The 10-10-10-70 Budgeting Principle
By Colette Machado
Although budgeting is a relatively easy and simple way of managing your money, many people still don’t do it. Why do you think that is?
Is it because they don’t know what budgeting is? Or maybe because they think they don’t need to do it? Or maybe they don’t know how to do it?
In its simplest form, budgeting is the process of creating a plan for spending your money. This spending plan is called a budget. Creating one allows you to see, in advance, whether you will have enough money to do the things you need or want to do. Budgeting is simply balancing your expenses with your income.
How To Create A Budget
There are several different ways to go about creating a budget but one of the easiest formulas is the 10-10-10-70 principle. This principle consists of allocating 10% of your monthly income to each of the following categories: emergency fund, long-term savings, and giving. The remaining 70% is for your living expenses.
- 10% – Long Term Savings – Saving for big expenses such as university, new home, retirement, etc.
- 10% – Short Term Savings – Saving for a holiday, or for an emergency fund to handle unexpected expenses
- 10% – Charity – Helping others and making the world a better place through some form of giving.
- 70% – Living Expenses – Bills, food, daily travel, etc.
You Can Do It
The biggest challenge for many people interested in the 10-10-10-70 principle is that they might have to reduce their living expenses. This can seem difficult when you don’t have a lot of money (or any money) left over at the end of the month.
But it is achievable. Making some adjustments, such as spending more wisely on food, household items, clothes, bills, etc, will free up money which can then go towards building up an emergency fund, long-term savings, and giving.
However, in order to achieve this, you will need to have the right mindset. Setting goals will be a big help. Knowing what you are saving for, as well as why, will help motivate you to keep working towards building up your savings pot.
Small Savings Add Up
Think about it, nearly everyone spends £1 – £5 per day on unnecessary items. That adds up to £30 – £150 per month spent on things you don’t need: sweets that add to your waist size, a shirt that you wear only once, an adorable little trinket that sits on your desk for a week then spends the rest of its life inside a drawer… Does this sound familiar?
If instead, you had saved that money
, at the end of the year , you could have an extra £360 – £1800 to put toward your short-term and long-term savings goals.
Write It Down
It’s a good idea to keep your budget in a notebook (not on a scrap piece of paper which can easily get lost in the deluge of papers on your desk). Keep relevant notes that will help you along the way as you work towards the 10-10-10-70 principle.
Write down your goals, steps you need to take, timeframes, and any other notes that will help you achieve what you have set out to do. Make sure what you have written is clear and has structure ie. columns or a table, so that you can use it to chart or track your progress daily (or weekly or bi-weekly if this suits you better).
Having the right mindset and making a plan is essential – but if you don’t take action towards achieving the 10-10-10-70 principle, you will not get there!
Finally, if you are reading this and thinking that this principle sounds great but your living expenses go well over the 70 part of the 10-10-10-70 principle, and you can’t see yourself being able to achieve the 10-10-10 part of it don’t worry.
The key is to start where you are and work toward your goal. Maybe for the next 6 months, or even longer, you can only achieve 5-5-5-85 don’t worry. This is a good starting point. However, if you are working towards the 10-10-10-70 principle, gradually you will start to make wiser lifestyle decisions ranging from reducing your food shopping bill, eating out less, resisting the urge to buy clothes that you don’t need, reducing your energy bills – and much more.
The most important thing of all is to get started – and if you do, it won’t be long before the 10-10-10-70 principle will become a way of life for you. You will have built up a nice amount of money in your emergency fund, have started a long-term savings plan, have money set aside for giving – AND you will be managing your income alongside your expenditures better than you have ever done before!
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