We’re introducing to you the 70-20-10 rule – a practical approach to budgeting that can help simplify your savings strategy amidst the challenges of rising living costs. This innovative 70-20-10 rule presents a contemporary alternative to the traditional 50-30-20 budgeting guideline. Take a moment to explore and enhance your savings game!
The traditional 50-30-20 budgeting guideline
For years, there has existed a widely recognized financial principle known as the 50-30-20 budgeting rule. The concept involves dividing your post-tax income into three distinct segments:
- 50% allocated to necessities such as rent, utilities, and groceries
- 30% set aside for indulgences like vacations, entertainment, and dining out
- 20% earmarked for savings endeavors, including emergency funds and personal savings accounts
A quick search on the internet will reveal countless financial experts advocating for this method of money management. Nevertheless, it’s important to remember the adage that rules can be subject to revision. Lately, the 50-30-20 budget approach has begun to tread into the realm of reconsideration.
The new saving landscape
Amid widespread inflation hovering at approximately 10%, along with a steep ascent in food and energy costs, and wages remaining stagnant, financial analysts began to suspect that the 50-30-20 rule might no longer be as workable for the majority of households.
This is because, in the present circumstances, the 50-30-20 principle is proving impractical for most families. Nearly 4 out of 10 families find themselves unable to set aside any savings, and the prevailing ratios people are adopting fall within the range of 60-30-10 to 70-20-10.
Introducing a fresh financial approach: The 70-20-10 Rule
The 50-30-20 budget guideline has always served as more of a compass—a target to strive for—rather than an unyielding dictate. Nevertheless, if adhering to it feels considerably out of reach, it can be disheartening, potentially leading to the abandonment of saving efforts altogether.
This is why we find the notion of the 70-20-10 rule particularly appealing for managing your finances. Allocating around 70% of your net income toward necessities, designating about 20% for discretionary desires, and committing merely 10% to savings, presents a more achievable set of objectives in the current scenario.
The objective is to maximize the utility of our funds to the fullest extent possible. Although no enchanting solution exists, we can each delve into our budgets, comprehending where our finances are being directed, and seek opportunities to economize and reduce expenditures.
Certain financial experts contend that even if substantial savings are unfeasible, adopting a more conscious approach to spending can yield psychological benefits. Grasping the scope of one’s resources and their designated purposes can mitigate the stress associated with navigating through this period.
Embrace your (digital) Jars!
An invaluable suggestion we stand firmly behind is the utilization of HyperJar for budgeting. Streamlining your pursuit of financial objectives becomes remarkably straightforward when you partition your funds into digital Jars and subsequently expend directly from them.
Allocate 70% – Needs
Foster the creation of Jars designated for essential expenditures such as rent, utilities, groceries, vehicle costs, insurance, and more. These Jars should ideally receive around 70% of your after-tax earnings. It’s important to acknowledge that if your necessities exceed this threshold, consider it as a guiding principle rather than a rigid rule.
Allocate 20% – Wants
Embrace the more enjoyable aspects of life. Think vacations, festive celebrations, discretionary spending, takeout meals, cinema outings, and the like. Allocate approximately 20% of your income to these ventures.
Allocate 10% – Savings
Aspire to establish a Jar devoted to unforeseen circumstances or emergencies, along with a dedicated savings Jar, collectively amounting to 10% of your overall funds. Remember, these percentages serve as aspirational targets rather than fixed benchmarks.
Establish connections across all your Jars
Once your Jars have been adequately funded, the next step is to establish linkages between them and various stores. This way, when you make purchases at establishments like Tesco or Walmart, the corresponding expenses will be deducted from the appropriate Jar, such as your groceries Jar, in an automated fashion. To initiate this linkage process, navigate to the shops section, locate the desired store, select the ‘link’ option, and designate a Jar for the connection.
After several weeks of conducting transactions using your Jars, you’ll gain valuable insights into a realistic breakdown of your spending and saving patterns. Whether adhering to the 70-20-10 principle or opting for an alternative savings strategy, you’ll be well on your journey toward a more financially secure — and even emotionally fulfilling (!) — future.