10/20/70 INCOME MANAGEMENT PLAN
An effective method for managing income plays a vital role in a financial plan. The 10/20/70 Income Management Plan shows how to allocate income to:
Reserve funds for normal living expenses.
Pay off accumulated debts, and build up a fund for unusual expenses.
Build up money to invest. Here’s how it works:
Figure out monthly income. Subtract income tax, social security, property taxes, and regular contributions such as 401K or 403B type contributions and church donations. The result is net income.
Divide net income into three groups:
70% for a Put-and-Spend Fund
20% for a Put-and-Take Fund
10% for a Put-and Keep Fund Put-and-Spend Fund: This covers normal living expenses, such as food, insurance costs, mortgage payments, etc. This money can be kept in a regular checking account.
Put-and-Take Fund: This is to gradually pay off accumulated debt, if any. Meanwhile, do not get into any more short-term debt. Use the 20% fund for unusual, emergency or special expenses, such as purchasing of furniture, to finance a vacation, or to pay an unusually large medical or dental bill. This money can be kept in an account such as a money market fund, which offers liquidity but earns a high current interest rate. If there are any extra funds accumulated beyond these needs then they can be allocated to the…
Put-and-Keep Fund: This is for long-term investments, and is not to be spent. This 10/20/70 Plan must be followed conscientiously and consistently to be effective.
For a sample questionnaire and outline allowing you to perform this calculation using your own personal financial data, proceed to Download Central and retrieve our worksheet.
Additional debt management web sites –
http://www.annualcreditreport.com
http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.htm