Clayton Blog

Smart Budgeting: A 70-20-10 Split

Let’s talk about budgeting. Still here? Good! If you’re anything like me, the thought of budgeting triggers a panic response. Turns out that’s not uncommon.


According to a 2014 study by the American Psychological Association, money was the most commonly reported source of stress at 64 percent of adults calling money a significant source of stress. You might be surprised to know, that figure includes all income levels.


So how do we beat the financial blues? A good place to start is by building a solid budget based on your income. You may find in the process that your resources go a bit farther than you


thought or that getting your finances back on track will only require a little tweaking. Whatever the outcome, you’ll feel better knowing you have a plan.


I’ve tried a few different methods myself, but the most success I’ve had is through building my budget around the 70-20-10 model. So, let’s get started.


How to Build a 70-20-10 Budget


1. First calculate your monthly income

Writing Down Budget in Notebook


You'll use your monthly income as the baseline for how to budget each month. 



2. Designate 70 percent for living expenses

Food in Manufactured Home Kitchen 

This includes your mortgage/rent, groceries, gas for the car, child care, etc. Basically, your living expenses are the necessities. When I started with this budget plan, I was surprised how far that 70 percent could go. Calculate 70 percent of your monthly income and subtract your living expenses. If you have a remainder, that’s spending money! If you don’t, stay calm. We’ll cover that a little later.


3. Designate 20 percent for savings

Retired Homeowner in Master Bathroom 

This breaks down into three subcategories. The first subcategory is 10% for retirement. For the younger among you, this may not seem like a priority. It’s been estimated that a retiring couple could have costs ranging from $245,000 to $266,000 for healthcare alone.Putting aside funds for retirement early on is crucial, and while you can make adjustments to correct a budget, a deficit of time cannot be made up.


Now that you’ve calculated your growing nest egg, set aside five percent for emergencies. This is especially important. Emergencies can include anything from car trouble to periods of unemployment. It’s there for any large, unforeseen expenses that may come your way. It can be tempting to dip into this from time to time, but leaving it alone as long as possible is crucial to maintaining a balanced budget. Being prepared will help you prevent adding debt through credit card transactions or falling behind on living expenses.


The remaining five percent is for specific goals. This is where you’ll pigeonhole a little extra for things like vacations, a new car, college tuition, etc. Like your emergency fund, this five percent is all about planning ahead. Impulse buys can land you in debt, which can have a snowball effect. You’ll feel a lot better about that trip if its planned and paid for. Plan ahead to  treat yourself!



4. Designate 10 percent for debt

Budgeting On Computer Outside


Part of the reason I like this model is this last category. Debt happens, and sometimes it can get out of control. The last 10 percent of your budget will go to debt you’ve accrued from car loans, student loans, medical costs, credit cards, etc.


This can be overwhelming, and without perspective it can cause some to avoid budgeting. Revolving debt can wreak havoc on a budget and dim the light at the end of the tunnel for those trying to get out. If you’re in debt, focus on getting the monthly payments down to 10 percent of your income. With some planning and discipline, you can and will make it even lower.



5. Adjust for over and under categories

Family in Manufactured Home Yard 

You’ve calculated your monthly income. You’ve divided it up. If you’re able to cover each category with funds left over, congratulations! You’re on a solid path. Keep saving and be prepared.


If it doesn’t add up, don’t worry. Now that you have your expenses organized, look at where you’ve gone over budget. For example, if your debt is at 15 percent, you may need to reduce one of the other categories.


In the meantime, set a determined goal to get that number down to 10 percent, then return to your new budget plan. Saving for future expenses is just as important to eliminating debt as paying it down. If you’re over on your living expenses, consider cutting back wherever you can or adding another source of income.


There is no one size fits all for structuring a budget. But no matter which you choose, the most important factor will always be discipline and will power. If you’re able to stay in line with your budget, you’ll be better prepared for life’s surprises. It may not eliminate all your worries, but it will certainly help.

 Download Your Free Budget Sheet


1. Lobosco, Katie. "How much money you'll need for health care costs in retirement." CNNMoney. December 30, 2015. Accessed June 28, 2017.

Topics Financial