What’s popular isn’t always right.
Chances are, if you’ve studied personal finance for any length of time, you’ve come across the 10/10/80 budget allocation method. But is it the best for you?
The 10/10/80 method teaches that people should give 10% of their income, save or invest another 10%, and spend the rest – 80%. It is often advertised as a universally-viable method of handling your finances.
And the thing is, it sounds good, doesn’t it? That means it must be, right?
While the 10/10/80 method correctly splits personal finance into three major categories (giving, saving, and spending), it inappropriately assumes that people should only give 10% of their income. Similarly, it assumes people should only save or invest 10% – as well as that they should start saving up to 10% right away.
10/10/80 Goes Viral
Admittedly, 10/10/80 is easy to remember – amazingly simple! But again, that doesn’t mean it’s the best way to allocate your income.
The 10/10/80 budget allocation method went viral because it is easy to remember, and it holds a nugget of truth: that personal finance can be split into three major categories.
It’s an easy-to-swallow method, but watch out, it’ll make your stomach turn sour.
The 10/10/80 Path
The financial path 10/10/80 leads you down is rather dangerous. Unfortunately, we’ve even seen churches adopt this myth, and it’s time for us to reevaluate the consequences.
Here’s an example . . . .
A young, 25-year-old person might do fine investing 10% of their income over the course of their lifetime. Let’s say they make $50,000 per year and invest $416 per month (10% of their income) at an 8% annual return until they are 65. That results in almost 1.4 million dollars.
Now, take a 50-year-old, same figures, but instead of having 40 years they have 15 years. They’ll have a little over 146 thousand dollars – not nearly enough for a comfortable retirement.
Another example . . . .
The 10/10/80 method implies that once you reach 10% giving, you should stop. Really? Even though it might not be in the intention of those promoting this popular myth to have people stop giving at 10%, I’m convinced many could view it this way. Imagine multi-millionaires who are prevented from giving tremendous donations that could radically help fantastic organizations, all because they thought 10% was good enough. Should we really limit giving?
A Better Way: The Three Phases of Giving
There is a much better blueprint to follow than the 10/10/80 myth. We call it the Three Phases of Giving. The Three Phases of Giving go hand in hand with the Three Phases of Wealth.
By following the Three Phases of Giving, you’ll discover that giving and investing shouldn’t be limited 10% each for your entire life. No, giving and investing needs to increase over time as you move through the Three Phases of Wealth. And by the way, investing shouldn’t start right away . . . .
Tithing: 10% Giving (and 0% Investing)
During the first phase of the Three Phases of Wealth – the Foundation Phase – you should give 10% of your income to the church.
A tithe of everything from the land, whether grain from the soil or fruit from the trees, belongs to the LORD; it is holy to the LORD. – Leviticus 27:30 NIV
Now is not the time to start investing, although you will be saving $1,000 in cash and eventually saving 3 to 6 months of expenses in an emergency fund. The last thing you want is for your money to be stuck in an investment when you need it most.
Later, after you get appropriate insurance policies, personalize your estate plan, pay off all your consumer debt, and have an emergency fund, will you start to invest.
The 10/10/80 plan has you putting too much into savings and investments too soon. Timing is everything!
Impact Giving: 10+% Giving (and Short- and Long-Term Investing)
After you have your financial foundation, it’s time to increase giving and start investing in the Accumulating Wealth Phase.
Why should giving be limited to 10% when you’re completely out of non-mortgage debt? Baffles me. Research ministries, organizations, and individuals that could use some help, and donate. Set a giving budget that makes sense for you and your family. But remember, this giving is impact giving which means it is over and above your tithe – you’ll make an additional impact!
By the way, now you’re ready to start investing. Sit down with a Certified Financial Planner™ to begin this process.
Note: One percentage we often talk about at Truth in Financial Planning is the 70/30 rule. Don’t be confused. This rule simply states that 70% of found money (including raises) should go toward your plan (including impact giving) and 30% should go toward increased spending.
Legacy Giving: 10+% Giving (and Strategic Income Management)
During this phase – concurrent with the Strategic Income Phase – final preparations are made to leave a percentage of your estate to a church or ministry that you believe in.
