Budgeting for the essentials and the fun stuff isn’t always easy. The 70:20:10 rule is one budgeting method that has gained popularity in recent times due to its simplicity. Here’s how it works.
How the 70:20:10 budget rule works
The 70:20:10 rules works by allocating percentages of your money into three categories. The biggest chunk, 70%, goes towards living expenses while 20% goes towards repaying any debt, or to savings if all your debt is covered. The remaining 10% is your ‘fun bucket’, money set aside for the things you want after your essentials, debt and savings goals are taken care of.
Splitting your income into these set categories can help you control your daily spending, keep on top of your debt and empower you to build your savings. Using another budgeting technique known as bucketing, where your funds are physicially separated into different accounts with a defined purpose, can also compliment the 70:20:10 rule by helping help you keep track of where you may be overspending.
How to ‘bucket’ your money
Bucketing your money and the 70:20:10 rule are complimentary budgeting techniques that both involve splitting your money for set purposes. As most bank accounts today provide easy online access to view your balance and your transaction history, using your bank accounts for bucketing can help.
Once you’ve chosen your bank and your buckets are set-up, it’s time to fill them! Setting up a recurring transfer from the account where your income is paid to regularly top-up each of your separate buckets is an easy way to put the rule into action. Setting this up in online banking means you may be less likely to forget to move the money manually each pay cycle. This ensures the money is set aside in your buckets before you have a chance to access it.
Bucketing with the Everyday Options Account
Suncorp’s Everyday Options Account has been designed with bucketing in mind. It also ticks the boxes when it comes to fees and flexibility. Here’s why:
With the Everyday Options Account, you’ll get a main account which is your day-to-day transaction account with debit card access1 for withdrawing cash and making purchases on the go. Under the 70:20:10 rule this account could work well as the ‘essentials (or 70%) bucket’ where you get your regular pay deposited.
You can then choose to add up to 9 sub-accounts2. Sub-accounts allow you to pay bills directly via BPAY, direct debit or recurring transfer. They can work well for the ‘Debt’ and ‘Fun’ buckets in the 70:20:10 rule. You can transfer funds freely between your main account and sub-accounts at no additional cost so setting up transfers for the 20% and 10% each payday can be done easily. Once you have your regular income going into your buckets, you can also set up your regular bills to be paid directly from the right bucket. There is no card access with sub-accounts but if you do need a card for your ‘Fun’ bucket purchase you can easily transfer that amount back to your main account. This exta step of transferring money can help with reducing spontaneous purchases.
Additionally, the Everyday Options main and sub-accounts have no monthly account keeping fees, no transaction fees and 0% foreign currency conversion fees3 on Visa Debit card purchases made from your main account. Less fees mean more of your money for you.
Make the 70:20:10 your rule
The great thing about following the 70:20:10 rule is that it’s simple. Three categories. Split your money between them. Job done. Yet the financial power it could bring you is huge. You gain greater visibility of your finances and can build a healthy savings account, while getting your debts paid off and your bills under control.
The Everyday Options Account makes bucketing your accounts easy.Find out more about all our everyday accounts today.
Discover Suncorp’s Everyday Accounts
Related links and products
This information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read therelevantbefore making any decisions about whether to acquire a product.
Deposit products issued by Suncorp-Metway Ltd ABN 66 010 831 722 (“Suncorp Bank”). Terms and fees apply. Read the relevant before making any decisions about this product. Any advice does not take into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.
FAQs
Why is compound interest important? Compound interest causes your wealth to grow faster. It makes a sum of money grow at a faster rate than simple interest because you will earn returns on the money you invest, as well as on returns at the end of every compounding period.
What is compound interest in simple words? ›
Compound interest is interest that applies not only to the initial principal of an investment or a loan, but also to the accumulated interest from previous periods. In other words, compound interest involves earning, or owing, interest on your interest.
What is compound interest and how can you benefit from it? ›
Compound interest is the interest on earned on your interest. This means that you earn a percentage on top of both what you put in as well as the interest you earn on that amount.
Which answer best describes compound interest? ›
Answer and Explanation:
Compound interest is the interest earned on the already earned interest amount whereas simple interest is the interest earned on the principal amount. Due to the compounding effect, the initial principal investment grows at a faster rate as compared to the growth achieved by simple interest.
What is the better explanation of compound interest? ›
Compound interest is when you add the earned interest back into your principal balance, which then earns you even more interest, compounding your returns. Let's say you have $1000 in a savings account that earns 5% in annual interest. In year one, you'd earn $50, giving you a new balance of $1050.
Is compound interest always the better option explain your answer? ›
It depends on whether you're saving or borrowing. Compound interest is better for you if you're saving money in a bank account or being repaid for a loan. If you're borrowing money, you'll pay less over time with simple interest. Simple interest really is simple to calculate.
What is compounding and why is it important to investing? ›
Compounding is a powerful investing concept that involves earning returns on both your original investment and on returns you received previously. For compounding to work, you need to reinvest your returns back into your account. For example, you invest $1,000 and earn a 6% rate of return.
Is it better to compound interest? ›
However, if you're saving or investing, compound interest will increase the amount by which your money grows annually as every year there is a larger sum to earn that interest. This is the total amount you need to maintain your desired retirement lifestyle.
How can compound interest help and hurt you? ›
The bulk of your retirement funds can be grown through compounding. Pay down debt aggressively. Compound interest works against you when you borrow money, whether that's via student loans, credit cards or other forms of borrowing. The faster you can pay those down, the less you'll owe over time.
How is compound interest used in real life? ›
Compound interest is widely used in various financial products and investments, such as savings accounts, bonds, loans, mortgages, and investment portfolios. Understanding compound interest is crucial for making informed financial decisions and planning for the future.
Compound interest can help grow your funds year over year through accumulative interest. For example, if you earn 5% yearly interest on $1,000, you'll earn just over $276 over the course of five years.
How can compounding interest hurt you financially? ›
A familiar example of compounding interest for many people is its negative impact on your debt, like unpaid credit card balances. When unpaid interest is added to the unpaid principal, you create a larger total for interest to compound.
Why is compound interest good for long term? ›
Compound interest refers to the interest that's calculated on your principal investment amount as well as the interest that's already been earned. This type of interest is beneficial for long-term investments, as it allows your money to grow at an accelerated rate compared to simple interest.
What are important things to know about compound interest? ›
Compound interest is what happens when the interest you earn on savings begins to earn interest on itself. As interest grows, it begins accumulating more rapidly and builds at an exponential pace. The potential effect on your savings can be dramatic.
What are the uses of compound interest in real life? ›
Compound interest is widely used in various financial products and investments, such as savings accounts, bonds, loans, mortgages, and investment portfolios. Understanding compound interest is crucial for making informed financial decisions and planning for the future.
