If you want to build real wealth, you need more than good intentions. You need clear, actionable money rules to guide your decisions, such as the 50/30/20 rule.
From budgeting to saving and investing, these time-tested frameworks help you make the most of every dollar.
In this article, we’ll explore five of the most effective money rules that can help you build and sustain wealth over time.
We’ll discuss:
- The 50/30/20, 70/20/10, 60/20/20, and 10/20/30/40 money rules for budget.
- Other timeless money rules for investors.
- The best money rules for you and what are the factors to consider in choosing.
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La información contenida en este artículo es meramente orientativa. No constituye asesoramiento financiero, jurídico o fiscal, ni una recomendación o solicitud de inversión. Algunos hechos pueden haber cambiado desde el momento de su redacción.
What Is the 50-30-20 Rule of Money?
En 50-30-20 rule is one of the most widely recommended personal finance frameworks for managing your income.
It’s a straightforward approach to budgeting that helps ensure you’re covering your essentials, enjoying life, and building your future all at the same time.
How does the 50/30/20 rule work?
- 50% for Needs: Half of your after-tax income should go toward essential gastos de manutención such as housing, utilities, groceries, transportation, and insurance.
- 30% for Wants: Allocate up to 30% for non-essentials like dining out, entertainment, travel, or luxury purchases—things that improve your lifestyle but aren’t necessary.
- 20% for Savings and Debt Repayment: This portion is earmarked for financial growth. Your contributions to savings accounts, investments, retirement funds, or paying down high-interest debt.
This rule is popular because of its simplicity and flexibility, making it ideal for people who want structure without being bogged down in detailed spreadsheets.
However, as your income grows or financial goals shift, this rule may need to be adjusted to better suit your situation.
Why should you use the 50 30 20 rule?
- The 50-30-20 rule works best for middle-income earners who have relatively stable and predictable expenses each month.
- It provides a simple framework for those new to budgeting or anyone seeking a balanced approach without overcomplicating finances.
- This rule is especially helpful for individuals aiming to build good financial habits while still enjoying discretionary spending.
What Are the Disadvantages of the 50-30-20 Rule?
- The rule doesn’t account for high debt loads if you have significant debt, dedicating only 20% to repayments and savings may slow your progress.
- It also overlooks regional differences in cost of living; in expensive cities, 50% for needs might not be sufficient, making the guideline less practical.
- For freelancers, self-employed individuals, or those with irregular income, rigid percentage allocations can be challenging to maintain month to month. Flexibility and adjustments may be necessary for these groups.
What Is the 70 20 10 Money Rule?
- En 70-20-10 money rule allocates 70% of your income for spending on all expenses, both needs and wants.
- 20% is dedicated to saving or investing to build wealth and secure your financial future.
- The remaining 10% goes toward charitable giving or paying down debt, reflecting a focus on generosity or accelerating debt freedom.
Is 70/20/10 a good budget?
- This rule is good for people who prioritize charitable giving and want to make philanthropy a consistent part of their financial plan.
- It’s also ideal for minimalists or those aiming to live below their means without strict categorization between needs and wants.
- Individuals who prefer a simpler budgeting approach with more flexible spending can find this rule easy to follow while still maintaining savings discipline.
What Is the 60/20/20 Rule?
- En 60/20/20 rule divides your income into three parts:
- 60% for essential expenses such as housing, utilities, groceries, and transportation.
- 20% allocated to savings and investments to build wealth and prepare for the future.
- 20% reserved for personal spending on discretionary items like dining out, entertainment, and hobbies.
Strengths and Limitations of the 60 20 20 rule budget
- This rule offers slightly more flexibility for lifestyle and personal expenses compared to stricter budgeting methods.
- It’s helpful for those who want to balance saving with enjoying their money in the present.
- However, the 20% savings allocation may not be aggressive enough for individuals targeting early retirement or rapid wealth accumulation.
- Those with high financial goals might need to adjust the percentages to increase savings or investment contributions.
What Is the 10/20/30/40 Rule?
- The 10/20/30/40 rule divides income into four clear categories:
- 10% for donations or charitable giving, promoting generosity and social responsibility.
- 20% directed toward savings and investments to build financial security.
- 30% allocated to wants or discretionary spending, allowing for lifestyle enjoyment.
- 40% reserved for needs, covering essential living expenses such as housing, bills, and groceries.
- This rule encourages both disciplined saving and giving, balancing financial growth with meaningful contributions.
