What is the 70% Rule for Budgeting?

Managing personal finances can be challenging, but creating a budget can help. Figuring out how much to spend on each category can be overwhelming.

70% budget rule

This is where the 70% rule for budgeting comes in. The 70% rule is a budgeting method that suggests allocating 70% of your income towards essential expenses, 20% towards savings, and 10% towards discretionary spending. This approach aims to help you prioritize your spending, save more, and avoid overspending.

Definition of the 70% Rule for Budgeting

The 70% rule is a simple and easy way to budget your money. It divides your budget into three categories: spending, savings, and giving.

To use the 70% rule, you first need to calculate your net monthly income, which is your take-home pay after taxes. Subtract your living expenses (rent, utilities, groceries, gas, childcare etc) from this amount to get your monthly budget.

You can also use a spreadsheet to keep track of all your expenses for the last three months. Once you’ve done this, it’s much easier to see where you can cut back.

When you do this, your budget should be below 70% of your net income. This is a great place to start and will allow you to spend less on things that aren’t essential.

Then, you can use 20% of your monthly income to save for your financial goals. This is an important step to ensure that you’re able to achieve your long-term goals. Savings can help you build an emergency fund, or it can be used to cover unexpected expenses.

Advantages and Disadvantages of Using the 70% Rule

Advantages of Using the 70% Rule for Budgeting:

  • Simplicity: The 70% rule is easy to understand and apply, making it an accessible budgeting method for those who are new to budgeting or those who want to simplify their financial management.


  • Prioritization: By allocating a significant portion of your income to essential expenses, the 70% rule helps you prioritize spending on necessities like housing, food, and transportation.


  • Savings: The 20% savings allocation in the 70% rule can help you build up an emergency fund, save for a down payment on a home, or contribute to retirement savings.


  • Flexibility: The 10% discretionary spending allocation in the 70% rule allows for some flexibility and discretionary spending, providing some room for enjoyment in your budget.


Disadvantages of Using the 70% Rule for Budgeting:

  • Rigid: The 70% rule may not work for everyone since it’s a fixed allocation of income, and it may not take into account individual circumstances like high housing costs, student loan payments, or medical expenses.


  • Limited discretionary spending: The 10% discretionary spending allocation may not be enough for those who enjoy dining out, traveling, or shopping.


  • Not suitable for high-income earners: High-income earners may find the 70% rule too restrictive since they may need more money for saving, investing, or debt repayment.


  • Ignore debt repayment: The 70% rule doesn’t specifically address debt repayment, so those with significant debts may need to adjust the rule to prioritize paying off debts.

How to Calculate the 70% Rule for Budgeting

It’s important to note that the 70% rule is a guideline, and you may need to adjust it to fit your individual needs and circumstances.

Tracking your spending and making adjustments as necessary is essential to make sure your budget stays on track.

To calculate the 70% rule for budgeting, follow these steps:

  • Determine your after-tax income. This is the amount you earn after deducting taxes and other deductions from your gross income.


  • Calculate 70% of your after-tax income. This represents the amount you’ll allocate towards essential expenses like housing, food, utilities, transportation, and other necessary costs.


  • Calculate 20% of your after-tax income. This represents the amount you’ll allocate towards savings, including emergency savings, retirement savings, or other long-term financial goals.


  • Calculate 10% of your after-tax income. This represents the amount you’ll allocate towards discretionary spending, such as entertainment, hobbies, and dining out.


  • Adjust the allocations as necessary to fit your individual needs and circumstances. For example, if you have high housing costs or debt payments, you may need to allocate more than 70% towards essential expenses.

Common Mistakes to Avoid when Using the 70% Rule

To get started, start by creating a spreadsheet to record all of your spending for the past 3 months. This will give you a good idea of how much you are spending and how well you are following the budget.

Using this spreadsheet, you can then start to eliminate unnecessary expenses and keep track of where your money is going. This will help you to be more aware of your spending and ensure that you are within the 70% guideline each month.

In order to get the most out of the 70% Rule for budgeting, it’s important to understand that it is a flexible system and can be adapted to suit your needs. If you have a lot of high-interest debt, it might be better to save and pay off those debts first before putting your money towards savings and investments.

Here are some common mistakes to avoid when using the 70% rule for budgeting:

  • Failing to account for all expenses: One of the most significant mistakes is failing to include all expenses when allocating funds. Be sure to consider all your bills, including yearly expenses like insurance or taxes, when creating your budget.


  • Not adjusting for individual circumstances: The 70% rule is a guideline, not a strict rule. If you have high housing costs or significant debt, you may need to adjust the allocations to fit your individual circumstances.


  • Neglecting to track expenses: It’s essential to track your spending regularly to ensure that you’re sticking to your budget. Without monitoring, it’s easy to overspend and lose track of your finances.


  • Not including debt repayment in your budget: The 70% rule doesn’t explicitly address debt repayment. If you have significant debts, make sure to include a repayment plan in your budget.


  • Not having an emergency fund: The 70% rule includes a 20% allocation towards savings, but it’s crucial to ensure that you’re building an emergency fund to cover unexpected expenses like car repairs or medical bills.


  • Failing to adjust your budget regularly: As your financial situation changes, be sure to adjust your budget accordingly. Regularly reviewing and adjusting your budget can help you stay on track and make progress towards your financial goals.

Alternatives to The 70% Rule

If you’re looking for a quick, easy way to set your budget, the 70% rule is an excellent choice. It’s a popular guideline that’s been used by real estate investors for years and can help you quickly determine the maximum purchase price of your house flip.

The 70% rule can also be a useful tool for determining the potential profit and repair costs of a property. But, it’s important to remember that it’s only a general guideline and shouldn’t be relied upon for every house flip.

Another alternative to the 70% rule is the 50/30/20 budget method, which splits your income into three tiers: living expenses, debt payments, and savings. It’s a simple way to manage your money while still saving for big goals like paying off debt or putting aside money for a college education.

The pay yourself first method – this method suggests that you allocate a set percentage of your income to savings and investment accounts before paying bills or spending money on discretionary items.


The 70% rule for budgeting is a popular guideline for managing your finances. It suggests allocating 70% of your after-tax income towards essential expenses, 20% towards savings, and 10% towards discretionary spending. 

While the 70% rule is a useful starting point, it’s essential to adjust it to fit your individual circumstances and financial goals. Tracking your spending, avoiding common mistakes, and exploring alternative budgeting methods can help you make the most of your finances and achieve your long-term financial goals. 

By taking a proactive approach to budgeting, you can take control of your finances and build a secure financial future.

Diversifying Your Stock Portfolio

Diversification is a common strategy that helps protect your portfolio from losses in the case of a market downturn. 

It also protects your investments from interest rate risk, which can hurt cash and bond returns, and geographic risk, which can affect the performance of equities and fixed income assets in specific countries or markets.

When it comes to stock portfolio diversification, there are several strategies you can use. You can diversify by investing in multiple stocks within the same industry. You can also diversify by buying mutual funds or ETFs that invest in different asset classes, such as bonds and stocks.

Choosing the right combination of investments to diversify your portfolio can be challenging. But it can help you lower your overall risk and increase your return over time.


As an investor, it is important to know what you are doing. A little research and the right tools will go a long way in helping you make the most informed decisions about the stock market of your choice. 

A savvy investor will avoid making the mistake of selecting the wrong stocks for their portfolio and instead focus on companies that are more likely to deliver a solid return over the long haul. 

The best way to do this is by taking advantage of the plethora of resources available to you, from online brokers to research institutions. 

A good starting point is to take a look at the latest annual reports of companies that are listed on the stock market, as well as checking out financial news releases and blogs.