What is a 60/30/10 budget?

There are many budgets out there to help individuals manage their income, control expenses, and reach savings goals. Finding an option that works for a person's unique situation is an important factor to budgeting success.

One method to explore is the 60/30/10 budget rule. This allocates income into three key categories: 60% for essential needs, 30% for discretionary spending, and 10% for savings or debt repayment. It can be a flexible alternative to more traditional budgets.

Read on to find out what the 60/30/10 budgeting style is all about and how to implement it.

Understanding the 60/30/10 budget

The 60/30/10 budget is an approach that ensures basic expenses are covered while still allowing room for personal enjoyment and long-term financial planning. The breakdown is as follows:

• 60% for needs. This portion covers essential living expenses, such as housing, utilities, groceries, and transportation. These are typically fixed costs that must be paid each month.
• 30% for wants. This part of the budget is designated for non-essential, discretionary spending such as dining out, entertainment, hobbies, or streaming subscriptions. This provides a way to enjoy part of the income while ensuring that spending is controlled.
• 10% for savings and debt repayment. This portion is directed toward building savings or paying off existing debts. Whether contributing to an emergency fund or paying down a mortgage, this part of the budget focuses on the future and managing long-term finances.

This budget plan can be more flexible than the traditional 50/30/20 budget rule, with the main difference in the percentage allocated to essentials and savings. While the 50/30/20 method prioritizes saving 20%, the 60/30/10 budget rule adjusts these figures to allocate more income toward essentials, which can be helpful for individuals with higher fixed costs, such as housing.¹

How to implement the 60/30/10 budget

Here's how to implement the 60/30/10 budget plan.

Creating a budget

The first step is to organize income and expenses into three distinct categories, or "buckets." Begin by listing monthly income and breaking down expenses into essential needs, discretionary spending, and savings or debt repayment.

Allocate 60% of income to essential needs such as housing, utilities, and groceries; 30% to discretionary spending for things like dining out and entertainment; and the final 10% to savings or paying down debt.

This structured approach to creating a personal budget can help to ensure that all financial needs are accounted for.

Tracking expenses

With the budget established, tracking expenses becomes key. Categorizing each transaction as a need, want, or saving provides a better understanding of how income is being spent.

Expenses like rent, utilities, and groceries will fall into the needs category, while things like entertainment, dining out, and subscriptions will fall under wants. Lastly, credit card bills or paying into an emergency fund rounds out the saving category.

Adjusting spending habits

Sticking to the 60/30/10 budget rule may involve changing spending habits. Since the majority of income will go toward fixed expenses, it may be necessary to find ways to reduce discretionary spending or cut back on unnecessary expenses.

What's categorized as needs will vary from person to person. For example, while one individual may classify a gym membership as a necessity, another may view it as a discretionary expense. The key is to adapt the budget to fit one's lifestyle while staying within the guidelines.

Potential benefits of the 60/30/10 budget

Slight differences between budgeting styles can go a long way depending on a person's situation. For instance, while the 50/30/20 budget allocates more income toward savings, the 60/30/10 rule can feel more practical for individuals managing higher essential costs, such as rent or childcare.

Reaching financial goals with the 60/30/10 budget

Consistent budgeting with the 60/30/10 rule can help individuals reach important financial milestones. Consider a couple aiming to build an emergency fund over the next year. By following the 60/30/10 budget, they could allocate 10% of their monthly income toward this goal. Over time, this steady contribution could add up to a few thousand dollars, creating a financial cushion for unexpected expenses.

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