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Managing your finances can feel overwhelming at times, but finding a simple and effective budgeting method can make all the difference. One popular budget method that is simple and easy to do is the 60-30-10 budget rule.
This budgeting method provides a straightforward framework to divide your income into three categories. This makes it easier for you to prioritize and balance your financial goals.
By following the 60-30-10 rule, you allocate 60% of your net income for savings and investments, 30% for necessities, and 10% for wants and discretionary spending.
This budget method makes sure that you cover your essential expenses, enjoy your life with some discretionary spending, and also prepare for your future financial needs.
With this guideline in place, you can make better decisions about your spending habits and manage your money to achieve financial stability and freedom.
Table of Contents
What is the 60-30-10 Rule for Budgeting?
The 60-30-10 rule is a budget method that helps you slice your income into three categories based on percentages: savings, needs, and wants.
Following this rule for budgeting is an easy way to keep track of your spending.
- Savings – You save 60% of your salary for building your savings account, paying off debt or even investing and meeting financial goals
- Needs -30% of your pay goes to your needs. Rent or mortgage, groceries, utility bills and transportation.
- Wants – The remaining 10% is spent on your wants. So entertainment like streaming services and television, shopping or going out to eat.
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Savings = 60% of Take Home Pay
The first aspect of the 60-30-10 rule budget emphasizes that 60% of your income should be allocated towards savings and debt repayment. This might include:
- Emergency fund
- Retirement savings
- Paying off high-interest debt
By focusing on saving first, you can build a strong financial foundation and prepare for unexpected situations. As mentioned, if you have debt you should include repaying that debt in this 60%.
Needs = 30% of Your Salary
The next part of the 60-30-10 rule says you should allocate 30% of your income towards your essential living needs.
This covers monthly bills such as:
- Rent or mortgage payments
It’s important to understand the difference between essential needs and non-essential wants to make sure you’re allocating your funds appropriately between the three categories. For instance, cable tv may seem like a need, but it would actually fall into the wants category.
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Wants = 10% of Your Paycheck
The final 10% of your income should be spent on non-essential wants. This is your fun money bucket.
This allows you to enjoy life without overspending on discretionary items.
Some examples of wants are:
- Dining out
By keeping your spending on wants limited to 10% of your income, you can prevent overspending and stay focused on your financial goals. This is one way the 60-30-10 rule of budgeting is more strict than others.
To implement the 60-30-10 rule budget, start by calculating your monthly income after taxes.
Then, put 60% towards savings and debt repayment, 30% towards needs, and 10% towards wants. Adjust the proportions as needed to fit your specific financial situation.
By following this simple and effective budgeting method, you can work towards achieving your financial goals while maintaining a balanced lifestyle.
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How to Budget Your Money with the 60-30-10 Rule Budget
Here are some different ways you can calculate how the 60/30/10 rule budget applies to your take home pay.
Calculating After-Tax Income
The first step in creating your 60-30-10 budget is to calculate your after-tax income or take-home pay.
To do this, subtract your taxes and other deductions (such as Social Security, Medicare, and retirement contributions) from your gross income.
This is the amount you’ll use to allocate percentages to your budget categories from the 60-30-10 rule budget.
60/30/10 Rule Budget Calculator
Input your take home pay below in the 60-30-10 calculator tool to see exactly how you should apply the 60-30-10 rule buget in your life.
Using a Budget Calculator or Spreadsheet
After determining your after-tax income, you can use a budget calculator or create your own spreadsheet to accurately allocate your money according to the 60-30-10 rule budget.
To do this, simply multiply your take-home pay by 60%, 30%, and 10%. This will give you the amounts you should spend on each category: savings/debt, needs, and wants, respectively.
For example, if your after-tax income is $4,000:
- 60% for savings/debt: $4,000 * 0.6 = $2,400
- 30% for needs: $4,000 * 0.3 = $1,200
- 10% for wants: $4,000 * 0.1 = $400
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Creating a Budget Template
Once you have your budget amounts, create a budget template to track your expenses and keep yourself accountable. Consider using an app, a premade template, or even a simple spreadsheet to monitor your spending.
Begin by listing your recurring expenses in each category.
For example, under needs, you might have:
- Rent or mortgage
For wants, you could list things like:
- Dining out
- Netflix subscription
- Hobbies or sports activities
- Shopping for non-essential items
Reviewing this template regularly will ensure you stay on track and adhere to the 60-30-10 rule budget. Keep in mind that your financial situation and goals might change over time, so don’t hesitate to adjust your budget as your life evolves.
