The 60 30 10 Rule Budget – How Does It Work?

Do you want to fast-track your savings efforts to meet a financial goal?

The 60 30 10 rule budget could be the right technique for you.

But how does it work and what are the benefits?

Here’s everything you need to know about making the 60 30 10 rule work for your finances.

What is the 60 30 10 rule budget?

The 60 30 10 rule has a simple concept. Each number represents a percentage that is allocated to three areas of your budget – savings, needs and wants.

60% savings

With this budgeting technique, 60% of your monthly income is allocated to your savings funds. It can also be used to pay off debt or invest.

30% needs

Needs include essential outgoings such as housing, utility bills, food, travel and healthcare. 30% of your take-home pay will be used to cover anything that falls into this category.

10% wants

The remaining 10% of your pay can be used for anything you like, including entertainment, clothes and holidays.

Example of a 60 30 10 budget

On average, people in America’s after tax income is around $2,730 per month.

Let’s take a look at how this income would be applied to the 60 30 10 rule.

  • $1,638 is put into a savings pot or used to pay off existing debt such as credit cards.
  • $819 is used for essential spending.
  • The remaining $273 can be used for discretionary spending such as leisure.

As you can see in the example above, 60% of a monthly salary is a huge amount. Just imagine how much you could save over the year ($19,656 to be exact). What would you save for or invest in with that kind of money?

The problem is that saving more than half of your earnings is challenging. But it’s not impossible. Follow our step-by-step guide below to make this budget method work for you.

How to use the 60 30 10 rule budget

So, you’ve decided to give this tough but rewarding budgeting method a go. Here’s what you need to do to make it a success.

1.Add up your monthly income.

First things first, you need to know exactly how much money you earn each month. This includes any earnings from your main job as well as any side hustles or extra income that you receive.

2.Calculate the spend threshold for each category

Use a calculator to work out exactly what 60%, 30% and 10% of your monthly income is and make a note of your thresholds. If your income varies each month, you will need to do these calculations every time you get paid to make sure you are accurately proportioning your money.

3.Budget accordingly

Now you have the figures you need to budget effectively, start breaking down your monthly expenses. For example, under needs you could break the 30% down further by:

Housing – this area is likely to take up the majority of your 30%.

Bills – split your bills down further to cover water, gas etc.

Food – always set and stick to a budget for food. It is the most common area that people overspend on.

Travel – for some people, travel is essential to commute to work so don’t forget to allocate funds accordingly.

The key to making the 60 30 10 method work is to adapt your lifestyle accordingly. So, if you’re renting you might decide to move to a cheaper area that fits your budget. Changing where you buy your groceries from is another way to save money on your monthly food budget.

4.Set financial goals

We all have experience of needing to save for a purchase that is out of our financial reach. Whether you’re a teenager wanting to buy a car or an adult trying to get on the property ladder, setting financial goals is the best way to achieve your target.

The first step is to decide what you want to save for. Next, work out if it’s a short, medium or long-term financial goal by calculating how long it will take you to save. To do this, use the 60% figure from your 60 30 10 budgeting technique.

For example, if you wanted to save for a holiday that costs $3500 and you saved $1,638 from your monthly earnings it would only take two months to achieve your goal. However, if you were saving for a deposit for a house and needed $12,500, it would take you eight months (and you’d have a small amount of money spare).

From the examples above you can see how effective the 60 30 10 rule is at boosting your savings efforts. Always make your financial goals SMART – specific, measurable, achievable, relevant and timely.

5.Monitor your spending

A budget only works if you’re sticking to it. Throughout the month, check to see whether you’re on track. If you’re overspending, look at where you can save money or adjust the percentages on each category accordingly. If you’re underspending, consider the ways that you can use any spare money you have to save more or reduce debt.

Benefits of the 60 30 10 budgeting strategy

Budgeting has so many benefits, regardless of what method you decide to use. The main reasons to consider the 60 30 10 rule are to:

Reach your goals quicker

60% of your income is a huge proportion, which means that you will be able to achieve your financial targets much quicker than if you put less away.

Be disciplined in your spending

Having clear spending categories can help people to take control of their bad spending habits and cut back on unnecessary splurges. The 60 30 10 rule also lets you have some fun by allocating a small amount of your income for anything that you want.

