The 70/30 Rule

The 70/30 Rule

This is something I incorporated into our budgeting plan over 36 years ago when Elaine and I first got married.

The ABCs of investing is a derivative of the 70/30 Rule.  Together, they answer the question, “How do I get started?”

The mistake most people make is assuming they must be out of debt before they start investing.  In doing so, they miss out on the number one key to success in investing:  TIME.

(See Time, Return Resources)

The 70/30 Rule is simple:  Live on 70% of your income, save 20%, and give 10% to your Church, or favorite charity.

This has many benefits in addition to saving 20% of your income. 

Let’s say you are a two-income family – both making $60,000 per year, or $120,000 household income; but you’re only spending 70% of that, or $84,000.

If your A-Bucket has 3-6 months of living expenses ($30,000 - $50,000) + 5%, or $500 per month, you can ride the storm of a job loss by one of the two earners for over a year.

$60,000 income plus $30,000 in savings will more than cover your $84 000 living expenses for the year.  That’s called peace of mind! 

And if your B-Bucket has 1 to 2 years’ income ($120,000+), + 5% or $500 per month, you could make it another 3-5 years.  That’s called financial security!

But the real benefit is your C-Bucket.  Assuming household income of $120,000, you will need $3,000,000 in your C-Bucket to retire (See 25 Times Income – 4 X 8 Rule)

Using my website:, Calculator/Savings and Accumulation

Assume you start putting 10% of your income, or $12,000 per year in a 401K or IRA at age 22, the year you finish college, or the year you pass your journeyman’s exam as a plumber or electrician.  You work until you’re 67 and achieve an average growth rate of 8%, your C-Bucket will be worth $4,638,067 (See attached report).

Applying the 4 x 8 rule, or a 4% income distribution (See 25 Times Income – 4 x 8 Rule), 4% of $4,638,067 = $185,522 in Retirement income.

That’s almost magic, and it’s how most people achieve financial independence.  It’s not the “hot stock tip,” or always being the #1 funds.  It’s consistent savings with average returns over time.  It’s the tortoise that wins the race! (See Time, Resources, Return) And, you did it while giving 10% to your Church or favorite charity.

All examples/projections are hypothetical and do not take in consideration the effects of taxation and are for illustrative purposes only.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.