10, 20, 70: A plan to get out of debt and live more

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You’re in crushing debt, or haven’t figured out what could be a good amount to save. Do you save or pay down debt? You feel lost and dragged down by endless debt payments. You wonder, 'Where does your money go each month!?' You need a plan for your money, but the key is a mindset and habit shift and a plan.

You’ve used other debt plans before, but they didn’t work for you as well as claimed. Now you have something practical and will work as you work the plan. The 10-20-70 plan works for you and your finances, if you work the plan. You’ll have more money for yourself, less stress, and less debt. Continue working the plan, and you’ll be out of crushing debts like credit cards and student loans. You’ll have more life too. It is not the silver bullet, but it will help you change your habits and how you use your money.

If you haven’t used a plan for growing your savings, clearing debts, and living more, then it can feel haphazard and difficult to get ahead. Do this plan for 1 month, and you will already see it working for you. You’ll want to stick to it for more months. As your debt amount reduces and savings increase, you'll want to crush and remove bad debts.

A plan from 1000s of years ago in "Richest Man in Babylon", has been updated and modified to increase the effectiveness. The plan will help you immediately start building your own riches, reduce and eliminate your debts, and live your life. As I say, “You weren’t put on this Earth just to pay bills.” It requires for example, the habits of patience, living on less than you earn, allocation, budgeting, sticking to the plan, and the habit of 10%.

Have faith, it can and will work for you. Once it starts working for you, your faith in yourself will increase. As soon as you get paid next, your savings increase, and for some, for the first time, you see your own money starting to grow. You’ve gotten into a difficult financial situation. Now you can get out. Quickly and safely.

We have already highlighted that the habit of 10% is fundamental to starting you towards wealth. See the articles on the habit of saving and the habit of 10%. This is the first step. The next step is debt paydown with 20% of the income. Then, ensuring that your bills, needs, and wants are met by the remaining 70%. Work with us to get your budget reviewed and live on 70%. After the debts are paid down, then investing can be accelerated. You are already used to saving, living on less, and allocating.

Looking at your debts and lifestyle, think about these questions. Do you pay yourself first or last? Is any of your money your own? Who owns your money, and the time you need to earn your money? If you are living paycheck to paycheck or deep in debt, your money is not your own. You are earning and directing your money to your creditors or the people you owe. Your money and time are everyone else’s. Don't believe me? If you are deep in debt, your money and the time needed to earn your income are your credit card provider’s, your car financing company’s, or the student loan company's.

This plan is simple, effective, but can feel difficult applying it. Especially in the beginning, if you are used to living a certain way. For this plan to work, you must have a strong desire to crush bad debts. Do you want to be out of debt, and use your money for investment and growth? Then it starts with the 10%. Then 20% to pay off debts. Then live on 70%. The 10% is important to help you grow your reserves.

"Whatever your action is to be, it is evident that you must act NOW". (Wattles, 1910). I have used the plan myself. This is what I have done personally. You start with the mental shift and claim that your money is yours first. Here are some examples of the 10-20-70 allocation:

• 10% - The first 10% of your income is yours alone to keep. This is sacred money. It cannot be used for consumption. It is for:

  • Starter emergency fund of $1,000

  • 3- 6 months of living expenses for you and your family

• 20% - to the debts and liabilities you owe. Examples to use the 20% are on:

  • Credit cards, student loans, car loans, and buy now pay later payments

  • After the debts are cleared, the 20% can be used for investments that generate income or appreciate

  • Investing in yourself to increase your income

  • You can use the snowball or the avalanche methods to target which debt gets more than the minimum

• 70% - you must now live on 70% of what comes in. For a while, will require pretty significant lifestyle changes and habits such as the 'Habit of Waiting'. It is necessary to create a sufficient gap to pay for your debts. This is not a plan to live less indefinitely. This part of the plan helps you cut your debts and start having self-resiliency. Areas for example the 70% can cover:

  • Rent or mortgage

  • Your needs and wants

  • Utilities, bills, food, transport

  • A little fun like dates or going out, only if it fits in the 70%. Remember, you are crushing debts first.

