The 70-20-10 Rule Of Savings
The 70-20-10 rule comes from a little book called “The Richest Man In Babylon.” It is a method of dividing up your income that is used by many people.
70% of your monthly income should go to all of your living expenses. This is all of your bills, groceries, etc… or any other necessary expenses. This can also include some debt, like your mortgage payment, car loan and student loans, because with out these you wouldn’t have your own home, a means of transportation or potentially the job that is making you this income.
20% of your monthly income should go to paying off any bad debt that you have. This includes credit cards, personal loans or any unsecured debt that you have that is not making you any money.
10% of your monthly income should go to your savings. However you choose to keep your money, whether it is in a bank, in a safe at home, in your retirement plan, or in life insurance, you should be saving at least 10%, because you are worth at least that much.
The 70-30 Rule Of Savings
After you have been able to pay off all of your bad debt, then we recommend rolling up that 20% of your income that you were using to pay it off, into your savings. So now you have 30% of your income going to savings!
Why not just put that money into my living expenses? Do I really need to be saving that much? To put it simply, yes, you do! One of the biggest problem people face with their finances today, is the fact that they will run out of money during their retirement. People are simply just not saving enough. They put their trust in their retirement plans and social security, thinking they will have enough, but end up running out of money a lot faster then they would have expected. This means they now have to live off of a lot less in their retirement years.
Most people expect that they will be able to continue the same lifestyle that they are living while working, during their retirement. Most people want to be able to enjoy life in their older years and not have to worry about money. But with people living longer and longer these days, they need to save up a lot more money then they are currently, if they want to live that comfortable retired life.
Beyond the 70-30: If you get to a point in your life where you have got this 70-30 rule down, and you are able to increase the amount of money that you are making, you don’t have to increase your living expenses to match your new earnings. What we recommend is that you keep your living expenses the way they are and increasing your savings. Another option is to start or increase the amount that your are giving to others.
One principal we stand for here at Truth Based Wealth is in Proverbs 13:22, “A good person leaves an inheritance to his children’s children, but the wealth of the wicked is reserved for the righteous.” When it comes to being able to save a large portion of your income, you could have enough to be able to pass on to your children, loved ones, or charity. Also when putting your savings into Participating Whole Life Insurance, you have the opportunity to grow your savings to far beyond what you could have if you just put your money into a bank. As well as leaving a guaranteed death benefit behind as part of your legacy!
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