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What is the 70-20-10 Budget?

Sharon McDougall - Updated - 2nd August 2023 - 2 minutes to read

How to create a budget plan using the 70-20-10 rule

The 70-20-10 method of budgeting allocates proportions of your income to three different areas – living costs, debt, and savings. The sheer simplicity of the budget helps you control spending, repay debt, and build a nest egg for the future.

Other methods of budgeting do exist, including a similar version that just allocates income differently. The 70-20-10 budget offers a generous allocation for living expenses, however, which can make it easier to follow.

How does the 70-20-10 budget work?

The 70-20-10 budgeting method allocates your income in the following proportions:

Which living expenses are included in the 70%?

Living expenses are everything you need to keep a roof over your head, a warm home, and food on the table, but more than that. They typically include mortgage or rent payments, food, fuel for your car, council tax, energy and water bills, and insurance policies.

The generous 70% allocation means you can also use it for expenses such as clothing and entertainment costs  – indeed, anything you need to live from one month to the next.

20% for debt repayments

In this budget you allocate 20% of your income to paying off debt. You can make significant inroads towards being debt-free, and as you repay each credit card or loan the repayment sums become available – perhaps to repay other debts or add to your savings.

Interest rates on credit cards are typically high, so it makes sense to pay these off as soon as possible. Focusing on repaying the most expensive debt first means you can save a considerable amount in interest.

Saving 10% of your income

Savings interest rates are currently very low, which makes it more sensible to repay debt before you save, but it is helpful to generate some savings within an emergency fund. This means you don’t have to use up valuable income on unexpected expenses during the year.

As you pay off your debts you’ll also be able to boost savings with the sums you were using to repay loans and credit cards, and provide yourself with a larger financial cushion in the event of job loss or unexpected bills.

Why use the 70-20-10 budget?

The basic structure of the 70-20-10 budget is simple and straightforward, which encourages people to stick with it. The budget lets you take control of your finances and become aware of how much you’re spending in each area. It also helps you avoid unmanageable debt.

The 70-20-10 budget works very effectively, and could help you more than other budgeting methods that suggest a lower allocation towards living expenses. Essentially, it means you can relax a little about money, as you know exactly where your income is going.

If you would like more information on budgeting and managing your money, please get in touch with our expert team. Scotland Debt Solutions can offer you a free, same-day meeting at one of our local offices around Scotland.

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Sharon McDougall


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