There’s a new budgeting rule in town, and it’s all about savings. The 60 30 10 rule budget helps you achieve big financial goals like retiring early or buying a house by emphasizing savings versus monthly expenses.
It’s a drastic budget plan that isn’t for everyone, but if you have significant financial goals, see how this budget may help you.
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What Is the 60 30 10 Rule Budget?
The 60 30 10 rule budget categorizes your spending into three categories – savings, needs, and wants. What’s different about this budgeting method is that the savings category is the largest.
To use this budget method, you allocate 60% of your monthly income to savings, 30% to spending, and 10% to entertainment and dining out. It’s a drastic budget method, but it often works for people with short-term, large goals, such as buying a car or house, and those who want to achieve FIRE.
Who the 60 30 10 Rule Budget Is Best For
The 60 30 10 rule budget plan isn’t for everyone. We find it works best for people with large financial goals they want to meet quickly and those who want to be more disciplined about spending. Of course, it also doesn’t work if you’re used to living paycheck to paycheck. You won’t be able to allocate most of your income toward savings because you need every penny to cover your expenses and spending.
Do Budget Percentage Rules Work for Everyone?
Some people won’t be able to use budget percentage rules, even those less restrictive than the 60 30 10 rule budget, and here’s why.
If you have a variable or lower income, haven’t settled down, or live in a high-cost area with a low income, then the percentage budgets may not allow you to cover your housing or living expenses. Some people also can’t cut back and make their expenses fit into a ‘rule.’ They find it too restricting and don’t follow it.
But there are many benefits to trying this rule.
Key Benefits and Drawbacks of the 60 30 10 Rule
Any budgeting system has pros and cons. Understanding the good and bad sides of the 60 30 10 rule budget is important to determine if it’s right for you.
The 60 30 10 rule budget has many good aspects; if you’re a rule follower, it can work in your favor.
Discipline Behind Spending Habits
If you have poor spending habits, you might enjoy the 60 30 10 rule budget because it greatly limits your spending. Most of your income goes to your savings, with only 10% covering unnecessary spending.
Knowing you can’t overspend can help you learn self-discipline, and like with any new habits, such as a diet or exercise program, it takes time. Don’t expect it to happen overnight.
Income Boost Motivation
When you’re allocating most of your income to savings, it can motivate you to find ways to make more money. As you see progress toward your savings goals, you may feel empowered to find more ways to reach them even faster.
Rapid Progression of Financial Goals
Saving 60% of your income makes it much easier to reach your financial goals quickly. These goals may be credit card debt repayment, buying a house, or any other large goal. Seeing your savings add up quickly can help you maximize your goals.
Of course, you should understand the downsides to the 60 30 10 rule budget before starting it.
Major Lifestyle Adjustment
The 60 30 10 rule budget requires major lifestyle changes. Your main focus is on savings, not covering your basic needs or wants. Of course, you must cover housing and other living expenses, but you may need to limit them to meet your savings goals.
Discretionary Spending Limitations
With only 10% of your income to cover discretionary spending, you will likely have to change your habits, including how often you eat out or pay for entertainment. Also, if you have a shopping habit, you’ll have to change those habits to fit your budget.
Setting up Your 60 30 10 Budget
Setting up your 60 30 10 rule budget isn’t hard. However, you must know your take-home pay, expenses, and financial goals to do it.
1. Calculate Your Take Home Pay
The first step is determining your take-home pay. This is your net income or after-tax income. Next, look at your most recent pay stubs to determine how much income you bring home monthly.
If you are paid a salary, you can divide your annual income by 12 and subtract your applicable tax liabilities and other deductions, such as health insurance.
If you work part-time, on commission, or earn hourly pay, you can take an annual average of your income by looking at your most recent W-2. You may also want to determine your lowest earning month and base your budget on that amount to account for when your income dips.
If you find you don’t make enough money to reach your goal of saving 60% of your income, you may consider finding ways to increase your income, including:
- Asking for a raise
- Applying for a second job, such as at a retail store or local company
- Starting a side hustle, such as babysitting, dog walking, or driving for Uber or Lyft
- Starting a freelance gig online, such as a gig on Fiverr or Upwork
2. Set Financial Goals and Milestones
Next, you’ll focus on your financial goals and milestones. This budget method focuses on your savings to reach short-term financial goals. So what do you want to achieve?
Next, ask yourself, can I achieve this goal with my current spending?
If not, find ways to adjust it. For example, you may look for ways to lower your bills, like refinancing your mortgage, getting cheaper insurance, and canceling subscriptions or services you don’t need.
It’s important to get creative in this step if you want to reach your financial goals. Keep the goals in mind as you find ways to reduce expenses and other spending habits to save money.
3. Find or Create a 60 30 10 Budget Spreadsheet or Template
Next, create a 60 30 10 rule spreadsheet for yourself. You may also search online and find one that’s already created.
Choose the one you’ll regularly use, whether an online spreadsheet, one using Excel, or one you print out and complete by hand.
4. Categorize and Allocate Costs Into the 60 30 10
Now comes the tricky part. First, you must categorize your spending and allocate costs into the budget, considering the 60 percent you want to save.
The 60 Percent
The 60 percent is easy to figure and is the amount you’ll save monthly. To calculate this, take your monthly after-tax income times 0.60.
