The 70/20/10 rule is a simple guide to financial planning that can help you reach your financial goals. It states that you should allocate 10% of your income to savings, 20% to debt repayment, and the remaining 70% to your living expenses.
The 70/20/10 rule is a good starting point for most people, but it may need to be adjusted based on your individual circumstances. For example, if you have a lot of debt, you may need to allocate more than 20% of your income to repayment. Or, if you have a high-paying job and few expenses, you may be able to save more than 10% of your income.
The important thing is to start saving and paying down debt as early as possible. The earlier you start, the more time your money has to grow.
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Here is a breakdown of how the 70/20/10 rule works
- 10% savings: This is the amount of money you should set aside each month for savings. This money can be used to build an emergency fund, save for retirement, or save for other goals.
- 20% debt repayment: This is the amount of money you should use to pay down debt each month. The sooner you pay off your debt, the less interest you will pay over time.
- 70% living expenses: This is the amount of money you have left to spend on your living expenses, such as housing, food, transportation, and entertainment.
The 70/20/10 rule aims to keep your total debt under 20% of your annual income, promoting responsible borrowing.
Here are some additional tips for following the 70/20/10 rule:
- Automate your savings and debt repayment. This will help you make sure that you are saving and paying down debt on a regular basis, even if you forget or are tempted to spend the money elsewhere.
- Set realistic goals. Don’t try to save too much money too quickly. Start with a small amount and gradually increase it as you get used to it.
- Be patient. It takes time to reach your financial goals. Don’t get discouraged if you don’t see results immediately. Just keep at it and you will eventually reach your goals.
The 70/20/10 rule is a simple but effective way to get your finances in order. By following this rule, you can set yourself up for a secure financial future.
A budget is telling your money where to go, instead of wondering where it went.
John Barnes (Entrepreneur)
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