How to Use the 10-10-80 Rule to Manage Your Money

November 24, 2021

Let’s be honest, talking about money can feel a little… uncomfortable. But taking control of your finances doesn't have to be intimidating. If you’re staring at your bank account and feeling completely lost, the 10-10-80 rule might be exactly what you need. It’s a fantastic budgeting method that’s surprisingly simple to understand and implement, helping you make smarter decisions about where your money goes.

What is the 10-10-80 Rule?

The 10-10-80 rule is built around a straightforward percentage breakdown of your income:

10% - Needs: This is the bedrock of your budget. It covers essential expenses – things you absolutely need to survive and function. This includes:
- Rent or Mortgage
- Utilities (electricity, water, gas)
- Groceries
- Transportation (car payments, gas, public transport)
- Minimum debt payments (credit cards, loans)
- Health insurance
10% - Wants: This is where things get a little more flexible. These are the things you desire, but aren’t strictly necessary. Think about:
- Entertainment (streaming services, concerts, movies)
- Dining out
- Hobbies
- Non-essential clothing
- Small purchases
80% - Savings & Investments: This is the magic part. Allocating 80% of your income to savings and investments is fantastic for building wealth and securing your financial future. This should include:
- Emergency fund (aim for 3-6 months of living expenses)
- Retirement savings (401k, IRA)
- Investment accounts (stocks, bonds, ETFs)
- Down payment savings (for a house, car, etc.)

Why Does This Work?

The beauty of the 10-10-80 rule lies in its balance. It’s a powerful reminder to prioritize your future while still allowing for some enjoyment in the present. Here’s why it’s so effective:

Prioritization: It forces you to think critically about where your money is going.
Savings Momentum: The large allocation to savings and investments makes it easier to build momentum and achieve your financial goals.
Flexibility: While the percentages are guidelines, you can adjust them slightly based on your individual circumstances.

Getting Started with the 10-10-80 Rule

Calculate Your Income: Determine your after-tax income.
Apply the Percentages: Multiply your income by 0.10, 0.10, and 0.80 to determine the dollar amounts for each category.
Track Your Spending: Use a budgeting app, spreadsheet, or even a notebook to track your expenses and ensure you’re sticking to your allocations.
Review and Adjust: Regularly review your budget (at least monthly) and make adjustments as needed. Life happens, and your priorities might change.

Don’t be afraid to start small! The 10-10-80 rule is a tool to help you take control of your finances. With a little discipline and consistent tracking, you'll be well on your way to achieving your financial dreams.