10/20/30/40 Rule is Best Suited For
- High earners who want to incorporate philanthropy into their financial plan.
- Those who value a structured approach to budgeting that includes charitable giving as a priority.
What Is the 80/20 Rule of Money?
The 80/20 rule of money blends two powerful concepts: the Pareto Principle and the 80/20 budgeting method.
While they come from different origins, both highlight how focusing on a small percentage of impactful actions can lead to significant financial results.
The Budgeting Perspective
The 80/20 budgeting rule suggests that you should spend 80% of your income on everyday living expenses and discretionary costs, while saving or investing the remaining 20%.
It’s a simple approach that promotes balance, allowing you to enjoy your earnings while still prioritizing future wealth.
The Pareto Perspective
Originally a principle from economics, the 80/20 rule, observes that roughly 80% of outcomes come from 20% of causes.
In personal finance, this might look like:
- 80% of your investment growth comes from 20% of your portfolio
- 80% of your overspending stems from 20% of your habits
- 80% of your progress may come from 20% of your financial decisions
When combined with the budgeting rule, the takeaway is clear: if you allocate 20% of your income wisely — toward savings, investing, or debt repayment — that small portion can account for a large share of your long-term financial success.
What Is the 40/40/20 Budget Rule?
En 40/40/20 rule is a simplified budgeting method that helps balance daily expenses with financial goals. It offers more flexibility for lifestyle spending while still encouraging a consistent savings habit.
How it breaks down:
- 40% for needs – essential expenses like housing, bills, groceries, and transportation.
- 40% for wants – non-essentials such as dining out, shopping, travel, and entertainment.
- 20% for savings – contributions to an emergency fund, retirement accounts, or investments.
Who should use it:
This rule works well for individuals who want a structured yet flexible budget.
It suits moderate earners who value lifestyle enjoyment while maintaining a basic savings discipline.
While it’s not as aggressive as FIRE-style budgets, it still promotes healthy financial habits without sacrificing personal enjoyment.
What Is the 90/10 Rule?
The 90/10 rule is often used in both budgeting and investing, depending on context.
In Budgeting
- 90% of your income is used for all expenses (needs + wants).
- 10% is saved or invested consistently.
This rule may suit individuals who want a very simple budgeting method without complex categories, especially if they’re just beginning to manage finances or have limited disposable income.
In Investing
Some use the 90/10 portfolio rule to describe an aggressive investment strategy:
- 90% in equities (stocks)
- 10% in bonds or safer assets
This is most appropriate for young investors with a high risk tolerance and long time horizon.
What Is the 7% Rule?
En 7% Rule refers to the idea that long-term, diversified investment portfolios, particularly those weighted toward equities, can earn an average annual return of 7% after inflation.
It’s often used as a benchmark for planning future wealth and estimating whether your current savings habits are on track.
Why it matters for retirement
- Retirement Projections: The 7% Rule is commonly used in retirement calculators to project how your investments might grow over time.
- Goal Setting: It helps estimate how much you need to save monthly or annually to reach a target retirement amount.
- Compounding Assumptions: A 7% annual return roughly doubles your money every 10 years, making it useful for long-term planning.
- Tied to the 4% Rule: While the 7% Rule estimates growth, the 4% Rule helps determine safe withdrawal rates in retirement.
Limitations of the 7% Rule
- Not Guaranteed: 7% is based on historical market averages (e.g., US stock market) and doesn’t guarantee future performance.
- Market Volatility: Short-term downturns, inflation spikes, or poor market timing can significantly affect actual returns.
- Post-Retirement Shift: As investors move to safer assets in retirement, expected returns may fall below 7%.
What Is the Golden Rule of Money?
The Golden Rule of Money is often summed up as: “Don’t spend more than you earn.”
It serves as a timeless foundational principle that underpins virtually all successful budgeting and planificación financiera systems.
This rule encourages living within your means to avoid debt accumulation and financial stress.
Why It’s Still Relevant
- The rule works universally, regardless of income level, cultural background, or financial goals.
- By consistently applying this principle, individuals can build a stable financial foundation, avoid common pitfalls, and set themselves up for long-term wealth growth.
- It reinforces the importance of financial discipline as the basis for any wealth-building strategy.
What is the best rule for money?
The best rule for managing money varies by individual. It depends on a few key personal and financial factors:
What are the 5 factors to be considered in budgeting?
- Choosing the right money rule depends on several personal factors, including:
- Income stability: Regular vs. irregular earnings impact budgeting needs.
