Managing your money can feel like a juggling act, but the 70/20/10 rule offers a simple framework to bring clarity to your finances. This rule has gained popularity as a straightforward way to budget, save, and pay off debt. Here’s how it works, its origin, and how you can apply it in Aotearoa.
What is the 70/20/10 Rule?
The 70/20/10 rule is a budgeting guideline that suggests allocating your income as follows:
- 70% for living expenses (e.g., rent or mortgage, groceries, transport).
- 20% for savings and investments.
- 10% for debt repayment or donations.
Though its origins aren’t attributed to a single person, financial experts often recommend this method because of its simplicity and flexibility.
How Does It Work in New Zealand?
For Kiwis, the rule can be adapted to fit the unique cost-of-living pressures we face. For instance, with higher housing costs in cities like Auckland and Wellington, you may need to tweak the percentages to reflect your reality. You may also need to consider your individual situation—whether you’re saving for a first home, paying down a student loan, or building an emergency fund.
Let’s break it down with an example:
If your take-home pay is $1,000 per week:
- 70% ($700) goes towards essentials like rent, power bills, and food.
- 20% ($200) goes to savings.
- 10% ($100) goes to either reducing debt or donating to causes you care about.
Is It for Everyone?
Not everyone can stick to this rule strictly. For some, 70% for essentials may be unrealistic if you’re living paycheck to paycheck. The key is to focus on the principle behind the rule—consistent allocation—and start with smaller amounts. Even saving $20 per week builds habits that compound over time.
Alternative Savings Rules
The 50/30/20 Rule:
This popular guideline allocates 50% to needs, 30% to wants, and 20% to savings. It’s more lenient on discretionary spending, which can appeal to those who want to balance financial goals with lifestyle choices.
The $27.40 Rule:
This rule encourages saving $27.40 daily, adding up to $10,000 over a year. While ambitious, it’s useful for those with specific high-priority goals, like a wedding or overseas travel.
Try It Yourself
1. Calculate 20% of Your Wages:
Multiply your take-home pay by 0.2. For example, if you earn $800 weekly, your savings goal is $160 per week.
2. Use Goal-Based Savings:
Savings Sheds in Debut allow you to save up for specific goals. Keep a list of all of the things you’re saving for—perhaps a summer holiday, a new bike, or an emergency fund—and focus on 2-3 goals at a time.
3. Set Up Automatic Payments:
Schedule payments to transfer 20% of your income directly into a Savings Shed after payday. To grow your savings faster, turn on Rounding, so small amounts are added to your shed with every purchase. You can choose how much you want to round up to in the Debut app.
Bonus Tip: What else can you do with that 10%
If you’re debt-free, allocate 10% to discretionary spending. For an $800 weekly net pay, that’s $80. You can also contribute this to a Savings Shed for nice-to-have extras, only spending it when it’s available.
The Key is Consistency
The most important aspect of any savings plan is sticking to it. Whether you’re using the 70/20/10 rule, 50/30/20 rule, or saving $10 a week, the habit matters more than the amount. If you’re already using Debut, built-in tools like budgeting and goal tracking can help you build and maintain momentum.
In the end, the best rule is one that works for you. Take a practical, flexible approach, and watch your financial confidence grow. For more tips on saving smarter, check out our guide to saving more with Debut.
By adapting these principles to your circumstances, you’ll find a money-management strategy that’s not only realistic but also empowering. Let’s make saving simple and achievable—together.
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The information in this article is intended for general purposes only and does not constitute financial advice. Everyone’s financial situation is unique, so it’s important to consider your own circumstances and seek advice from a qualified financial professional if needed.
