The 60/30/10 rule budget can deliver huge results but beware – its not made for beginners. It will take all you've got to stick to this intense budget.
Consider that 67% of Americans in January 2022 were living paycheck to paycheck, according to the LendingClub Bank. Now you can understand why this budget method will be very difficult, if not impossible, for most people.
On a personal note, this was the budgeting method I used to save money to buy my first house. The 60/30/10 rule made this purchase happen sooner since my focus was on saving most of my money.
Before you pass the 60/30/10 budget over though, let's explore what it consists of, if you should try it, and see an example so you can understand it better.
What Is The 60/30/10 Rule Budget?
Like any budget method, the 60/30/10 is based on percentages and focuses on three different categories:
- Savings – You will save 60% of your salary to build your savings, pay off debt or invest.
- Needs – You will spend 30% on your basic needs like bills, groceries, rent, and transportation.
- Wants – You will spend 10% of your budget to pay for things you want that are considered non-essential expenses, like Netflix or gym membership.
It seems pretty straightforward, right? But keep reading because I will detail every category so you grock it at an even deeper level.
Who Is The 60/30/10 Rule Budget Ideal For?
The 60/30/10 rule budget is not the most practical for many people, especially if you live paycheck-to-paycheck. If you cannot live with the money you earn, you definitely won't be able to save 60% of it. If you have a lot of expenses, try the 70/20/10 rule budget or the 50/30/20 rule budget.
This budgeting method is excellent for experienced people who can give up a lot of their earnings to save them and invest in other financial areas.
The 60/30/10 rule budget is excellent if you:
- Have big financial goals like buying a house and paying a large amount of debt.
- Want to create a big emergency fund?
- Want to save most of your salary to invest?
- Desire to achieve FIRE – Financial Independence Retire Early.
- Don't live paycheck-to-paycheck.
How To Budget Your Money With The 60/30/10 Rule Budget?
Now that you have an idea of what the 60/30/10 budgeting method consists of and if it's ideal for you or not, let me explain more in-depth all three categories.
Spend 60% Of Your Money On Savings
The most significant part of your salary, 60%, will be allocated to the savings category. This is a great way to achieve your financial goals.
A few examples of what is considered to be part of the savings category:
- Debt Payments
- Emergency Fund
- Buying a House
- Starting a Business
- Stock Investments
- Real Estate Investments
- Retirement Contributions
- Sinking Funds
- College Savings For Kids
If your salary is $2,000 after-tax, that means you would allocate $1,200 to savings each month. In 12 months, you would have saved $14,400.
Spend 30% Of Your Money On Needs
30% of your salary after-tax will be allocated to the needs category, which englobes all the expenses you can't avoid or would be difficult to live without. It's essential to be objective because you can live without a Netflix subscription (that's in the want category). So focus on the basic needs in this section of your budget.
A few examples of what is considered to be part of the needs category:
- Monthly Basic Bills (Water, Gas, Electricity)
- Any Loans
- Household Products
If your salary is $2,000 after-tax, that means you would allocate $600 to your needs each month. In 12 months, you would have spent $7,200.
Spend 10% Of Your Money On Wants
Finally, the last 10% of your income will be allocated to the wants category, which it's everything that is not essential, but you take pleasure in consuming.
A few examples of what is considered to be part of the wants category:
- Dining Out
- Memberships (gyms, professional organizations)
- Entertainment Subscriptions
If your salary is $2,000 after-tax, that means you would allocate $200 to your wants each month. In 12 months, you would have spent $2,400.
How Do You Set Up The 60/30/10 Rule Budget?
If you decide you want to move forward with a 60/30/10 rule budget, here's how you can set one up.
1 – Calculate Your After-tax Income
So, the first thing you want to do is calculate your after-tax income and know how much money you will receive every month. Some people receive the same payment every month, but for others, it can vary, which makes budgeting a lot more complicated (but not impossible). Some people get paid weekly and some biweekly, so you must adjust your budget according to your situation.
