Manage Your Cashflow With A Template Proven to Be Successful (With Example)

I'm eating a hamburger. I see the man next to me carefully picking a slab of cheese out of his burger, wrapping it in a paper napkin, and eating the rest. It puzzles me, so I ask him about it. “Excuse me,” pointing at the napkin, “why did you do that?” The man replied “Oh, every time I eat a burger, I set one ingredient aside. At the end of the week, I have a free burger!”

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​While managing your cash flow is important, there’s no need to go that far!!

In fact, in this blog, I am going to encourage you to BLOW YOUR MONEY! Well, at least a little bit of it. There is nothing that will drain your excitement, creativity, and enthusiasm for life than an attitude of all work and no play. It is important that you take some time (& money) for yourself.

But how much should you be blowing on the good times? And how will that impact your longer term goals like retirement and debt reduction.

I want to introduce you to a rule of thumb that can help answer all these questions.

It called the 70/10/10/10 rule, and it will ensure that you keep your eye on the prize (financial independence) while not allowing yourself to get burned out, over leveraged and teetering on the edge of a nervous breakdown. This concept is not new, and I certainly didn’t invent it, but it’s an extremely effective way of handling your money.

So, how does it work.

The 70-10-10-10 budget is built on the premise that a household should function on no more than 70 percent of its earnings. People who subscribe to this budgeting plan set aside 70 percent of their combined incomes for food, utilities, rent, clothing, transport and other necessities.

​So when buying a house, you don’t think about what’s the maximum you can afford, but what you can fit in to that 70%.

The next 10% of your budget goes toward Debt Reduction. You begin by paying down the highest interest debts first. Once those debts are paid you add the additional money to lower interest debts and pay those off faster.

The next 10% goes to Future Savings. This could be any specific goal like retirement savings, building a share portfolio, a house deposit or even saving to pay cash for your next car (which is a much smarter idea that borrowing for it!) You should have an emergency fund first (which ideally covers your living expenses for at least 3 months)

And the final 10% - Blow It!! This is for you. Life is for living and you need to have some fun along the way. Just restrict it to 10%. Go out to a nice restaurant, take a weekend getaway to the beach, or get a full body massage. You deserve a reward for your hard work, and this will serve as a motivator to keep going in whatever it is that you do.

Example
If you and your spouse earn a combined income of $10,000 per month after taxes, your 70-10-10-10 would look like this: $7,000 allotted for living expenses. $1,000 allotted for savings accounts or investments. $1,000 to additional debt repayment and the remaining $1,000 goes to you.

Within the living expenses portion of your budget, you could create additional categories for the mortgage (or rent), utilities, food, transportation, and any other regular expenses you incur each month.

The Blow It category too could be split in to “now” fun, like going out for dinner tonight and “later” fun, like saving for that holiday to Bali.

Variations
If you are saving feverishly for the deposit on your first home, you could use Blow It money for Future Savings instead. If you had no debt, that could go to the Future Savings pot as well.

Some people also vary the plan's percentages. For example, you may decide to cut down on expenses and live off 60 percent of your monthly income instead of 70. In this case, you could be creating a larger nest egg for your future.

Though it may not be the ideal plan for every couple, the 70-10-10-10 budget has proven to be a successful roadmap for spending, finding a balance between the here and now and future needs.

​Check your budget. Does your spending spending fall in line with the 70-10-10-10 budget. Does anyone have a variation on this? Let me know your thoughts.

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