What Is 10-10-80 Budget?

by Steve Lander
Budgeting helps you plan where your money goes.

One of the keys to financial success is to stick to a budget that defines how you will spend your money. By doing this, you're more likely to spend what you intend to, rather than just spending on a willy-nilly basis. In the long term, this can help you spend less and save more. One model for budgeting is the 10-10-80 plan, which splits your take-home pay into three pieces.

80 Percent For Me

The largest chunk -- 80 percent -- of your money is used to pay your rent and car payments, make the minimum payments on your debts, buy food and clothing, and splurge on discretionary items. Of course, if you choose to spend less, you can apply the extra money to the other two parts of your budget instead.

10 For Thee

What you do with the next 10 percent varies based on which interpretation of the 10-10-80 budget you follow but, either way, someone else is going to get it. Some recommend applying the 10 percent to debt reduction. Others recommend using it for charitable giving. If you are saddled with heavy debt from student loans, one option is to use it for debt reduction and then shift that money over to charitable pursuits when you're out of debt.

10 For Me (Later)

Set 10 percent of the money you make aside for savings. The sooner you start saving, the more time your money will have to grow for you. For instance, if you choose to invest it in the stock market, at its historical growth rate of 9.8 percent before inflation, $2,400, which is 10 percent of a $24,000 annual salary, will have turned into $100,996 when you're ready to retire in about 40 years. On the other hand, if you're saving for something more near-term, you may choose a safer investment like bonds or bank accounts.

And Now for Something Completely Different...

While the numbers look different, the alternate 50/30/20 budget shares similarities with the 10-10-80 budget. In this budget, you spend 20 percent of your income on either savings or on debt reduction. Fifty percent of your take-home income goes for your needs and 30 percent goes for your wants. For the budget to work, you may have to allocate expenses between the two pools. For instance, if you have a $500 car payment but could really make do with a car that costs $300 per month, you might allocate $300 to the "need" pool and $200 to the "want" pool. The distinction between the 50 and 30 percent parts of this plan can be a useful way to think about how to use the 80 percent pool in the 10-10-80 budget model.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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