Also, don’t forget to teach your family about giving – let them carry on the legacy!
Be intentional. Following the 10/10/80 method might be easy, but not everything that is easy is worthwhile or helpful. Think about all the people you can help by giving more than 10%. Think of the better inheritance you can leave your children and grandchildren by investing more at the appropriate time.
Don’t get caught in the middle of an over-simplistic financial plan. They’re catchy, but chances are, they will limit your ability to give and spend.
Baked into the Three Phases of Giving and the Three Phases of Wealth is, you guessed it, intentionality. These are proven plans to build wealth and give more than ever before.
Have you heard of the 10/10/80 method? What do you think of it? Leave a comment!
James Sundquist says
I just discovered your article:
The 10/10/80 Myth: How to Give and Invest With Intention
I discovered in a Google search for 10, 10, 80, Tithing search.
I agree it is a myth, but not for the reasons you cite, but because Scripture itself refutes it for Christians. Here is the proof:
I invite you to view Dr. Russell Kelly’s video on Tithing. He did his doctorate on tithing. Here is his film documentary:
I think the 10 10 80 should be looked at especially for young or newer people to saving. This is better than nothing and it is a better way to get them started with a purpose. I don’t understand how we can say something is a myth when it can and does work on many levels to help those who have never save start off.
Jeff C. says
I’ve been sharing the Share-Save-Spend concept with clients for years, and I love the 10-10-Spend mindset. My wife and I started out saving 10% (plus match) in our 401k, and we began tithing that year. We were making a combines $57,000 the year we got married. 25 years later, our income is much higher now, but we have kept the 10% giving and saving goal. Some years, we did give and/or save much more. When we had our first child, and my wife stopped working, we didn’t lower our church pledge, but we were able to keep giving while staying current on our bills.
I’ve never seen it fail, when they reach retirement, for a client to give 10% of his/her income AND save 10% each year throughout their lifetime. It aligns your priorities. We have a heavenly father who wants to bless his children when they honor him. As our income grows, we simply increase our giving proportionately. We become wise with money, and live generously.
The average Christian gives about 2% of their income to church. And, the average American saves less than 4% of their income, and they often spend above their means. Effectively, they are doing a 2-4-99 strategy, and they are neither generous or financially secure.
worse article ever …. wasted 10 minutes of my life reading stupid articles from a stupid grown man …. give 10% to the church ? WOW …. the churches in my country have infinite money they don’t fucking need more money…. priests and monks have tthe best cars and they are covered in gold while the rest of the people have shit just because a lot of people gave them money… what do the rest of the people get in return ? NOTHING.
Greg M. says
Ever since I became a Christian, I started giving. I’ve been very blessed the past 30 years. Today I’m probably more like 30/30/40. It’s a very good place to be! Thanks!
Great article I aspire to get to 60/20/20 soon or even better God willing.
Ps Giving is good for the soul Dark Angel
The finance advice of Solomon and others in the old testament is very wise. It puts God first and he blesses the giver. It tells us to consider the poor, there is a lot about treating your employees right. It also tells the Jews to support their priests, who unlike the rest, did not have land to derive a living from, and were also responsible for redistribution to the destitute. The priests themselves were expected to tithe what they were given ! We are also advised to live within our means, not to borrow , pay back debt, work hard and save for a rainy day !
Jesus told us to love our neighbour and share with those in need. Anyone given away their second coat lately ? Me neither. I am still working on that one. St Paul advised believers to set aside money each week in the context of being ready to give it, to be taken to help a famine situation.
So, plenty thoughts in the bible on giving.
Personal I give mostly to charities helping those in need but also some money to those sharing the gospel.( Some charities do both) I haven’t yet chosen to give much to my church as it is well funded at the moment. All our situations are different. New Testament christians met in homes with no employed clergy except missioneries. I used to just give a little to charity and outreach but started giving 10 % last year and its been wonderful to have the pleasure of helping others on this scale. I originally saw it as a duty, did not expect the pleasure ! But if you only have enough to pay essential bills you can’t tithe, it would be wrong to deprive your own kids, but you can at least share a cup of sugar or whatever with your neighbour ! Nobody is better than anyone else because they give more, that’s what Jesus said when he watched the temple treasury giving one day.