Are you trying to get a handle on your finances but don’t know where to start? Trying to figure out budgeting, saving, and investing can be overwhelming. Have you heard of the 70 rule of money? The 70 Rule is a popular financial concept that helps optimize your spending. It suggests that you save at least 70 percent of your monthly income for big purchases or investments. The goal is to ensure long-term financial stability against unexpected hardships or emergencies while leaving enough cash flow for day-to-day activities like groceries and other expenses.
What is the 70 Rule?
The 70 rule of money (or what some people refer to as “salary” savings) is based on the idea that if you spend 70 percent of your income on things you want and need, then you can save 10 percent for big purchases like a home, car or an education. If you can save 20 percent of your income, you can use that excess cash to invest and build wealth. This concept is straightforward. It encourages you to spend wisely by focusing on what is important today. It also lets you know that if you can cut back on spending, you have room to save for the future.
How Does It Work?
First, add up all of your household expenses for a month. This includes all the money you put into your checking account, credit card debt, food, gas, and utilities. You need to be very careful when putting together this list because it can be very confusing. This doesn’t mean you always buy everything at the cheapest place possible.
Next, add up all of your monthly income: income from a job, investment income, and any other sources of cash such as retirement savings and Social Security. The result should be your total monthly income. If it is over $3,000 per month, consider using the 70 rule to help make budgeting easier.
The next step is determining what percentage of your income can go toward expenses and what percentage should be set aside for saving each month. The general formula is 70 percent expenses – 10 percent debt repayment – 20 percent saving and investing.
Start with your expenses. Your monthly expenses should include everything you spend money on each month. Of course, this will vary depending on where you live, who is in your family, and what activities you enjoy each month. Focus on the big expense categories like housing, food, transportation, and utilities. These are typically the biggest expense areas in any budget. By focusing on these categories first, you will be able to reduce your expenses faster than trying to cut back on every single item you buy throughout the month.
Now figure out how much you need to pay each month toward your debt. This includes all your outstanding credit cards, student loans, and other debts impacting your financial picture. If you cannot pay this amount, you will have to take extra steps to get it paid off within a short period or find a way to reduce the amount you owe. Once your debts are paid off, don’t forget to add them to the budget on your next paycheck.
The final step is to calculate your monthly savings percentage. You will use this amount for saving and investing each month. This can be a great way to create a solid foundation for your financial future. By setting aside 20 percent of your monthly income, you will have money to put away in case of emergencies or unexpected expenses. Using this money to invest in stocks, bonds, or real estate is also a good idea.
The 70 Rule of Money is a simple concept that encourages individuals to save at least 70 percent of their monthly income. This means that you should put away at least 70 cents for future expenses or investments out of every dollar you earn. The remaining 30 percent can be used for day-to-day expenses like groceries, bills, and other necessities.
The idea behind the 70 Rule is that it helps you build a financial cushion for unexpected expenses or emergencies. It also encourages you to save for long-term goals like retirement, college tuition, or a down payment on a house.
The 70 Rule is not a one-size-fits-all solution and should be tailored to your individual needs and goals. For example, if you’re trying to pay off debt quickly, you may want to save more than 70 percent of your monthly income. On the other hand, if you’re trying to build an emergency fund, you may want to save less than 70 percent.
Ultimately, the 70 Rule is a great way to start your financial journey and ensure that you set yourself up for long-term success. It encourages you to save for the future while still allowing you to enjoy life in the present.
It’s important to remember that the 70 Rule is just a guideline and not a hard and fast rule. Everyone’s financial situation is different, so it’s important to adjust the 70 Rule to fit your individual needs and goals. For example, if you have high-interest debt that you want to pay off quickly, you may want to save more than 70 percent of your monthly income.
In summary, the 70 Rule of Money is a popular financial concept that suggests individuals should save at least 70 percent of their income each month for big purchases or investments. This helps ensure long-term financial stability while allowing enough cash flow for day-to-day activities. The 70 Rule is not a one-size-fits-all solution and should be adjusted to fit your individual needs and goals.