Achieve financial independence

Rather than living paycheck to paycheck, saving the majority of money wisely will give you a feeling of financial security. This will mean you are less stressed about money worries and be more aligned with what is important to you such as being able to pay to travel or spend time with family and friends.

Clear debt quicker

Using more than half of your monthly income on eliminating high-interest debt will not only save you money in the long run but also clear debt.

Downsides of the 60 30 10 rule

Before deciding if this budgeting technique is for you, consider the cons and how you could overcome them.

Can be challenging for people on a low income

Ok, so saving more than half of your earnings every month is tough, especially if you are on a low income. If you’re set on using the 60 30 10 budgeting technique, try to cut back on your spending elsewhere to make it more financially achievable. It’s important to recognize when a budget rule won’t work for your individual circumstances though. There are plenty of other tactics that can be used to help you save and pay off debt without making you worry about how you will save 60% of your earnings each month.

Side hustles are a great way to boost your income so you can still achieve your financial dreams.

Difficult to allocate some of your spending

If you prefer to have set categories for each area of your spending, the 60 30 10 rule might not be the right method for you. There are some grey areas such as where to take money from for an emergency home repair that may cause some people not to stick to their carefully planned budget.

Doesn’t allow for unforeseen circumstances

When living on a tight budget, it can be hard to know what to do when an unexpected financial emergency arises. All of your money is tied up in each category, so you will need to plan where the funds to repair your washing machine will come from. Using some of your savings to allocate to an emergency fund effectively overcomes this challenge.

The importance of saving

Saving isn’t just about putting enough money aside to buy new things.

You can achieve a sense of financial freedom by having access to money in case of a financial emergency and avoid debt, which reduces the financial stresses that people with money worries can experience.

Another reason that it’s important to save is that it can help set you up for later in life. You may not be thinking about your retirement as a young adult, but financially you should. The more money you can save early on in your life, the less you will need to save the closer it gets to retirement age.

Education is another motive for people that want to improve their career prospects. Education comes at a price though, costing a student who wants to attend a 4-year public institution approximately $25,487 for each academic year. Rather than take out a loan that will cost you interest, saving at least some of the money you will need will benefit you financially in the future.

Similar budgeting methods

The methods described below are all similar to the 60 30 10 rule as they use percentages to divide up your income. Everyone’s financial situation is different so it’s important to find a technique that works for you.

50/30/20

50% of your income on needs: essential living expenses including rent or mortgage, utility bills, food and transport

30% on wants: this includes spending on eating out, shopping, holidays, gym memberships and subscriptions

20% on savings or debt: paying off debt rather than just the minimum payments, contributing to a savings account or pension fund, or investing your money to make a profit.

80/20

With this simple budgeting method, 80% of your take-home pay is used to pay expenses and the remaining 20% is put into a savings account. A disadvantage of this technique is that it doesn’t separate your essential and non-essential spending so you will need to break down your areas of spending yourself.

An effective way to stick to this budget is to set up an automatic transfer to a separate account so every time you get paid, 20% is put into another account immediately. This way you will hardly notice the money leaving your account.

70/20/10

70% of your earnings is used for needs and wants: there is no separation between essential and non-essential spending in this technique so you will need to figure out the parts of your outgoings that are fixed and which are variable.

20% is put towards savings and investments. You could start an emergency fund or start saving for a financial goal.

The remaining 10% is used to pay off debt or make charitable donations: it’s a good idea to pay off any debt first to avoid paying interest. Once this is clear, the 70/20/10 budget rule allocates 10% of your income to help charities of your choice.

30-30-30-10

If your financial goal is to eliminate unnecessary spending, this budgeting rule could work for you. It also helps you stick to the set categories whilst still having some money left over for fun.

30% of your monthly income is used to pay your housing needs such as rent, mortgage and any appliances you might need.

Another 30% is allocated to expenses such as utility bills, groceries, clothes, a mobile phone and the internet. This category covers essential spending.

The last 30% is put towards paying off debt, saving or investing.

The remaining 10% can be used to cover your wants. This can be anything from eating out, going to the movies with friends or splurging on cable TV.

So is the 60 30 10 budgeting rule right for you?

To sum up, the 60 30 10 rule may not be the right budgeting technique for everyone, but if you can make it work it’s a proven way to save more and stay out of debt.

Why not give it a go and start saving right now?

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