Manage your money with the 60/30/10 budget

By: Tara Blaine

Published: Aug 08, 2024

• Updated: Aug 27, 2024

Understanding and managing your finances can be a daunting task, especially in the face of rising costs of living and inflation. Budgeting helps make money management a bit less intimidating, as it ensures that you’re living within your means while saving for future goals. One budgeting method that’s growing in popularity is the 60/30/10 budget. This approach allocates 60% of your income to needs, 30% to wants, and 10% to savings. Breaking down your income into these three categories gives you a simple and practical guideline for planning how you’ll spend your money each month.

How does the 60/30/10 budget work?

The 60/30/10 budget is straightforward and easy to follow because it allocates your income based on percentages. This budget involves breaking down your income into three categories: needs, wants, and savings.

• 60% for needs: The largest category of the 60/30/10 budget encompasses all your essential expenses such as housing, utilities, groceries, transportation, and insurance. These are the costs you must cover to maintain a basic standard of living.

• 30% for wants: This portion of your income is allocated to discretionary expenses like dining out, entertainment, hobbies, and non-essential shopping. These are the expenses that make life enjoyable but aren’t necessary for survival.

• 10% for savings: With the 60/30/10 method, the remaining 10% of your income should go into savings. This might include building an emergency fund, contributing to retirement accounts, or investing in stocks and bonds to secure your financial future.

Is the 60/30/10 budget more realistic than the 50/30/20 budget?

While the popular 50/30/20 budget works well for many people, the 60/30/10 budget provides an alternative that might be more realistic for those facing higher everyday expenses. In the face of rising inflation and high living costs, you might find it more practical to allocate a higher percentage of your income to your essential needs. This adjustment can help if you’re living in a particularly expensive area or have personal circumstances that require more money for necessities like child care, medical expenses, or caring for dependents.

Benefits of the 60/30/10 budget

There are several benefits to streamlining your budgeting process with the 60/30/10 rule, especially if you’re new to managing your financial money on a regular basis. If you’re looking for a flexible, simple, less stressful budgeting method, the 60/30/10 budget might be worth trying.

• Flexibility in meeting needs: By allocating 60% of your income to needs, you can better cover essential expenses in high-cost living situations. This ensures that your basic needs are met before you spend money on nice-to-haves.

• Simplified financial management: If you struggle with budgeting, the 60/30/10 method can simplify your financial management. Having clear budget categories and straightforward allocations can make it easier to plan how you’ll spend your money and keep track of where it’s going.

• Reduced financial stress: Having a larger portion of your income dedicated to needs can reduce the stress of covering your monthly essential expenses. If you’ve tried the 50/30/20 budget and struggled to pay all your bills, going with the 60/30/10 rule might give you more peace of mind.

Drawbacks of the 60/30/10 budget

No budget is right for everyone, and the 60/30/10 budget comes with some downsides. While it may work well for some people, you may find that the cons outweigh the pros in your situation. It all depends on your personal circumstances and what you want to achieve with your money management.

• Lower savings rate: One potential risk of the 60/30/10 budget is the relatively low savings rate. Saving only 10% of your income each month means it may take longer to reach your long-term financial goals, such as having enough money to retire or hitting your emergency fund target amount. If you’re looking to build your savings quickly, you may want to choose a more aggressive budgeting method.

• Possible overspending on wants: By allocating 30% of your income to wants, you might find yourself spending more money on discretionary items instead of saving for the future. That said, if you’re good at staying disciplined and avoiding impulse buying, this drawback may not apply to you.

• Not suitable for everyone: The 60/30/10 budget may not be ideal for high earners or people with very specific saving and investing goals. If your income far outpaces your needs or you want to focus on your financial future, you may want to try a different budgeting strategy that allocates more money toward saving and investing.

Meet your financial needs with the 60/30/10 budget

The 60/30/10 budget offers a structured yet flexible way to manage your finances, making it easier to cover essential expenses while still enjoying fun spending and saving for the future. While it has its benefits, such as reduced financial stress and simplified management, it also comes with drawbacks like a lower savings rate and the potential for overspending on non-essentials.

Finding the right approach to budgeting for your particular financial needs may take some trial and error. If you’re looking for a new way to handle your finances, you might want to give the 60/30/10 budget a try. Use this method to plan how you’ll allocate your income among your expenses, then track your spending and make adjustments as needed to fit your personal financial situation. With persistence and proactive management, you can start getting a handle on your financial health.

Ready to take control of your finances? Create a budget using the 60/30/10 method today and see how it can make a difference in your financial well-being.

Written by Tara Blaine

Tara Blaine draws on over 20 years of experience as a writer to translate seemingly complex financial ideas into insights readers can put to work in their everyday lives. She’s written personal finance education materials for numerous institutions, helping customers learn smart techniques for budgeting, overcoming debt, saving money, and planning for their long-term financial health.