The 90/10 Rule a Simple Way to Take Control of Your Money

When it comes to managing money, there are countless rules, tips, and tricks out there. But if you’re looking for something practical, effective, and—let’s be real—simple enough that you’ll actually use it, the 90/10 rule might just be your new best friend.

This rule is designed to be easy to follow, no matter your financial situation. The idea is to make small but meaningful changes that help you achieve stability and build toward a solid financial future.

roadmap

So, what exactly is the 90/10 rule? Let’s dive in, and by the end of this, you’ll have a roadmap that’s both practical and flexible—because, after all, life doesn’t always go as planned!

What Is the 90/10 Rule?

The 90/10 rule of personal finance is straightforward: it suggests that you should live on 90% of your income and save or invest the remaining 10%. This may sound simple, but like many great ideas, it packs a punch. With just a few adjustments, this rule can help you live within your means, avoid debt, and build a financial cushion for the future.

Now, you might be thinking, “Only 10%? What’s that going to do?” Well, when applied consistently, that 10% grows over time, setting you up for greater financial security down the line. Plus, the 90% left for spending makes sure you don’t feel deprived in the short term.

Why the 90/10 Rule Works

Let’s face it, personal finance can get complicated. That’s why the beauty of the 90/10 rule is in its simplicity. It’s easy to remember and easy to apply, even if you’re just starting out. Here’s why it works:

  • It’s Manageable

    The 90/10 rule is realistic and doesn’t require extreme measures. You’re not living on a shoestring or putting half your income into savings—it’s just 10%. Most people can make this adjustment without feeling a huge pinch.

  • It Builds Good Habits

    Sticking to a small, steady savings habit is often easier than trying to save a large amount all at once. Over time, you’ll build a savings mindset, which becomes second nature.

  • It Allows for Flexibility

    The 90% you keep is yours to spend as you need, making it easier to stick to the rule, even when unexpected expenses arise.

How to Apply the 90/10 Rule in Your Life

Ready to give the 90/10 rule a go? Here’s how to start.

1. Calculate Your Monthly Income

taxes

First, you need to know exactly what you’re working with. Calculate your net monthly income—this is the amount you actually bring home after taxes. For example, if you make $4,000 a month after taxes, then your 10% savings goal is $400, leaving you with $3,600 for other expenses.

Tip: Consistency Is Key

The 90/10 rule works best when you apply it consistently. So, figure out your monthly net income and plan to save 10% of it every month, no matter what. Even if it’s less some months, keep saving.

2. Set Up an Automatic Transfer

One of the easiest ways to save is to automate it. Set up an automatic transfer to a savings or investment account for that 10% every month. This way, the money is out of sight, out of mind, and you’re less tempted to spend it.

Choose the Right Account

Where should that 10% go? Consider these options:

  • High-Interest Savings Account

    Ideal for short-term savings and an emergency fund. Look for a high-interest savings account offered by Canadian banks or credit unions. I also like GICs as they frequently give a better return, even for a short-term investment.

  • Tax-Free Savings Account (TFSA)

    A TFSA is perfect for long-term savings and investments because any growth in this account is tax-free. This account is available to Canadians and is great for building wealth over time.

  • Registered Retirement Savings Plan (RRSP)

    If your focus is retirement, an RRSP allows you to save for the future with tax benefits today. Just keep in mind that RRSPs are designed for long-term savings, so withdrawals before retirement come with tax consequences.

Not sure which is the right choice? Here’s a little help. RRSP vs TFSA: Which Is Right for Your Retirement Plan?.

3. Track Your Spending

To ensure you’re living within that 90%, tracking your spending is essential. But don’t worry, it doesn’t have to be complicated. You can use a simple budgeting app (perhaps a free one from your bank), a spreadsheet, or even pen and paper.

We have a wealth of free materials to help you manage your money. Free Planning Materials

Start by looking at where your money currently goes. Are there areas where you can cut back? This exercise often reveals “leaks”—those small expenses that add up without you noticing. By tracking, you’ll see if that 90% is being well-used or if you’re spending more than you realize.

4. Prioritise Your Spending

Living on 90% means making choices. But here’s the good news: it’s not about cutting out everything fun. The trick is to prioritise what matters most to you. Ask yourself: What do I truly value? Is it travelling? Dining out? Hobbies? Try focusing on what brings you joy and cutting back on the rest.

