The 70-20-10 Rule Of Budgeting

Before I left the corporate world, the salary system of our company transitioned from a 15/30 payout schedule to an Every Other Friday payout schedule. This means that we get more frequent payouts but a lesser pay compared to what we usually get when we had a 15/30 schedule.

A few days ago, I met some of my office mates and had a conversation with them. I asked them if they are doing fine at work and if they still have complaints about their salary.

70-20-10 Rule of Budgeting

They mentioned that they still have a hard time on budgeting since the payout is small and they all have their daily expenses. One of them even mentioned about transferring to another company which offers a higher basic salary.

Somehow, I actually expected this answer from them. However, I still think that the reason why they are having a hard time on budgeting is because they don’t follow a specific rule in managing their expenses.

So as of today, I would like to share the “70-20-10 rule of budgeting”.  This rule is not a know-all rule but is a good start for a person who wants to take the first step in controlling their finances.

The 70-20-10 rule states that:

–    70% is allocated for living expenses (rent, food, clothing, etc)

–    20% is allocated for savings (retirement, investment, emergency fund, etc)

–    10% is allocated for debt repayment or fun money or tithes

Here’s a scenario:

(Please take note that taxes and other monthly deductions were not included in this scenario to simplify the explanation). If your monthly income is 20,000php, this means that a you can a lot 14,000php for your daily expenses; 4,000php for your savings; and 2,000php for paying debts or tithes. This may seem easy if you just read thru the scenario, however, the challenge starts when you are actually implementing it especially if you have a lot of debts and don’t follow a specific budget plan before.

For these cases, I suggest sticking to a specific spending limit for your expenses and a lot more for paying your debts until you manage to pay most of it (e.g. 60/20/20). Just make sure that you don’t compromise your health as you budget.

You may also modify the percentage for each category and do 60-30-10 or whatever you think is best for you. Always remember that poverty is not caused by a low income.  Poverty exists because of lack of financial education.

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I hope this article taught you something about how to achieve success.
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I Struggle, I Win!
Jeypi Kyu

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  • Elizabeth O.

    I really like the concept of this budgeting plan. Yeah, you’re right the execution would be more challenging. But a few tricks could help you there, like making sure you’ve divided your salary before spending. That way you know how much you can spend and how much needs to be kept.

  • I’ve heard this from a colleague back when I was still in Metro Manila, it’s misleading to just look at someone’s monthly income. You have to consider the NET HOME PAY. Deductions like taxes, loans and others are also the reasons of the difficulty to implement this one. So, I suggest, to get the Net Home pay then compute the allocation. And always stick to the game plan!

    • Thanks for your feedback Raymond. I did not consider other deductions on the scenario above to make the explanation simpler. But yes, you are correct! We need to consider the Net Home Pay of an individual as it is the actual amount that they need to budget. I appreciate your thoughts. 🙂

  • very informative and useful post! i with the common usage of credit cards, many of us are actually struggling with budgeting even without knowing it. but i feel the 70-20-10 will very much depend on the individuals. as i’m still staying with my parents, i certainly do not need 70% for my daily expenses. I think i’m more of a 50-30-20 as of now.

  • Indeed it’s important to have a financial education – and it starts at a young age. Of course, the percentages can be adapted, depending on the income and necessary amount / month – but the idea can be adapted to almost any country:)

  • Hey, I used to do this. It helped me a lot and its been useful. I also set some aside for a travel fund since I love exploring. Problem is, now I don’t have regular salary or income. I am more of a freelancer and some months have more than the others. I’ve been struggling on how to do my budgeting since I don’t have a fixed income . 🙂 Any clue as to what I can do?

    • Hi Karla! I’ve been self employed as well for more than 6 months and budgeting really is not that easy compared to when I was employed. But here’s what I can probably suggest. First things, first! Track all of your expenses, then classify then as Necessary(food,rent, electricity, water bills, etc), Investment(savings), Avoidable and Frivolous expenses. You’ll then know if you are living within your means or above it. From there, compute how much you need to a lot for necessary and investment expenses. Make sure that you pay those first before spending on avoidable and frivolous ones. Better yet, since you now know which are avoidable and frivolous ones, you can actually not spend on those anymore and just put the money allotted for these into emergency funds. This way, even if it’s a lean month, you won’t have a problem with your bills since you know how much you should spend for it. I’ll try to create a more specific article about this one of these days so stay tuned. 🙂

  • Thanks for the thought and tips on 70-20-10. I think we have to start saving for retirement age now.

    • Yes! The younger we are, the more that we should prepare for our future. 🙂

  • What ever pay out system you will have your budget should not be changed. O mean same expenses allocation and saving allocation

  • THat’s a great way to put it. I do however suck at budgeting so I let my husband take care of our finances.

  • Very interesting concept to try. But I have my own way wherein, it is 10-60-20-20 . 10% goes to the church. The rest follows a similar pattern like yours.

  • This is a good tip for budgeting. In fact, I do that myself since young. I like to keep majority of my earnings/ savings and leave little for me to spend so as to not have the habit of overspending!

  • As much as I would want to keep savings, I can’t 🙁 I still give money to my parents because our garments business started to go down hill T_T

  • When my husband gets a Job offer, we always take into account the huge deductions like taxes. It actually just hurts my eyes to see how much they take out of his actual salary and what we’re left with haha. Maybe that’s why I do freelance online jobs, no deductions there that would hurt. 🙂

  • I like the concept of allotting 20% of saving. It’s nice that there’s also another 10 percent that can be flexible for either debt repayment, fun or tithes.

  • Thanks for sharing. This is very useful and informative.

  • That is a very practical take on the matter of budgeting. Personally I like to have a higher percentage for savings, as , with kids, there are more we need to budget for. It takes a steady hand to keep to a budget, so congrats on coming up with yours!

  • The last 10% is for debt repayment or fun money? I think debts should be repaid as soon as possible, not by long term installments if possible. For people like me who value my sanity, entertainment expenses for me is a category on itself.

    • Hi Fred, thanks for sharing your thoughts.I agree with you that debts should be paid as soon as possible. I don’t encourage people to pay in installments however, my only point is that while you pay debts, you should also have your savings so that in case an emergency occurs, you would have money to spare. Of course , being “debt-free” is definitely the best! 🙂

  • Oh budgeting…the fun part of being a parent. Self-discipline for me is the key to a successful budgeting