As everything from groceries and gas to house prices increases, you may be looking to find a new style of budgeting that can help you save money and reach your financial goals. However, a quick internet search will result in hundreds of different budgets to sift through, as well as apps offering tips and tricks, making it confusing to find the right one.
During your search, you may come across some percentage-style budgets, which divide your expenses into categories that are given a certain percentage of your take-home pay to ensure you save while covering all your needs and wants. One of the most popular ones is the 60 30 10 rule budget, which promises to help you get serious about saving for your future financial goals while maintaining enough leftover money for your everyday purchases.
What is the 60 30 10 Rule Budget?
The 60 30 10 Rule Budget has a heavy focus on saving money and is often used for short-term saving goals, such as down payments on a house or a wedding. With enough planning, the 60 30 10 Rule Budget can also be used for long-term savings like retirement.
As the name implies, the 60 30 10 Rule Budget divides your take-home pay into three categories; the numbers each representing what percentage of your income should go towards the categories: savings, needs, and wants.
The largest category, 60%, is money dedicated to savings, investing, or, if you have debt, paying off your debt, such as student loans. 30% will go towards everyday living items such as rent or mortgage payments, food, utilities, transportation, and other necessities. The remaining 10% of your paycheck can be spent on entertainment, hobbies, and travel. Items that you may not necessarily need but are nice to have and enjoy.
While it’s an excellent budget for those looking to meet their financial goals, such as saving up for a house or retirement, it may not be suitable for everyone because over half of your paycheck is directed into savings. Being aware of what works for your situation is important in choosing any budget method. If your basic needs are not being covered, you may need to adjust the percentages or look for alternative budget styles.
The 60%: Savings
The reason that this budget may not be for everyone is due to the heavy dedication to savings. 60% of anything is a lot, let alone dedicating that amount to savings.
However, by allocating 60% of your money into savings or paying off any debt, you have a better chance of reaching your financial goals and reaching them faster with a lower percentage budget, such as putting away only 10% of your paycheck.
Some examples of what could be considered part of the savings categories include:
- Paying off debt
- College funds
- Stock investments
- Real estate investments
- Starting a business
- Buying a house
- Emergency funds
Anything that is a future financial goal will have 60% of your income go towards it each pay cycle. For example, if you have a paycheck of $3,000 that is paid monthly, you would put away $1,800 into your savings or towards one of the above options. Although that seems to be a lot of money to save at once, you will have accumulated $21,600 towards your goals in just one year.
If you had saved 10% of your $3,000 paycheck, you would only have $3,600 in savings, which is only a little over a full paycheck. With the 60 30 10 Rule Budget, you are able to save a large amount in record time.
The 30%: Needs
The second largest portion of the 60 30 10 Rule Budget is the 30% that is dedicated to your needs. Often in other budgets, this might be the largest portion, but the 60 30 10 Rule is focused on savings while allocating the rest to needs and wants.
Needs are everyday expenses and necessary expenses that you can’t avoid or live without, such as:
- Rent or mortgage payments
- Food and water
- Transportation to work
- Utility bills
- Household products
Items like streaming services are not generally not considered needs, but something like having access to the internet is since it’s become essential to school and general work.
Using our $3,000 a month paycheck example, 30% of it would equal $900. This means $900 would be dedicated to food, rent, and other items you need. As you can see, the 60 30 10 Budget does place an emphasis on savings over needs. It’s worth mentioning that if you do choose to go with this budget, make sure that your needs category has enough money to cover everything, including your rent or mortgage payments.
The 10%: Wants
The remaining 10% of your income can be put towards anything else you wish to buy. This can be items such as:
- Dining out
- Entertainment, including streaming services or movie tickets
- Any memberships, like gyms, museums, or clubs
With a $3,000 paycheck, you have $300 to spend on your wants. Remember, this is for non-essential items, so you can have fun with the money and use it towards anything else you want. As it’s already part of your budget, you don’t have to worry if you have enough to spend on that new pair of sneakers; you already know that everything else has been taken care of.
How to Get Started with the 60 30 10 Rule Budget
It is very easy to get started with the 60 30 10 Rule Budget if you are interested in utilizing it to help you reach your financial goals.
The process is fairly straightforward, starting with adding up your income and figuring out what you plan on spending and saving for the month. Once you have a baseline of what you spend your money on, you can divide them into the three categories of savings, needs, and wants. After they have been divided, you can then put the correct percentage of your money towards the categories.
