What Is The 60/40 Rule Budget? (With Examples)

Finding the best budgeting method for your life can be tricky. Starting a budget is never easy, especially if you don't know what to do. That's why I think you should try to do the “60-40 Rule” budget (or the 60-10-10-10-10 rule budget).

It may not be easy for everyone to spend only 60% of their salary, but it's definitely suitable for those who want to save money or invest. You can also check the 50/40/10 rule budget, which is quite similar but doesn't tell you what to do with your 40% in such detail.

So let's find out if the 60/40 rule budget is appropriate for your needs and how it works.

What Is The 60/40 Rule Budget?

Like any budget method, the 60/40 is based on percentages and focuses on two different categories (one of them split into four):

60 40 rule budget
  • Needs – You spend 60% of your money on basic needs like bills, groceries, rent, and transportation.
  • Others – You allocate the other 40% of your salary to four different categories.

These are the four categories where you will split 40% of your money:

  • 10% on retirement savings – you build up your retirement savings every month.
  • 10% for long-term savings – you contribute toward a long-term goal like buying a house, an expensive car, or something that can take a few years to achieve financially.
  • 10% for short-term savings – You save for holidays, create an emergency fund, buy something you want, or anything that will take less than one year to commit.
  • 10% on wants – You pay for things you want that are considered non-essential expenses.

You may think that the 60/40 rule budget doesn't leave any space for you to pay a debt, which may be true. Your regular debt payments are allocated to 60% of your expenses category since it's something you have to pay.

However, you can always allocate 10% of the 40% category to any debt repayments you want to do. For example, maybe you don't save for a short goal and use that money to pay some extra cash for a debt one month. Or perhaps you will do that for the next six months. It's entirely up to you.

Who Is The 60/40 Rule Budget Ideal For?

The 60/40 rule budget is great for anyone who wants to do many different things with their money, like covering their essential bills, and non-essentials, saving money for long-term goals, and short-term goals, building robust retirement savings, investing, or paying off debt.

If you are new to budgeting, the 60/40 rule budget may be tricky since you have to split your money into many different categories but check the examples below and the step-by-step guide with the help of a suitable template. You will be able to split your money correctly. However, you may want to try other budgeting methods like the 60-30-10 or the 50/30/20.

The 60/40 rule budget is excellent if you:

  • Have different types of financial goals.
  • Like splitting your money into different categories.
  • Want to save money.
  • Desire to achieve FIRE – Financial Independence Retire Early.
  • Don’t live paycheck-to-paycheck.

How To Budget Your Money With The 60/40 Rule Budget?

Now that you have an idea of what the 60/40 budgeting method consists of and if it’s ideal for you or not, let me explain more in-depth all five categories.

60 40 budgeting

You can also check the 70/20/10 rule budget if you have a lot of expenses or the 80/20 rule budget if you want something simple.

Spend 60% Of Your Money On Needs

The most significant piece of your earnings, 60%, will be allocated to the needs category, which encapsulates all the costs you can’t avoid or would be difficult to live without. Again, it’s vital to be accurate because you can live without an entertainment subscription (that’s on the 10% wants category), but not without paying the water bill. So concentrate on the basic needs in this section of your budget.

A few examples of what is considered to be part of the needs category:

  • Rent/Mortgage
  • Utility Bills (Water, Gas, Electricity)
  • Groceries
  • Transportation
  • Insurances
  • Any Loans
  • Medications
  • Household Products

If your salary is $2,000 after-tax, that means you would allocate $1,200 to your needs each month. In 12 months, you would have spent $14,400.

Allocate 10% Of Your Money On Retirement Savings

You can save money towards your retirement fund in many different ways. So it's a lot more than just saving 10% of your money to a savings account you have. You have different types of retirement plans.

Here are a few examples of different types of retirements plans:

  • 401(k)
  • Traditional IRA
  • Roth IRA
  • Simple IRA and Simple 401(k)
  • Solo 401(k)

If your salary is $2,000 after-tax, that means you would allocate $200 to your needs each month. In 12 months, you would have spent $2,400.

Hold 10% Of Your Money For Long-Term Savings

Long-term financial goals usually take you a couple of years (some more than five) to achieve. When it comes to saving money for long-term goals, it may take a long time to accomplish some of them, but in the end, they are worth it.