How you allocate this money is important too. First, decide if you’re saving for a single goal or splitting the funds among multiple goals. For example, if you’re saving for an emergency fund and paying off debt, you may want to split the funds equally between the two, or maybe you’re saving to retire early and pay off high-interest debt.
The 30 Percent
Next, you figure 30 percent of your income (monthly after-tax income times 0.30) and make your bills fit into it.
Your mortgage or rent, car payment, personal loans, student loans, utility bills, basic food and clothing, insurance, and medical needs must fit within 30% of your income.
The 10 Percent
Finally, you can use 10% of your income (monthly after-tax income times 0.10) for discretionary spending (meaning wants).
5. Don’t Forget to Stick To Your Plan
The plan may feel difficult or restricting initially, but sticking to the plan will help you reach your financial goals. Keep the prize in mind. Print pictures and put them on your refrigerator for motivation.
For example, if you’re striving to retire early, put pictures of the things you dream of doing in retirement, or if you’re saving for a house, put a picture of your dream house up to keep you going.
Additional Budget Percentage Rules
The 60 30 10 rule budget isn’t for everyone. It’s only for people motivated and capable of saving large portions of their income. If it doesn’t seem right, here are other budgeting methods to consider.
The 50 20 30 Rule
The 50 30 20 rule budget is the most common budget method used. This budget allocates 50% of your income to fixed expenses, 30% to wants, and 20% to savings. It’s the opposite of the 60 30 10 rule budget, as you save the least of your income and allocate the most to your monthly expenses.
It’s a less restrictive budget and allows much more discretionary spending, as you allocate 30% of your income to non-essential expenses. You might find making your bills fit into 50% of your income easier than 30%, which could be a good place to start.
The 30 30 30 10 Rule
The 30 30 30 1o budget is another rule budget that puts your spending into categories. Again, it’s easier to remember since all categories take up 30 percent of your income except the wants category, which is only 10%.
With this budget, you allocate 30% of your income to housing, 30% to necessary expenses, such as utilities, food, and medical bills, 30% to savings and financial goals, and 10% to wants. This budget method works well if you want to keep your housing costs under control while managing your spending and saving more than 20% of your income, like the 50 30 20 budget.
The 60 20 20 Rule
The 60 20 20 rule budget is like the 50 20 30 budget, but a higher percentage of your income goes to your monthly bills.
With this budgeting method, you allocate 60% of your take-home pay to your living expenses, including housing, food, utilities, medical, and clothing; 20% to savings and other financial goals; and 20% to your wants.
If you live in a high-cost area or already have high bills but want to ensure you save money, the 60 20 20 rule can help keep you on track.
The 60 40 Rule
The 60 40 rule makes budgeting easy, but you must be disciplined. To use this budgeting method, split your income into two categories – 60/40.
In the 60% category, you must cover all expenses, including housing, utilities, food, clothing, insurance, and medical needs. Then in the 40% category, you must use the funds wisely, splitting it between savings, debt repayment, and fun money.
This method is simpler but also gives more leeway in how you use the funds, which can be bad if you aren’t disciplined enough not to overspend.
The 70 20 10 Rule
The 70 20 10 rule focuses most of your income on living expenses versus savings. This budgeting method works best for those in a high-cost area or someone who is just starting and hasn’t figured out how to keep the cost of living down while emphasizing saving for the future.
With this rule, you allocate 70% of your income to your monthly expenses, 20% to debt payoff or savings, and 10% to your fun and wants.
The 80 20 Rule
The 80 20 rule works for people with the discipline not to overspend. Instead of breaking out categories for fixed bills and fun spending, it all goes into the 80% category. This leaves 20% for debt payoff and savings.
If you’re disciplined and need numbers to help you allocate your funds properly, this budget can work and be a great stepping stone to working your way up to the 60 30 10 rule budgeting method.
How Can Using This Budgeting Rule Help Someone?
Using any budgeting rule can help you keep your eye on the prize. You’ll be more aware of what you’re spending and where you’re spending it. With percentage rules in place, you know exactly what fits and doesn’t to make changes as needed.
What Do I Do if My Needs Are Too Expensive for the Budgeting Rule?
You have two options if your needs are too expensive to fit your desired budgeting method. The best one is to readjust your spending. Find ways to reduce expenses and make the most of your budget. The other option is to find another rule budget that fits your needs.
Why Is Budgeting by Percentage Useful?
Budgeting by percentage allows you to better handle your spending, needs, and wants. You’ll also be more aware of how much of your income you save and if you should save more.
The Bottom Line
The 60 30 10 rule budget is a great plan if you want financial freedom, want to minimize your living expenses, and have more money for large purchases like a down payment on a house or college.
This drastic budgeting method is not for everyone, but it can help you achieve major financial goals when closely followed.
Samantha Hawrylack is a personal finance expert and full-time entrepreneur with a passion for writing and SEO. She holds a Bachelor’s in Finance and Master’s in Business Administration and previously worked for Vanguard, where she held Series 7 and 63 licenses. Her work has been featured in publications like Grow, MSN, CNBC, Ladders, Rocket Mortgage, Quicken Loans, Clever Girl Finance, Credit Donkey, Crediful, Investing Answers, Well Kept Wallet, AllCards, Mama and Money, and Concreit, among others. She writes in personal finance, real estate, credit, entrepreneurship, credit card, student loan, mortgage, personal loan, insurance, debt management, business, productivity, and career niches.