This isn’t about penny-pinching; it’s about making sure your money supports the life you want. You might be surprised how freeing it feels to cut out unnecessary expenses when you’re saving toward a goal that actually excites you.

What to Do With the 10% You Save

saving

Now that you’re saving 10%, what’s the best way to put that money to work? Here are some options to consider:

Build an Emergency Fund

An emergency fund is essential. It’s your safety net for unexpected expenses, like car repairs, medical bills, or even job loss. Aim to save at least six months’ worth of living expenses. Once you have that cushion, you’ll find financial peace of mind and the ability to handle life’s surprises without panic.

Read more about emergency funds – Setting up an emergency fund From: Financial Consumer Agency of Canada.

After I had a reasonable sum for immediate issues, I started laddering GICs so that I had a reasonable sum maturing every 30 days. As I continued to accumulate my emergency funds, my ladder became longer and longer until I reached my goal.

Invest for the Long Term

RRSP vs TFSA

If your emergency fund is in good shape, consider investing that 10% for the long term. For Canadians, tax-advantaged accounts like a TFSA or RRSP are great tools for growing your savings. Investments have the potential to grow your money faster than a regular savings account thanks to compound interest, which works like magic over time.

Pay Down Debt

If you have high-interest debt, like credit card debt, it’s wise to use part of that 10% to pay it down. Reducing debt frees up more money for the future, and you’ll pay less in interest over time. Paying down debt is like getting a guaranteed return on your money.

See our post Personal Financial Development: Managing Your Debt for help with debt management.

Benefits of the 90/10 Rule for Canadians

The 90/10 rule offers several benefits, especially for those of us in Canada. Here’s why this rule is worth adopting:

  • Doable

    Unlike many strict savings rules, the 90/10 rule is achievable. It lets you save without feeling deprived, making it easier to stick with for the long haul.

  • Works with Canadian Savings Plans

    Canadians can use TFSAs, RRSPs, and high-interest savings accounts to make the most of that 10% savings. These options offer great tax advantages, giving your savings an extra boost.

  • Peace of Mind

    Knowing you’re saving for the future while managing today’s expenses can be a huge relief. Financial security doesn’t mean being rich—it means feeling prepared.

Tips to Make the 90/10 Rule Work for You

If you’re ready to make the 90/10 rule part of your financial life, here are some tips to help you succeed:

Stay Consistent

Even if it’s a challenge to save 10% some months, do your best to keep going. The magic of this rule comes from consistency. Small contributions add up over time, and even on a tight budget, a little bit saved each month makes a difference.

Adjust as Needed

Life happens. Sometimes, you’ll have higher expenses, and saving 10% may not be realistic. That’s okay. If you need to adjust, do so, but aim to get back on track as soon as possible. The goal isn’t perfection; it’s progress.

Find Motivation

Having a reason behind your savings makes it easier to stick to the 90/10 rule. Are you saving for a comfortable retirement? To buy a home? To travel? Whatever it is, remind yourself of the “why” behind your savings, and it’ll feel much more rewarding.

After about a year or so of marriage, my wife and I started using the 90/10 Rule. We tended to be a little bit more conservative. We saved 10% of our gross income, and then lived on the money left. We paid our bills first and then decided what to do with the rest.

Since most of our friends were in the same boat, we tended to do a lot of inexpensive, family things together. Since my pension was deducted at source, along with my taxes and health care premiums, we were able to build an emergency fund fairly quickly.

Turned out to be a great choice since kids bring all kinds of unexpected (to new parents) expenses and surprises. But it worked! It even allowed us to pay down our mortgage early.

Final Thoughts: The Power of the 90/10 Rule

The 90/10 rule is a simple but powerful way to take control of your finances without making major sacrifices. It’s all about balance—spending wisely today while saving enough for tomorrow. With a bit of patience, consistency, and a few smart choices, the 90/10 rule can help you create the financial freedom you’ve always wanted.

Start small, stay consistent, and watch that 10% grow. Your future self will thank you, and you might just inspire others to do the same.

Ready to Try the 90/10 Rule?

If you’re ready to start using the 90/10 rule, take the first step today. Set up that automatic transfer, review your spending, and start saving toward the goals that matter to you. Remember, financial health doesn’t have to be complicated or restrictive. Sometimes, the simplest rules make the biggest difference.

Good luck, and here’s to a future filled with financial freedom and peace of mind!

Disclaimer for ManageYourMoney.ca

The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.

As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences. Jim does not provide advice on any specific investments

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