Here are a few examples of different types of long-term financial goals:

  • Paying off a mortgage
  • Initial deposit to buy a house
  • Start a business
  • College savings for kids
  • Pay a huge amount of debt
  • Buying an expensive car

If your salary is $2,000 after-tax, that means you would allocate $200 to your needs each month. In 12 months, you would have spent $2,400.

Reserve 10% Of Your Money For Short-Term Savings

Short-term financial goals take a lot less time than long-term ones, but it doesn't mean they are easy to accomplish if you don't budget your cash correctly. These are the financial goals you can usually save for within one year.

Here are a few examples of different types of short-term financial goals:

  • Create an emergency fund
  • Save to go on holidays
  • Pay small debts
  • Saving for a wedding
  • Home improvements
  • Buy personal goods that are expensive

If your salary is $2,000 after-tax, that means you would allocate $200 to your needs each month. In 12 months, you would have spent $2,400.

Spend 10% Of Your Money On Wants

10% of your income will be allocated to the wants category. This includes everything that is non-essential but brings you joy in consuming.

A few examples of what is supposed to be part of the wants category:

  • Entertainment Subscriptions
  • Travel
  • Shopping
  • Dates
  • Dining Out
  • Memberships (gyms, professional organizations)
  • Hobbies

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 60/40 Rule Budget?

If you decide you want to move forward with a 60/40 rule budget, here’s how you can set one up.

How Do You Set Up The 60 40 Rule Budget

1 – Calculate Your After-tax Income

So, the first thing you want is to calculate your after-tax income and understand how much money you will receive every month. Some people receive the same amount every month, but for others, it can vary, which makes budgeting a lot more complicated (but not impossible). If you are a freelancer, estimate how much money you expect for the next month. 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 60/40 Template/Spreadsheet

To keep you organized and to have a better perspective of what you need to do, ensure you use the 60/40 template. It can be a spreadsheet 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.

Personally, 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 – Check Your Monthly Expenses

Now you need to split all your income between the five categories of the 60/40 budget. 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 (60% of the budget), like rent, bills, insurance, etc. Then go for the things you want to buy (10% of your budget). This is a great way to know if you can allocate the rest of the money (the 30%) to the other categories or not, and if you can't, adjust the percentages or make some cuts.

You should also know how much money you allocate to each category from your income. Again, 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 for your needs
10%= Income x 0.10 = amount for your wants
10%= Income x 0.10 = amount for your retirement fund
10%= Income x 0.10 = amount for your long-term goals
10%= Income x 0.10 = amount for your short-term goals

4 – Set Up Your Financial Goals

Once you determine how much income you will receive, how much is allocated in each category, and all your expenses are organized, you need to set financial goals.

Financial goals are especially important in the 60/40 rule budget since you have many categories to allocate your salary to. This is crucial for your long-term and short-term goals.

In my opinion, no budgeting is worth doing if you don’t have the motivation to keep yourself moving forward and achieve what you propose at the beginning of each month

You also need to know why you want to invest your money.

You didn’t set your financial goals initially because you didn’t know your income and expenses. 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. First, you will 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 if 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.

60/40 Rule Budget Examples

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: For your information, 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 60/40 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.

60 40 rule budget example 1

After calculating how much money you pay on taxes, you can split your cash by percentages. This way, you know how much you are allocating to each category. Like in the example above, you know exactly how much money you need to put aside for your long and short-term goals or how much you can spend on fun things.

It's crucial to understand if 60% is enough for all your expenses since this budget may be complicated for most people. If you need to put 80% for your needs and 5% on the other four categories, do it and adjust it every month. You can also check the zero-based budget if you want to give purpose to every dollar you earn.

60 40 Rule Budget Example

If you’re budgeting your money and your partner’s salary as well, you can check the 60/40 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.

It can be a massive challenge to budget money with someone else when you have children because that means keeping the entire family on the same financial page, which sometimes doesn’t happen. You may have to cut some expenses to ensure you can split your money into five different categories

You can also have multiple goals for the long and short-term ones. Even inside the retirement category, you can have different types and funds.

Is The 60/40 Rule Budget Good For You?

If you are looking for a budget to split your money into multiple categories and save for long and short-term goals, the 60/40 rule budget is perfect for you.

The 60/40 budget is a monetary plan that prioritizes different financial goals simultaneously, so you may have to cut some expenses to save the 30% (I don't include the 10% of wants here) you need with this budgeting method.

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.