Managing finances can be challenging, especially in today’s world, where the cost of living is at an all-time high and showing no signs of slowing down.
Having a budget is crucial for anyone looking to achieve financial stability and reach their financial goals, whatever those goals may be.
However, creating a budget that works for you can be daunting, and many people struggle with sticking to their financial plans, despite having the best intentions.
That’s where the 60 30 10 rule budget comes in.
This budgeting method is a simple and effective way to manage your finances, allocate your income, and achieve your biggest financial goals.
However, sticking to the 60 30 10 budget isn’t easy, and it might not even be doable for those on a low income.
In this blog post, we’ll dive into the 60 30 10 rule budget, how it works, whether it’s realistic for everyone, and how it can be used to achieve financial security in today’s challenging times.
Are you ready?
Then let’s get into it.
Mastering Your Finances With The 60 30 10 Rule Budget
Why is it important to have a budget?
A budget is an essential tool when it comes to managing your money.
First, a budget helps you identify key areas where you can cut back on your spending, and allows you to plan how you will allocate your income in order to spend smartly and get closer to achieving your financial goals.
These goals may include paying off debt, building an emergency fund, or saving for a house deposit – whatever your goals are, having a budget will help to turn those dreams into a reality.
Another huge benefit of having a budget is that it also reduces financial stress and anxiety.
This is because when you have a budget in place, you are able to plan for the future by anticipating expenses and saving accordingly, ensuring you’re prepared for any situation that might crop up.
What is the 60 30 10 rule budget?
As the name would suggest, the 60 30 10 rule budget is a budgeting method that is based on percentages.
It divides your take-home income into the following 3 categories:
60% on savings
60% of your take-home income should go straight into your savings or paying off debt.
Examples of what you can do with this 60% include:
- Building your emergency fund
- Investing in the stock market
- Retirement fund
- Savings for a house deposit
- Paying off student loan debt
- Paying off other debts
- Other types of investments (business, real estate etc.)
30% on needs
30% of your income is allocated for your needs, the things that you can’t live without.
Examples of these essential outgoings may include:
- Utility bills
- Phone plan
- Fuel for your car
- Health care
- Child support
- Essential household products
10% on wants
The remaining 10% of your income can be used on whatever you like.
This may include:
- Eating out
- Shopping for non-essentials
- Nights out
- Subscription services like Netflix, Spotify etc.
- Memberships (gym, clubs)
Why budget by percentage?
Budgeting by percentages is great because it allows you to allocate your income based on your own personal needs and financial goals.
After all, everyone’s income and expenses are different, and so budgeting by percentages allows you to adjust your spending according to your income and prioritise your expenses accordingly.
Budgeting by percentages also helps you avoid living beyond your means. When you budget by percentages, you allocate your income to the most important expenses first, which ensures you will always have enough money to cover your basic needs before indulging in things like going to cocktail bars and on vacations.
Additionally, budgeting by percentages (especially with the 60 30 10 budget) provides a clear framework for saving.
By allocating a percentage of your income towards savings, you are always working towards your financial goals, which the 60 30 10 budget is particularly focused on.
How to get started with the 60 30 10 rule budget
Getting started with the 60 30 10 rule budget is simple.
It just involves working out exactly how much money you take home every month, knowing your outgoings, and dividing those outgoings into categories.
Work out your income
The first thing you need to do is work out exactly how much income you receive after taxes.
This includes your salary, any income you receive from side hustles or freelance work, child support, government benefits (stimulus payments), interest on your current savings, and even money you may make from apps like Poshmark and Mercari .
Outline your financial goals
The next step is to allocate 60% of that income to your financial goals, which means getting super clear about what those goals are.
Are you saving for a house deposit, do you want to start investing, or is paying off debt your focus?
Figure out your spending and expenses
Next, you have to sit down and review all of your spending habits.
This may take some time, but it is an essential part of the process, so don’t skip this part!
Write down everything you spend your money on each month, from big things like rent and utility bills to your daily Starbucks, dining out, public transport etc.
Organise everything into categories
When you know exactly what you’re spending your money on, organise everything into categories based on whether it’s an essential need, or simply a want.
For example, rent, utilities, groceries, and your phone bill would go into the ‘needs’ column, and things like makeup, streaming services, and that morning Starbucks would go into the ‘wants’ column.
I recommend doing this on a spreadsheet, either on Microsoft Excel or Google Sheets.
Evaluate and adjust your spending
Work out whether the 60 30 10 rule is something that’s going to work for you – if you can’t cover your rent payments on 30% of your income, then this isn’t the budget plan for you (which is totally fine!), and you might need to consider a less aggressive percentage budget.
If you’ve crunched the numbers and found that this plan is doable, you need to adjust your spending to fit within the confines of your new budget.
For example, if you take home $4000 per month after tax, you’ll be putting $2400 straight into your savings accounts.
That will leave you with $1200 to cover all necessary expenses, and $400 to spend on entertainment, socialising etc.
