpler because it combines wants and needs into one category, while the 50-30-20 plan distinguishes between the two, which some people may find helpful.

Can I use the 10% bucket for debt instead of donating?

Yes, you can absolutely use the 10% bucket for paying off debt instead of donating. The allocations and categories for this budget are flexible and not strict rules. Allocating the 10% bucket to debt repayment could help you eliminate high-interest debt, which could, in turn, free up more money to help you reach your saving and investing goals.

Is there a template for the 70-20-10 budget?

There are a number of digital templates that you can find online and download for the 70-20-10 budget. There are also monthly budget templates you can customize specifically for the 70-20-10 plan, including a free monthly budget template from SoFi.

Photo credit: iStock/baona

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOBNK-Q126-007