Chefette&Little Monthly Budgeting With the 70/20/10 Method
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One of the best methods for paying off debt FAST and getting a hold of your finances is to use the 70/20/10 monthly budgeting method. A simple Google search will reveal many different debt pay off methods, and they ALL have slightly different approaches and the best one is going to be the one that works the best for YOU. Unfortunately this typically isn’t a one size fits all situation and often takes using the method for a few months to see if it is going to be a good fit. Some prefer digital trackers or apps while some prefer to hand write but however you choose to track it the system that you follow needs to incorporate three main categories: living expenses (both fixed and variable), debt payoff, and savings. Enter in the 70/20/10 budgeting system. This system is a perfect beginner budgeting tool to fast track debt payoff, allow for savings-which will help to keep you out of further debt while accommodating living expenses and avoiding a scarcity mindset.
Being in debt can be incredibly overwhelming; current estimates suggest that 75% of working Americans are in debt, with the average American family carrying $104,215 in debt currently across student loans, cars, mortgages, and credit cards. If you are in this 75% chances are you’d like to jump off of this hamster wheel and enjoy some debt free living; the 70/20/10 budgeting method can help you achieve this!
To get started with this this budgeting method you will start by calculating your total take home pay (note: NOT your gross annual income divided by 12, you will actually need to calculate what you are bringing in income-wise monthly, if it varies you’ll want to calculate it for the lowest possible amount that it may be). After you calculate your total monthly take home pay calculate what 70% of this is-this is what you have each month to spend on your fixed and variable living expenses, 20% of your take home pay will go towards debt repayment and 10% will go towards savings. After calculating these amounts you will then determine what your fixed and variable expense categories are and how much you can/need to spend in each category. After that you will determine your minimum debt payments, if the 20% of your take home pay is more than the total of your minimum debt payments you can pick which debt will get the remaining amount which will accelerate your payoff time (make sure any extra payments are going towards your principal balance and not to interest). Lastly 10% of your take home pay will go straight to an emergency savings fund, which is ideally located in a high yield savings account. I have an example of a monthly budget template following the 70/20/10 method here:
This monthly budget is fully customizable in Canva, to access this click here.
A few key takeaways:
- This is a great monthly budgeting tool to prioritize paying off debt while still prioritizing building a savings nest egg so that you can be prepared for rainy days of the future. This will ensure that you don’t end up back in debt when life comes at you fast.
- Using this method can really help you make a plan for your money, rather than feeling as if you’re playing catch up and desperately waiting for your next paycheck to hit your accounts you will know exactly where your money is going each month.
- Set realistic numbers for yourself, if after reviewing your spending you note that you’ve been spending $800 per month on groceries, don’t set your budget for $500-you will be setting yourself up to fail.
- Keep it simple, I strongly recommend avoiding having too many budget categories as it can get super confusing and some categories can easily be lumped together.
This is just the beginning of this new budgeting series that I will be featuring on my blog. I will also be covering tracking expenses but also plan to have future posts about sinking funds, high yield savings accounts and why they’re so important, how to stay motivated when road blocks come up, and increasing income when your take home pay just isn’t going to cover life. Let me know in the comments below if you are enjoying using this budgeting template, if you have any questions about it and if there are other budgeting topics that you would like for me to cover!