Pros and cons of the 60 30 10 rule budget
As I mentioned earlier, the 60 30 10 rule budget is not a good fit for everybody.
It’s very difficult to maintain a good social life (especially in places where the cost of living is higher) on only 10% of your budget, and many people struggle to cover their essentials within the 30%.
Here are the main pros and cons of the 60 30 10 budget rule.
Advantages of the 60 30 10 rule budget
- Accelerates you towards your financial goals at lightening speed – because of the huge focus on saving and investing, you will be able to meet your financial goals quicker than with other budget methods.
- You could retire early – the 60 30 10 budget is in line with the F.I.R.E movement (Financial Independence, Retire Early), that promotes aggressive savings as a path to retiring in your 30s or 40s.
- Reduce unnecessary spending – it will force you to question whether you really need to be subscribed to 5 different streaming services, or whether that money could be put to better use (ie towards financial independence).
- Forces you to become more financially disciplined – having to say ‘no’ to last-minute indulgences and exercise discipline financially will inevitably lead to you becoming disciplined and bettering yourself in other areas of life as well.
- Prepares for emergencies – the 60 30 10 rule budget means that you will always have a large amount of cash squirreled away in case of emergencies, which could include losing your job, a health emergency, home renovations, vets bills…you get the gist.
Disadvantages of the 60 30 10 rule budget
- May require huge lifestyle changes – in order to reduce your ‘needs’ to just 30% of your income, you may need to rent in a cheaper area, live off very basic food, and take public transport to work. These are huge lifestyle changes that you may not be comfortable with.
- You have to be incredibly frugal – you are going to miss out on a lot of restaurant visits, weekends away, and coffee dates with this budget. Ask yourself whether you would be happy to give up all of those luxuries.
- Not realistic for everyone – this rule is for those who are privileged enough to be able to survive off 40% of their income. For the majority of the working class, this simply isn’t possible.
- Not always sustainable in the long term – as a short term solution to a big goal, this budget plan works a treat. Maybe you’re prepared to live frugally for a few months in order to put down a deposit on a house. However, as a long term budget plan, it could be a bit depressing!
Tips for sticking to the 60 30 10 rule budget
The key to budgeting successfully is staying motivated at all times, which isn’t always easy.
One way to stay motivated is to get really clear on why you’re doing what you’re doing.
By outlining what is your why, you will find it easier to make short term sacrifices for the long term result.
You should also make sure your goals are SMART goals (specific, measurable, actionable, relevant, and timely), focus on developing a growth mindset, and spend time educating yourself about the world of money.
When you do all of these things, remaining motivated to stick to your budget will be so much easier.
Who is the 60 30 10 rule budget for?
You might be wondering, ‘Is the 60 30 10 rule right for me?’ and that’s understandable.
If you’re on a low income and living in an expensive area, dedicating 60% of everything you earn to your savings may be impossible – the 60 30 10 method is aggressive, and the truth is that it just isn’t realistic for everybody.
In order to evaluate whether the 60 30 10 percentage method is for you, ask yourself the following questions:
- Can you cover your necessary expenses on 30% of your income?
- Are you willing to cut out almost all of your more frivolous spending?
- Is this your first time setting a budget? If so, you may struggle with such a strict one.
- Are your living expenses very low? In this case, the 60 30 10 rule could work for you.
- Do you have a short term goal that you are willing to make short term sacrifices for in order to achieve?
- Are you able to increase your income? If you can easily pick up a part-time job or side hustle, you could make this budget work for you.
- Do you have a large income that can easily cover your expenses? The 60 30 10 rule budget would be a great idea.
Alternative percentage budgets
If the 60 30 10 rule isn’t right for you, there are plenty of other ways to divide up the percentages.
If you have a higher cost of living, you could do the 50 30 20 rule budget, which allocates 50% to your needs, 30% to your wants, and 20% to your savings.
This is a much more manageable model that still ensures you’re putting money away for a rainy day, while still being able to pay your bills and enjoy some small luxuries.
You could also try the very simple 80 20 budget plan, which involves spending 80% of your income on all expenses (both wants and needs), and saving 20%.
Essentially, you can divide the numbers in a way that suits your current lifestyle, and make some tweaks if your income increases or decreases.
What’s important is that you are consistently saving each month, keeping up to date with debt repayments and bills, and not overspending on things that aren’t important.
The 60 30 10 Rule Budget | Final Thoughts
The 60 30 10 rule budget is not for everyone, but for those on a high income with big financial goals or debt they want to pay off quickly, it can be a really solid budget plan.
If that isn’t you right now, don’t worry!
The main takeaway from this article is that no matter how you divide your income, you should always be sticking to a budget, living within your means, and thinking about the long term rather than frittering away your money on temporary and meaningless things.
That’s all I’ve got for today, but as always, if you have any questions then don’t hesitate to ask me in the comments section below!
Until next time,