- Financial goals: Short-term needs like debt repayment vs. long-term goals like retirement.
- Family situation: Number of dependents and household expenses.
- Debt levels: High debt may require more aggressive saving or spending cuts.
- Cost of living: Regional expenses can affect how you allocate your money.
Flexibility Is Key
- No money rule fits everyone perfectly. It’s important to adjust rules to fit your unique situation rather than following them rigidly.
- Treat money rules as guides to help structure your finances, not as strict laws that must be followed without question.
- Regularly revise and tweak your approach as your life circumstances and financial priorities evolve.
Other Timeless Money Rules to Know
The Rule of 72
The Rule of 72 is a classic mental shortcut used to estimate how long it will take for your investment to double, based on a fixed annual rate of return.
It’s especially useful for quickly gauging the impact of compound interest without needing a calculator or spreadsheet.
Divide 72 by your annual rate of return to estimate how many years it takes to double your investment.
- Example: If your portfolio grows at an average of 6% per year, your money will double in approximately 72 ÷ 6 = 12 years.
The Rule of 114
The Rule of 114 is a helpful companion to the Rule of 72.
Instead of estimating how long it takes to double your money, this rule shows you how long it will take to triple your investment at a given annual rate of return.
- Formula: 114 ÷ annual return = years to triple your investment
- Example: At a 6% return, 114 ÷ 6 = 19 years
The Rule of 144
This rule builds on the logic of the Rules of 72 and 114. The Rule of 144 estimates how long it will take for your investment to quadruple at a given annual return, offering a long-range perspective on compounding growth.
- Formula: 144 ÷ annual return = years to quadruple
- Example: At a 6% annual return, 144 ÷ 6 = 24 years
The Rule of 70
The Rule of 70 is a quick way to understand the corrosive impact of inflation over time.
By dividing 70 by the current inflation rate, you can estimate how many years it will take for your money’s purchasing power to be cut in half.
- Formula: 70 ÷ inflation rate = years until value halves
- Example: At 5% inflation, 70 ÷ 5 = 14 years
The 120-Minus-Age Rule
This age-based rule offers a simple guideline for balancing risk and growth in your investment portfolio.
By subtracting your age from 120, you estimate the percentage of your portfolio that should be invested in stocks, with the remainder in bonds or more conservative assets.
- Formula: 120 − your age = % in stocks
- Example: At age 40: 120 − 40 = 80% in stocks, 20% in bonds
What Is the Rule of 110?
En 110 Rule is a modernized version of the 120-minus-age asset allocation rule.
It helps investors determine what proportion of their portfolio should be in stocks vs. bonds based on age.
Formula of the Rule of 110
110 − your age = % of portfolio in stocks
Example:
If you’re 35 years old:
110 − 35 = 75% stocks, 25% in bonds or other fixed-income investments.
This rule adjusts for increasing life expectancy and inflation, promoting a slightly more aggressive stance than older models.
The 10-5-3 Rule
This guideline helps investors benchmark potential average annual returns over the long term, based on historical market performance.
It’s not a guarantee but a useful baseline for setting expectations and planning.
- 10% expected from stocks
- 5% from bonds
- 3% from cash or savings accounts
The 4% Withdrawal Rule
This widely used rule of thumb offers guidance on how much retirees can withdraw annually from their investment portfolio without running out of money too soon.
- How it works: Withdraw 4% of your retirement savings in the first year, then adjust for inflation each year.
- Example: If you retire with $1 million, you’d withdraw $40,000 in year one.
- Limitation: Works best for 30-year retirement horizons with a balanced portfolio
The 10–15x Income Life Insurance Rule
This rule provides a quick way to estimate how much life insurance coverage you might need to financially protect your family in case of your untimely death.
- Formula: Multiply your annual income by 10 to 15 to determine an appropriate coverage amount.
- Example: If your annual income is $100,000, aim for life insurance coverage between $1 million and $1.5 million.
Conclusión
The most effective financial strategy often comes from blending the best elements of various money rules into a system that fits your lifestyle and long-term goals.
It’s important to track your spending and saving habits consistently, reassess your progress regularly, and remain open to adjusting your framework as your circumstances evolve.
By creating a flexible and personalized approach to money management, you’ll build a system that supports both financial success and peace of mind.
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Adam es un autor reconocido internacionalmente en temas financieros, con más de 830 millones de respuestas en Quora, un libro muy vendido en Amazon y colaborador de Forbes.