The 70% of the plan is at the beginning about surviving, so that you can pay yourself first and pay debts down. Living on 70% by budgeting and allocating your income, is tough, especially with rising costs in the U.S. As you pay down debts, more of your income becomes your own. Your cash flows to you instead. The 20% later can be used to help fund your investments and investment in yourself. That allows you to expand your life.

There are some disadvantages to this plan. The main being that you have to live on 70% of your current income(s), while your debt is being reduced. You may need a side hustle while paying down your bad debts to help speed up the payments.

If you don’t have $1,000 in your emergency starter fund, you will immediately have allocated 10% of your income from the next paycheck. You can use the tool here to figure out how long it will take to reach your starter emergency fund with the 10% habit.

It is very important to have your starter Emergency Fund ($1,000, for example), and 3-6 months of living expenses (Baby Step 3). We recommend growing it steadily and safely, in a high-yield savings account (HYSA) for example, so that you can access it if needed.

If you have multiple streams of income, the 10% and 20% still apply. The original 20% in "The Richest Man in Babylon", highlighted to split the payments to the debts equally (Clayson, 1926). Whilst this is easy to do today by automating the debt payments, splitting the payments equally works when the interest rates are similar between the debts. You would be making similar impacts on the debt paydown. But in today’s world, where credit card debts can have a whopping 20-25% interest rate, debts are likely to require prioritization. You’ll be amazed how quickly your debts will start reducing. You will also have a growing sense of peace with the 10%. Let that grow in safety.

On paydays create an automatic transfer to a HYSA or other savings account, and a debts and liabilities account. The third being an account to live from like a checking account. There are a minimum of 3 accounts to make this plan work. You can have more, e.g., specific travel or saving for Roth IRAs, but 3 will be easy to help automate and allocate funds.

We take the bi-weekly or monthly income and calculate 10% and 20%. For example:

• Bi-weekly income = $3,000

• 10% to savings= $300 (i.e., 3,000*0.1). You can do 0.1 times of your bi-weekly or monthly income

• 20% to debts = $600 (i.e., 3,000*0.2). You can do 0.2 times of your bi-weekly or monthly income

• Live on $2,100 till the next paycheck comes in

Have an account where 20% of your income goes every time you get paid. Before you use your income, use the habit of allocation. Allocate the money to the 1) Savings; 2) Debts; and 3) Bills, needs, and wants. For example, have the money saved this month ready to pay for credit card bills and the student loan payments next month. Get ahead of your debts. Be ready to pay them off with the allocated money.

The point is not to spend your 10 % on either your living (bills, needs, or wants) or paying debts. The 10% is not for consumption. It gives you the edge, and you pay yourself first. The wealthy prioritize themselves before others. This is vital. Growth can only occur from a reserve.

To implement the plan, start with the 10%. It may seem small at first, but it is a key step in living on less than you make. Then live on 70%, after paying your 20% to your debts. Of course, you can save more if you want. If you are already able to invest 20% of your salary, then you can use it to buy assets and investments that keep adding to your income flow.

The plan works. It is effective at reducing the debts. Do it daily, weekly, and monthly. You can live a more abundant life without as much bad debt. Stick to the plan. After you are out of your debts (not your mortgage if you have one), then keep going with the plan. You will now live on 70%. Then the 20% goes to investments to create growth.

In summary, 10-20-70:

• 10% of your income is saved for you and your family

• 20% of your income to pay off bad debts.

• 70% of your income for the bills, needs, and wants

If you want to get yourself financially fit and out of the endless paycheck-to-paycheck cycle, reach out. We can work with you and the habits needed to build wealth and crush debt. This plan helps you improve your life. It has helped us to crush debt. We have used the plan ourselves. We love it!

To your success.