By following these steps, you can successfully create your own 60-30-10 budget and improve your finances.
60/30/10 Rule Budgeting Examples
Above is a budget example of how to breakdown the budgeting categories. This is based on an income of $65,000 per year.
As you can see, you figure out your after taxes monthly income first. Then, multiply that number by each percentage to figure out how much to spend in your budget categories.
As the example shows, you have a set amount to spend on the 3 categories, which you then spread out across your expenses.
Based on this income, you will have around $2,400 to spend on savings and financial goals or debt repayment, $1,200 for your needs and $400 for your wants.
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How to Allocate Expenses With the 60-30-10 Rule of Budgeting
In the 60-30-10 budget rule, you allocate 60% of your income for savings, 30% for necessities, and 10% for wants.
This section will provide you with examples on how to distribute expenses within these categories.
Housing and Utilities
Your housing and utilities expenses should come under the 30% allocated for your needs. This includes rent or mortgage payments, property taxes, utility bills, and routine maintenance. Aim to keep these costs within your 30% spending cap.
Include costs related to transportation, such as car payments, fuel, public transport fares, and maintenance expenses in the necessities category. Create a monthly budget to cover these costs and avoid spending more than the 30% limit.
Food and Groceries
Your groceries and food expenses are essentials and should be part of the 30% needs category.
However, you should not include dining out in this category. That is actually classified in the 10% wants category.
Insurance and Health Care
Healthcare expenses, including insurance premiums, copays, and out-of-pocket expenses for medical care, should also be included in the needs budget category. Be proactive in managing your healthcare costs to avoid going over budget.
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Debt Payments and Financial Goals
Debt payments, including credit card debt, student loans, and other loan payments, should fit within the 60% savings category.
Allocate part of your 60% savings toward financial goals such as an emergency fund or retirement savings. Also, a college savings plan for your kids could fall into this category of the 60 30 10 rule budget.
Entertainment and Discretionary Spending
Finally, allocate your 10% budget for wants or “fun” spending. This includes dining out, entertainment, shopping, vacations, and other non-essential expenses.
Be careful not to go over your 10% limit as this is the category that can easily trip you up. In most cases, this is where people overspend and wreck their budget.
By following these guidelines, you can effectively allocate your expenses using the 60-30-10 rule budget. Stay disciplined in your spending habits, so that you can make progress and become financially healthy.
Is the 60/30/10 Rule Realistic?
Maybe? It really depends on your individual situation. If you are currently living paycheck-to-paycheck, this may not be a good budget for you to follow.
Since it allocates such a high percentage to savings, you just may not be able to do that on an already tight budget. If that is the case you may want to try one of the other budget rules mentioned below.
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Comparing the 60-30-10 Rule to Other Budgeting Methods
If you think the 60-3-10 rule budget is not going to work for you, there are other budgets and systems you can try.
The 50-30-20 Rule
The 50-30-20 budget rule, popularized by Elizabeth Warren, advocates allocating 50% of your income to needs, 30% to wants, and 20% to savings and an emergency fund as well as debt repayment.
In contrast, the 60-30-10 rule prioritizes saving and investing by allocating a higher percentae of your income to that bucket and less to the wants bucket. It is a bit stricter of a budget than the 50-30-20 guide.
While both methods focus on balancing spending and saving, the 50-30-20 rule may be more suitable for you if you have a higher proportion of necessary expenses, whereas the 60-30-10 rule can help accelerate your path to financial independence.
30 30 30 10 Budget
The 30 30 30 10 budget is yet another budgeting strategy you can try. According to this one you spend 30% of your net income on housing, 30% on needs, 30% on savings and financial goals and 10% on wants.
It separates your money into more categories giving you some flexibility.
Unlike the 60-30-10 and 50-30-20 rules that allocate your income into predefined percentages, a zero-based budget starts with your income and allocates every dollar to a specific category. With this method, your income minus expenses should equal zero by the end of the month.
Zero-based budgeting can be more time-consuming, as it requires tracking and allocating all your spending, but it can offer greater control and more financial awareness. This method may be a good fit if you prefer a more hands-on approach to managing your finances.
Budgeting by Percentages
Budgeting by percentages involves allocating specific percentages of your income to different categories, adjusting as needed to fit your personal circumstances.