Step 1: Adding your income
When trying to figure out your income, including any money you take home after taxes. This can be from a traditional 9-5 job, any side hustles, contract work, child support, stimulus checks, or even cash you earn through apps. If you are a contract worker or a 1044 worker, you may want to include the taxes you will have to pay come tax season as part of your savings, so you won’t have a surprise down the road.
Step 2: Figure out your spending and what you need to pay for
Step two can be tricky if you haven’t used a budget before, but take the time to sit down and look through your past few months or year of expenses. Many banks offer apps or online banking that can help you go back through the year and see what you have purchased to make it easier.
Make notes on everything from mortgage payments and student loans to groceries, eating out, and travel. Using a spreadsheet online or a paper version can help you keep track of your spending and make it easier to work with.
Step 3: Divide everything into categories
Once you have a list of your essential spending and your financial goals for saving, you can start to divide everything into three categories: savings, needs, and wants.
The easiest way to do this is to start with your fixed expenses, followed by your savings. Whatever you have left will be your wants. Remember, each category will be giving a percentage of your paycheck: 60% to savings, 30% to needs, and 10% to wants.
Before committing to this budget rule, ensure you have enough to cover your needs first. Even if you want to reach your financial goals quickly, the budget will be useless if you can’t afford your rent or utilities.
Step 4: Adjust your spending as needed
Budgets can be hard to stick to, so it’s important to evaluate your budget every month. Check your spreadsheet, where you are keeping track of your spending, to see if you need to adjust anything in the categories so you can stay true to the 60 30 10 Rule Budget.
If at the end of the month, you have overspent or underspent in a category, you can adjust it accordingly for the next month. It may take a few months for you to get it right, but if after a while you are still having trouble committing to the 60 30 10 Rule Budget, you may need to find a different percentage budget or style of budget that will work better for you. Even financial experts have to evaluate and adjust their budgets over time.
Who is the 60 30 10 Rule Budget Right For?
Saving over half your paycheck isn’t for everyone, and it takes a lot of dedication to make it work. The 60 30 10 Rule Budget is best for those who have little debt, lower living expenses, and are more financially experienced people. For example, if you have a small mortgage payment or are able to live with roommates to lower your rent, you would be able to put more of your money towards savings rather than needs.
Even if you aren’t a financially experienced person, the 60 20 10 Budget may be a good choice for you short-term, especially if you are trying to save towards a financial goal, such as college tuition or paying off debt. However, if you are living paycheck-to-paycheck, this budget may not work for you, as you need a large amount of extra money to go into savings. Instead, another percentage budget might be a better alternative, such as inverting the numbers: 60% to needs, 30% to savings, and 10% to wants.
The purpose of the 60 30 10 Rule Budget is to save as much money as you can without hindering your needs and wants. If you find that you cannot afford to cover your daily expenses without dipping into the wants category, this may not be the budget for you.
Alternative Percentage Budgets
If the 60 30 10 Rule budget is too extreme for you or you have higher living expenses, consider adjusting the percentages to fit your needs. An alternative budget is the 50 30 20 Rule, which focuses on putting half of your paycheck toward needs, 30% toward wants, and 20% toward savings.
The 50 30 20 Budget Rule is a good option if you already have a nest egg saved up or can’t afford to put a lot in savings. It is a more equal budget compared to the 60 30 10 Rule Budget and may be easier to stick with.
Of course, with any budget, the numbers can be adjusted. Maybe you want to try the 60 30 10 Rule Budget, but 60% is just too much for you at the moment, or you live in a high-cost-of-living area and need to put more money into your needs. Instead, you could try 50% into savings, 40% into needs, and 10% into wants.
What is the Best Budget?
There is no best budget; rather, the best budget will depend on your individual income, financial goals, debt, and many other factors. You may have to try a few different budget rules and styles to find one that works best for you.
When deciding which budget to try, consider how much money you earn, your necessities, and how much you are willing to save. If you want to save a lot quicker and have extra money to set aside, the 60 30 10 Rule Budget is an excellent start. However, if you are lower income, the emphasis of your budget will be on meeting your basic needs instead of saving as much as possible.
It’s also important to consider your spending habits, so you can find the right budget. Keeping track of what you are spending your money on will help to determine how you budget. Maybe you have been eating out too much and not putting enough money towards that down payment. Or perhaps you may be putting away too much money and not spending enough on healthy food or hobbies to keep you happy.
Everyone has different goals and different incomes; it’s important to figure out what you want to spend your money on and what you need to spend your money on. Adjusting your budget as you learn what works for you is often the best method. Remember, budgets aren’t set in stone and can be flexible.
If you aren’t sure where to start with budgeting, contact one of our advisors to discuss your options and help you on the path to a successful financial future.
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