woman budgeting at desk

A complete guide to effective budgeting, using the 70/30 money method

Posted by for Money

Looking for a simple but effective method to help you get your finances back on track? The 70/30 technique might be the perfect option.

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Budgeting can be a struggle. Whether you’re using an app or carefully tracking what you spend on a spreadsheet, it can be hard to stick to goals and save and invest as much as you’d like. This feels especially true post-lockdown. As our spending habits changed dramatically with the closures of restaurants and non-essential shops, many of us have forgotten how to manage our finances now our social lives are back on track.

Therefore, having a simple plan in place to help you save and budget effectively can be really useful. Although there are many sophisticated money-saving methods, sometimes stripping it back and using straightforward techniques is the best way to help your goals feel manageable.

This is where the 70/30 technique comes in. It’s a budgeting plan which divides your monthly spends and savings up, using the same percentage split each month. If you’re interested in investing, you can also incorporate this into your 70/30 plan.

Here, Kia Commodore, the founder of the financial literary platform Pennies To Pounds, breaks down the 70/30 method for beginners, including how you can tailor it to your budget and lifestyle.

What is the 70/30 method?

“The 70/30 method is a budgeting technique to help you allocate your money,” Kia says. Put simply, each month, 70% of the money that you earn will be your spending money, including essentials like bills and rent as well as luxuries, and 30% of the money you earn will go towards your savings.

“70/30 is the standard split but you can absolutely adjust that to suit your budget,” Kia says. “The key thing is that you have set yourself specific numbers that will help you meet a savings goal by sticking to a budget.”

If you’re currently investing, or interested in doing so, you can split your incomings into 70% on spends, 20% on savings and 10% on investing, according to Kia.

How can I use the 70/30 method?

Before you start using the 70/30 method, Kia recommends creating savings goals. These might be yearly savings goals or they might be for something specific, like a mortgage. Make a note of how much you want to save and calculate how much of your income you need to save each month to reach that goal. If this is over 30%, you need to work out if this is feasible for you. If it’s under 30%, you can either increase the amount you spend, save some extra money (maybe in a different account for a different goal) or start to invest that money.

You also need to figure out how much you’re spending each month already, according to Kia. “If you’re spending significantly more than 70% of your income each month, it might not be realistic to set this as a goal straight away,” she says. To start, go through your finances and see if there is anything you can cut out, like subscriptions, frequent coffees or luxury purchases, to help you set a lower budget. “If you realise you’re consistently spending 85%, maybe set your goal as 80% to start,” Kia says, adding, “It’s really important to be realistic.”

Once you have worked out what your percentage split will be, you can start to put your budget into place. If you get paid at the same time every month, Kia recommends putting the money you want to save into a savings account as soon as you get it. Then, you can plan how you’d like to spend the remaining money, maybe splitting that up into smaller percentages so you can set yourself goals for different categories, like shopping and eating out. You can do this using an app or spreadsheet.

If you don’t get paid at the same time every month, you could either split each payment you get by your percentages. You could put 30% of the money you’ve been paid into savings every time you’re paid, for example. Or, you can calculate how much you made at the end of the month and put the percentage you have planned to save into a savings account at the same time each month. Kia says that either method will work fine so it’s best to choose one that appeals to you most.

Who will the 70/30 method work best for?

“This technique works best for people who are salaried or have consistent incomes each month,” Kia says. This is because, ideally, to use the 70/30 method, you need to know that these numbers will work for you each month, or at least for that specific month. The reason this method works is because it allows you to set clear, simple goals but this might not be achievable if you don’t have a consistent income.

If you have an inconsistent income, you could change the percentages you spend and save each month to fit your needs. However, Kia adds: “This method doesn’t always work well for families or people whose spending varies significantly each month because it can be hard to stick to strict budgets in this case.”

How can I stick to the 70/30 method?

“It’s important to review your budget month to month,” Kia says. If you have been consistently meeting your spending and savings goals each month, you’re in a good position to continue with them or maybe even make them more ambitious. But if you find that you’re spending more than you expected, consider adjusting your budget to make it more realistic for you.

If you do need to spend more than you anticipated one month, Kia suggests using money from your savings rather than relying on credit to do so. “Credit is a great tool when used effectively but if you have liquid cash to lean on, always use that,” she says. Just make sure you’re keeping track of how much you’re removing from your savings and making a note of what your percentage split ended up being each month.

The 70/30 method is a tool you can use long-term if you’re looking to consistently save money. You can also use it for a shorter period if you have a specific savings goal you want to meet within a period of time. The simplicity of it means you can pick it up whenever you feel it’s going to be most effective for you.

Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.

You can find more expert-led guides and tutorials on The Curiosity Academy’s Instagram page.

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Images: Kia Commodore, Getty

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