Create budget you can stick to using 70-20-10 rule

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As inflation stands at 10.5 percent, the steep increase in living costs is putting immense and growing pressure on the pockets of Britons. With record energy bills and food prices largely reducing households’ spending power, traditional methods of money-saving are being rendered increasingly obsolete as the months go on. However, one expert has a solution that could “really help” people get a handle on their spending and budgeting.

Financial expert and founder of HyperJar, Mat Megens suggests Britons may be able to manage the cost of living crisis better by adopting a 70:20:10 model of managing their finances instead of the typical 50:30:20 approach.

This would see households attribute 70 percent of their income to living expenses, 20 percent to non-essential and luxury spending, and 10 percent allocated to savings and debt repayments.

Just two years ago, inflation stood at 0.7 percent, with the average UK salary at £38,131 for a full-time role. However, according to findings from the Office of National Statistics (ONS), the average UK household’s disposable income was £32,300 at the end of the 2022 financial year, indicating a 0.6 percent drop from the financial year of 2021.

Most worryingly in the current cost of living crisis, the ONS reported that disposable income for the least well-off portion of the population decreased by 3.8 percent to £14,500 in the financial year of 2022, leaving many of those most financially vulnerable struggling to afford the basic necessities heading into 2023.

Mr Megens said: “The fall in disposable income has been met by a sharp rise in the cost of a weekly food shop, which now stands at between 12 to 18 percent more expensive compared to last year, according to price trackers from Which.

“As Britons have made sacrifices to compromise with rising expenditure, the spending power of the nation has weakened significantly, with outstanding payments on credit cards increasing by 10.1 percent.”

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But, in view of the increased costs of basic necessities coupled with falling incomes and growing personal debt, the 70:20:10 rule could help Britons “budget effectively” during this period of economic turbulence.

Mr Megens said: “The 70:20:10 rule can really help people get a handle on their spending and budget effectively, giving you a good understanding of where your money is going.

“The method splits your money into different categories – 70 percent for needs, 20 percent for wants, and 10 percent for savings.

“However, it still provides flexibility given that everyone has different financial obligations and goals.”

On a personal level, he noted: “It’s just about making sure we’re doing all we can to make our money go as far as possible.

“There is no magic wand, unfortunately. But we can all drill down into our budgets to understand where our money is going, to save and cut costs where we can.”

70:20:10 saving tip

  • 70: Allocate 70 percent for needs, including all essential payments each month, for example housing, transport, food, education, childcare, bills.
  • 20: Budget 20 percent for wants, including non-essential spending such as treats, gifts, meals out, social events.
  • 10: Keep 10 percent for savings and debt repayment, such as emergency funds, savings goals, and credit cards.

Mr Megens added: “Controlling the controllable is something everyone can do to get on the front foot. Nowadays, when paying is so frictionless, it’s easy to overspend because there’s less of a concrete connection with money.

“An understanding of what you have and where it needs to go will help make navigating this period less stressful.”

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