This method allows you to create a custom budget plan, making it more flexible than the 60-30-10 and 50-30-20 rules.
For example, you might allocate:
- 50% to necessities (housing, utilities, food)
- 20% to financial goals (savings, debt repayment, investments)
- 15% to lifestyle choices (entertainment, hobbies, dining out)
- 10% to transportation (car payments, gas, public transit)
- 5% to miscellaneous (gifts, donations, unexpected expenses)
Budgeting by percentages can be beneficial if you have unique financial needs and priorities that don’t fit neatly into the 60-30-10 budget rule or 50-30-20 guide.
This approach allows you to tailor your budget to your personal financial situation and adjust the percentages as needed.
Pros and Cons of the 60-30-10 RUle Budget
Understand the pros and cons of the 60 30 10 rule budget before you try it for yourself.
Pros of the 60 30 10 Rule Budget
One of the main advantages of the 60-30-10 rule budget is its flexibility. This budgeting method can easily be tailored to your specific needs and financial goals.
By adjusting the allocation percentages, you can ensure that your budget covers your essential expenses, discretionary spending, and savings.
The 60-30-10 budgeting rule works well as a savings plan. Allocating 60% of your net income towards saving or investing can really help you improve your finances.
It can help you build a financial buffer for emergencies and long-term goals. If you struggle each month to save money, following this rule will help you.
This percentage can be increased as your financial situation improves as well. You can leverage this guide to budgeting to help yourself get out of debt, save for a business or even a down payment. It is also a good budget rule if you are interested in retiring early.
By following the 60-30-10 rule to budgeting, you can achieve financial stability and eventually even financial freedom. Allocating 30% of your total income to essential expenses ensures that your basic needs are covered.
But, the 10% allotted to discretionary spending allows you to enjoy your lifestyle without jeopardizing your financial goals. If you are struggling with credit card debt, this is a good budgeting rule to follow since it focuses on savings and debt repayment.
More Reading: 21 Free Printable Budgets
Cons of the 60-30-10 Rule
Strict and harder to follow:
While the percentage-based structure of the 60-30-10 rule is helpful for some, it may be limiting to others. This budgeting method serves as a guideline rather than a strict rule and may not suit everyone’s unique financial situation.
For instance, those with high living costs or lower income levels may have a hard time allocating so much of their money to savings and not to necessities.
Low Income Issues:
The 60-30-10 rule of saving may be too difficult if you are living paycheck-to-paycheck. It is heavy on how much to save, and it may be that you need to allocate more to your needs category than the 60 30 10 rule allows.
Remember, the 60-30-10 rule is simply a budgeting tool to help you manage your finances. It’s essential to assess your personal financial situation and adjust the allocations accordingly to achieve your financial goals successfully.
Frequently Asked Questions (FAQs)
What if my needs category is too high?
If you have written down all your expenses and your needs category is so high that you don’t have enough to apply the 60-3-10 rule there are a couple of options for you.
One is to downsize your lifestyle and reduce your essential expenses. So if your rent, car payment or mortgage are making your needs expenses high, then lower them.
The other alternative is to try one of the other budgeting rules we’ve mentioned and see if that will work better.
What is the 60 for in the 60 30 10 Rule Budget?
The 60 in the 60 30 10 rule refers to 60% of your income that should be put into savings, debt repayment, retirement fund or financial goals. It can include things like your emergency fund, credit card payments, savings account and retirement funds or even real estate investments.
What is the 30 for in the 60-30-10 Budget Guide?
The 30 refers to 30% of your salary that should go to your needs and necessities. Basically your living expenses.
This might be your mortgage or rent payment, utility bills, food, insurance and general basic expenses and needs.
What is the 10 for in the 60/30/10 Rule Budget?
The 10 is for 10% of your income which can go to your wants, or discretionary expenses. This is your entertainment fund and includes things like going out to eat, streaming services or cable t.v. and shopping or travel.
Who is the 60-30-10 Rule Budget Ideal for?
The 60 30 10 guide to budgeting is good for people who are not living paycheck to paycheck. If you are making a good amount of income over your needs, then you will have more for savings which this rule calls for.
If you are really serious about your financial goals and getting ahead in life or investing money, then this budgeting rule is ideal for you.
60 30 10 Rule Budget Explained
We hope you enjoyed this guide on how to budget your finances with the 60/30/10 rule.
But, if this budgeting system won’t work for you, as long as you are tracking your finances and following some type of budget each month, you are on the right path!
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