You can use the free tool on the IRS website to help you determine how much income you can expect to receive and how much taxes you will pay. However, if you have any questions, it would be better to speak with a tax professional.
2 – Use The 60/30/10 Template/Spreadsheet
To keep you organized and to have a better perspective of what you need to do, ensure you use the 60/30/10 template. It can be a spreadsheet that you print and use/fill online or an Excel sheet. Whatever makes your life easier, it's what you should use. Don't forget your partner's income and expenses, and check the best personal budget categories for you.
I love Excel sheets, but I understand the appeal of having a printed spreadsheet where you can quickly look at all your expenses and how much money you have allocated to each category. Learn how to make a budget in Excel.
3 – Categorize Your Spending From Last Month
Now you need to split all your expenses between the categories of savings, needs, and wants. Again, try to be the most specific possible to have a clearer idea of your expenses. Check your bank statement from the last month, and you will be fine.
Start with your fixed expenses (30% of the budget), like rent, bills, insurance, etc. Then go for the things you want to buy (10% of your budget).
You should also know how much money you are allocating to each category from your income. You can find out by doing these maths (you can check the examples section to understand better how to do it).
60%= Income x 0.60 = amount you need to save
30%= Income x 0.30 = amount you can spend on your needs
10%= Income x 0.10 = amount you can spend on your whats
4 – Set Up Your Financial Goals
Once you determine how much income you will receive, how much it's allocated in each category, and all your expenses are categorized, you need to set financial goals.
In my opinion, budgeting is not worth it if you don't have the motivation to keep moving forward with it. You need to set some financial goals for each month. I gave you some ideas above of what your objectives could be. Some examples are buying a house, paying an immense debt, or creating an emergency fund.
The reason why you didn't set your goals before you checked all your expenses and income it's that now you can set realistic financial goals because you know your monetary situation.
5 – Evaluate And Adjust Your Spending
Finally, you will need to evaluate and adjust your personal budget or family budget regularly. Firstly, you must check your spreadsheet and see if you need to make any adjustments to ensure you respect the percentages of each category and don't overspend. You also need to evaluate it at the end of each month and see what went right and wrong and make more adjustments.
Every month you will need to evaluate and adjust your budget. Don't get discouraged if you fail or it doesn't go like you wanted because you will not get everything perfect on the first attempt. Even the more experienced budgeters like me still make mistakes after years of budgeting. You may need to try a different budgeting method.
60/30/10 Rule Budget Examples
Because I am a visual learner (I learn better with specific examples that I can relate to and understand), I decided to give you a sample to help you use the 60/30/10 budget.
The average American earns approximately $51,480 gross per year in the USA, equivalent to $4,290 gross per month. So that's the value I will use in my example.
Note: I have researched a lot about how much the average American pays for rent, bills, groceries, etc. However, it would help if you kept in mind that it varies significantly in each state. These examples are only for you to understand better how the 60/30/10 rule budget works.
The first example is for a single person who splits a house with someone that is not their partner and has no kids.
As you can see in the example, all the money is allocated according to the 60/30/10 percentages for each category. It may be complicated to save 60% of the money, but you will know if it's possible after putting everything in the correct category with the right amount.
You can also be a lot more specific than I was in the example above. For example, if you think you are going on one date per week, you can budget your money stating “date night 1”, “date night 2”, etc. The more specific you are with your money, the better.
If you're budgeting not only your money but your partner's salary as well, you can check the 60/30/10 rule budget example for two incomes. Remember that you merge the two salaries into one and use that amount to budget your money for the month.
Is The 60/30/10 Rule Budget Good For You?
If you want a budget that is heavily focused on your financial goals, the 60/30/10 rule budget is perfect for you. If you have a lower income, this budgeting style will be challenging to put into practice since you need the money to pay your needs category.
To make this budget method work, you may need to increase your income with a side hustle or be very extreme with your expenses and try to cut them the most you can.
Whatever your mindset, until you try the 60/30/10 rule budget, you will not know if you can save the money to achieve your financial goals. So why not start it right now?
Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.