The 70/20/10 Rule: Split Your Money Like a Pro and Relax
Budgeting doesn't always require a spreadsheet to track your coffee runs or Saturday morning sausage at Bunnings. In fact, the more simple your approach to budgeting is, the more likely it is that you can manage it each week. Meet the 70/20/10 rule – the laid-back cousin of traditional budgeting that helps get your money sorted without losing your mind.
What's This All About?
Think of the 70/20/10 rule like a three-drawer wardrobe for your money. Instead of meticulously folding every dollar into dozens of categories, you're just sorting your after-tax income into three simple drawers: essentials (70%), savings (20%), and fun money (10%).
Let's Break It Down
Say you're bringing home $4,000 a month after tax. Here's how your money wardrobe would look:
The 70% Essentials Drawer: $2,800
This is for your core living expenses – everything you need to maintain your lifestyle:
* Rent or mortgage payments
* Groceries (including the fancy cheese!)
* Utilities
* Transport costs
* Insurance
* Phone and internet
* Regular subscriptions
* Basic clothing
The 20% Savings Drawer: $800
This is where you build your future:
* Super contributions (beyond the compulsory)
* Emergency fund savings
* Investment contributions
* Saving for big goals
* Debt repayments (above the minimums)
The 10% Fun Money Drawer: $400
This is your guilt-free spending money:
* Dining out
* Entertainment
* Hobbies
* Weekend activities
* Impulse purchases
* That extra fancy coffee
Why It Actually Works
Unlike strict budgets that have you tracking every purchase, the 70/20/10 rule prioritizes your essential needs while still maintaining a clear path to savings and leaving room for fun. By allocating a generous portion to essentials, you're being realistic about your actual living costs while ensuring savings aren't neglected.
Making It Work in Real Life
Maybe you're reading this and thinking, "My rent and bills are way more than 70%!" Don't worry. If you're living in Sydney or Melbourne, you might need to tweak these percentages. The key is to use them as a guide, not gospel.
Here's how to adapt:
* Living in an expensive city? You might be looking at 75/15/10
* Paying off a HECS debt? Maybe it's 70/25/5
* Sharing a house with mates? You might manage 65/25/10
The Real Magic
The beauty of this system isn't in the exact percentages – it's in the clarity it provides. By giving your essential expenses a realistic allocation while maintaining a strong savings commitment, you're setting yourself up for long-term success without completely sacrificing short-term enjoyment.
Getting Started
1. Calculate your monthly take-home pay
2. Look at your current spending (don't judge, just observe)
3. Start sorting your expenses into the three categories
4. Adjust your percentages if needed
5. Set up separate accounts if it helps you keep things clear
The Bottom Line
The 70/20/10 rule isn't about restricting your life – it's about being realistic with your essential expenses while maintaining a strong savings habit and still having some fun money left over. After all, financial planning should be sustainable, not punishing.
Remember: your budget should work for you, not the other way around. If you're just starting out, check out our article on 'soft saving' – it pairs perfectly with this method. And if you're dealing with debt, our guide to the Snowball Method can help you make the most of that 20% savings allocation.
Ready to give it a go? Start by tracking your spending for a week – you might be surprised at where your money's actually going. And remember, it's not about getting it perfect; it's about making progress.