When it comes to your personal finance, it's important to have a budgeting strategy that works for you and where you are at in life. One approach that’s got lots of attention on TikTok recently is the 70-20-10 rule. So what is it and is it right for you? Loqbox takes a closer look.

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The 70-20-10 rule (sometimes written as the 70 20 10 or 70/20/10 rule) offers a simple but effective structure for you allocate your money into pots so that you can achieve your financial goals. In this blog, we'll delve into the 70-20-10 concept, explore how it can benefit your finances, and show you how to use it effectively.

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Why use the 70-20-10 budget rule?

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Trying to save too much, too quickly can be hard to sustain and can often lead to you just giving up. Whatever your personal financial goal — whether you’re saving for a large purchase, putting money aside for a deposit on a house, or you’re thinking about investing — a budgeting rule will help you manage your money realistically and stick to your plans.

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There are lots of ways to approach your money goals. You can read about some alternative budgeting rules here. With the 70-20-10 rule, finances are considered through a contemporary lens, where inflation and the cost of living are higher and saving power is lower. If you’re feeling those financial strains the 70-20-10 concept could be right for you.

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The other great thing about the 70-20-10 rule budget is that it’s really flexible. It works in percentages, so it makes sense regardless of your income. In fact, it’s a budget that even stays relevant as your income grows (or if it was to unfortunately drop). It just gives you a simple and easy guide to follow.

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It’s important to find a system or budgeting rule that’s right for you, because the most crucial part of achieving a financial goal is sticking with your plan and not giving up. 

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The 50/20/30 rule, for example, is great in less financially turbulent times. But when things are tougher you should be realistic and give yourself a chance to succeed.

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How to use the 70-20-10 budget calculator

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It’s really simple. Work out your income - money that comes in from anybody in your budget (including partners and spouses). Establish outgoings - grab bank statements and bills to see what you’re paying out each month.

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 Using the 70-20-10 rule, money from your income is divided into three percentage chunks: 

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• Needs
  
  
• Wants, and
  
  
• Goals

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70% for Needs

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The majority of your income, around 70%, should be allocated for your needs. Essential stuff like rent or mortgage payments, food, utility bills, commuting, and other necessities. This chunk covers your day-to-day living expenses and provides you with financial stability. It’s a big chunk, but that reflects the current rise in the cost of living.

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Remember, if you’re paying rent every month (either to a landlord, letting agent, local council, or friend) you can use those outgoings to grow your credit score by getting started with Loqbox Rent. 

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We can help you by reporting your regular rent payments to Experian, meaning you can grow your credit history and boost your financial situation. If buying your own home one day is on your horizon, it's a great piece of evidence to show a future mortgage lender. 

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20% for Wants

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Set aside 20% of your income for your wants. These are the things like nights out, entertainment, clothes, and beauty treatments. Just because you’re working towards a financial goal doesn’t mean that you have to cut all the joy out of your life.

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You can also use this 20% for savings if the 70% chunk above is big enough to cover your wants as well. That will totally depend on your financial situation and how much you like to treat yourself! Be realistic, but if you can afford to put this money aside then you can use it to save for even bigger ‘wants’ in the future (like holidays or a deposit on a house).

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10% for Goals

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The remaining 10% should be dedicated to investing in your future. That can be paying off debts, saving towards a goal or literally investing your money in stocks and shares. Choosing which goals are right for you will depend on your circumstances, but here are a few good options:

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If you have outstanding debts, it’s a good idea to pay them off first. The interest that you pay on debts will normally be far greater than the interest you earn on savings, so by clearing your debts you give your saving power a boost for your new goals. 

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Once your debts are in order, a good place to start is creating an emergency fund. This is a pot of money that acts as a fallback if life throws you a curveball. Generally emergency funds are between three to six months’ worth of your income, but even saving up £1,000 will set a realistic goal to get you started.

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With Loqbox Save, not only can you save towards your financial goals, but you can grow your credit score at the same time. Just let us know how much you want to save for a year (between £20-£200 a month) and we’ll report your monthly payments to the main three credit reference agencies in the UK: Experian, Equifax, and TransUnion. That helps to boost your credit score.

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Improvements to your credit score are not guaranteed.

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After you’re at a good point with clearing debts and have an emergency buffer saved, investing can be a great way to make your money work for you. Of course, there is always a risk involved and you could end up with less than you started with. But if you have the money available, and at least ten years to let it grow, there are plenty of ways to build an investment portfolio and potentially grow a nest egg.

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How to make the 70-20-10 rule work for your finances

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When you’ve identified your regular outgoings you might find that they don’t fit into the 70-20-10 concept at first. That’s OK. 

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Use the budget to work out where you can reduce unnecessary expenses and prioritise essential needs. Be honest about how much value you get from the things you’re paying for. Could any disappear without you really noticing?

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It may be possible to reduce your expenses by contacting your utility providers and negotiating better prices, especially if you’ve looked at price comparison websites and seen better deals (if you’re going to do this, take a screenshot to help show evidence). Remember, many of these companies will offer the best deals to new customers — so it really can pay to switch. The Snoop app is brilliant for scanning the best deals for you.

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Another great idea is to automate your budget using Direct Debits. Set them up so that your payments go out on pay day so that your money is all where it should be before you can be tempted to do anything else with it. This is known as “paying yourself first”. That means prioritising your financial goals above everything else.

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So, is the 70-20-10 rule right for you

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The 70-20-10 rule is a great way to manage your money and build a solid financial foundation. By allocating 70% for what you need, 20% for what you want (either immediate luxuries or future savings goals), and 10% for your goals (like paying off debts and saving or investing in your future), you can work towards a greater sense of financial wellbeing. 

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Remember, the 70-20-10 budget isn’t set in stone. You can tailor the budget to suit your needs. If 60% covers your essential outgoings maybe increase your ‘goals’ chunk to 20% and hit your target sooner. The most important thing is to stick to your plan and be patient so make sure it’s realistic and manageable so you don’t lose your motivation.