The 10-20-70 RULE
Do you always find yourself short of budget despite working hard on your job? You probably make decent income but still end up with barely enough money to pay your bills and spend on yourself or your hobbies.
If this sounds familiar, it is likely due to one simple reason. You haven’t figured out an efficient budgeting system that works in your financial situation.
There are various ways to manage your hard earned money. But first, let’s get into the basics and foundation.
So why save?
Saving (and investing) is a must for everyone. Given the ongoing inflation situation, it is important to have a system that will help you become financially stable.
Let me share with you this three simple saving strategy that you can start today. The 10-20-70 Rule.
Please note that I am not a financial advisor. This is to share with you an effective strategy that I have been using since 2012 that made a huge difference in how I handle and portion my savings. Using this 10-20-70 Rule, with a little tweak, I was able to purchase two properties as well as help fund my parents retirement home.
I came across this 10-20-70 Rule when I was living and working in Saudi Arabia. This was introduced by brother Bo Sanchez.
(Shout out to all my amazing friends in the lovely Middle East!)
10-20-70 is basically percentage of your income. 10%, 20%, and 70%, which totals to 100%.
Are you still following? And so what do these percentages signify?
Don’t worry. Let me walk you through.
First, 10% is allocated for Tithing. Second, 20% is allocated for retirement savings. Then third, 70% is allocated for expenses, bills to pay, building emergency fund, and for enjoying your hard earned money.
Now let’s break it down using an example. Say your monthly income is $4,000.
If you’re earning $4,000 every month, this is how it would like using the 10-20-70 Rule.
10% = $400
20% = $800
70% = $2,800
Is math mathing so far? Let’s go be more specific.
So $400 (which is 10% of your income) is what is allocated for Tithes. But wait, what is Tithes first of all? What does it mean? Or what is Tithes even for?
Ok. Let me explain.
Tithes is a biblical custom. In Hebrew, Tithes literally means tenth. Giving 10 percent of our income is one way to give thanks and honour God for all His provisions in our life.
If this is your first time hearing about Tithing you’re probably asking, why give Tithes? To give away 10% of your salary is a huge cut, and shouldn’t someone just give any amount they want? It is their hard earned money after all.
Quite frankly, it is. So let me explain further.
Giving is always optional. However, if we make giving our first priority, it teaches a principle of not being mastered by money or material things. Ever heard this before, “Money is not the root of evil. But the love of money”?
On the other hand, God loves a cheerful giver. So Tithing, an act of submission, is something that you will need to pray about because an offering will not be acceptable if you are giving just out of obligation. The amount you give back, no matter how small or big, must come from a willing heart. That’s what truly matters.
If you’ll take my advise, just start giving any amount. Even just 1%. Just start giving, “and see if God will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it.”
If you’re still reading this part, you must be learning or curious. There’s two more remaining allocations we need to dig into. The 20% and the 70%.
Now let’s look at $800 (which is 20% of your monthly income in the given example).
$800 will be for saving and investing – for your retirement. This money is something you DO NOT touch and you sort of forget.
Actually, let me repeat it so it sinks in. This money, $800, which is 20% of your monthly income, which will be saved and invested, for your retirement, is money saved and invested that you DO NOT touch no matter what happens until you’re retired. Because again, this is meant for your retirement, NOT for your coffee, NOT for a new pair of shoes, or phone, or bag, or for anything. This 20% is STRICTLY allocated for building your retirement fund.
Furthermore, if you want to live a comfortable and dignified retirement, you DO NOT plan at the time you are retiring. It is plain ignorance to begin saving close to your retirement age when you are in the stage of your life where you can no longer work, and no longer have the resources and time to save.
If you want to enjoy your retirement, within or potentially above standard of living, time would be your first greatest asset. The best time to start saving was yesterday. If you didn’t, then today is your best time to take action for your retirement.
Did you know that people are living longer nowadays? Yes, people are living longer but living with less savings.
According to World Health Organization, “People worldwide are living longer. Today most people can expect to live into their sixties and beyond. Every country in the world is experiencing growth in both the size and the proportion of older persons in the population.
By 2030, 1 in 6 people in the world will be aged 60 years or over. At this time the share of the population aged 60 years and over will increase from 1 billion in 2020 to 1.4 billion. By 2050, the world’s population of people aged 60 years and older will double (2.1 billion). The number of persons aged 80 years or older is expected to triple between 2020 and 2050 to reach 426 million.”
Having this data, imagine thirty to forty years from now, how much more technological and health advancement can we have? If life is long for us, the more we need to keep up with our financial needs. Meaning, we need to consider how inflation can affect the value of our savings. This requires a separate discussion.
Let’s proceed to the third allocation – the huge chunk of your salary in the previous example, $2,800, essentially 70% of your monthly income.
$2,800, which is the remaining and larger portion of your income, will be your budget for building your emergency fund, covering expenses like grocery, hydro and phone bill, rent or mortgage, car insurance, and of course and most importantly, yourself. You’ve worked hard using your time and by providing service in exchange for an income. Therefore, once your 10%, 20%, and part of your 70% allocation are taken cared of, it is rightfully now time to spend on yourself, hobbies, recreation, travel, and anything important to you.
There you go! The 10-20-70 Rule for managing your finances.
Remember that each of us will have different financial goals and priorities. There’s no strict Rule. You can customize your own Rule based on your preference and financial situation. You might choose to do 10-25-65 allocation, or 10-30-60 allocation. It is totally up to you. The most important thing is, to have an effective budgeting system that you commit to.
If you are curious and would like to see how your income and savings would look like using the 10-20-70 Rule, the next time you receive your paycheck get a note and calculate your allocations. This strategy will give you a fresh and new financial perspective.
Break the cycle of paycheck to paycheck living. You are in control.
“Lazy hands make for poverty, but diligent hands bring wealth” -P104
I hope you enjoyed and find value reading this article. If you have your own budgeting strategy, I would love to hear about it. Please share it by leaving a comment below or connecting with me at [email protected].
I aim to deliver important articles that provide value to my readers. Hanggang sa muli!
