The Rule of Thirds: A Simple Budgeting Framework for Families

October 30, 2025
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At our recent School Fair, investment professional Mark E. Baker spoke about how families with modest incomes can still save for important goals—such as college, retirement, or even private school tuition. He introduced a budgeting method he calls the Rule of Thirds: a practical way to divide household income into three equal parts.

While this version adapts his explanation, it captures the heart of the idea.

1. One-Third for Needs

Families should aim to reserve one-third of their income for essential, non-negotiable expenses—the things required to live day-to-day or month-to-month.
This includes:

  • Rent or housing costs
  • Utilities
  • Transportation
  • Groceries and household essentials
  • Insurance
  • Minimum debt payments

For many families, this category may require small sacrifices. A couple might choose a $2,000 apartment over a $2,400 one, or rely on public transit instead of daily rideshares. Even reducing eating-out lunches—trading a $20 entrée for a $15 food truck meal—can support staying within this first third.

2. One-Third for Financial Goals

The second third is dedicated to strengthening your financial future. This includes:

  • Building an emergency “rainy day” fund
  • Retirement contributions
  • Saving for children’s education (such as a 529 plan)
  • Paying down debt beyond the minimum (e.g., adding $20 extra to a student loan)

Even small additional payments on debt—like increasing a $350 loan payment to $370—can dramatically speed up payoff timelines.

3. One-Third for Lifestyle & Personal Choices

The final third is for the things that make life enjoyable: travel, hobbies, outings, and personal purchases. Fortunately, families in the DMV have access to countless free or low-cost experiences such as museums, campus events, and outdoor activities.

This portion can cover:

  • Travel
  • Entertainment
  • Dining out
  • Personal care (yes, including the occasional new boots or Aveda trip)
  • Charitable giving

These choices bring joy and balance—but maintaining the Rule of Thirds may require discipline and intention.

A Helpful Planning Tool: AdviceWorks

Mark also mentioned AdviceWorks, an online planning workspace that helps families visualize goals, track progress, and collaborate with financial advisors on long-term strategies.

If you're interested in learning more, you can reach him at:
markebaker@ceterafs.com or (202) 234-4497.