The 60/30/10 budget rule is an effective type of budget that uses percentages to stipulate how you can allot your various expenses into three categories. It could help you regulate how you conduct your expenses.
This budget rule also means tracking or keeping a record of your regular spending. It is one realistic method of achieving financial goals.
Recently the 60/30/10 budget rule is fast outgrowing the popular traditional type of budget. Many individuals are fast adopting this strategy as it could help them classify expenses in groups.
How does the 60/30/10 budget rule work?
There are different ways of making a budget, and everyone finds the method that works fine and sticks to it. If you take a look at the different types of budgets you may get confused about which one to adopt.
The trick is trying out the most out of the various types and getting a hold of your best method. It works by calculating your total income for a particular period. Let us say in a month your total earnings amount to $10,000.
Then to apply the rules you divide this amount into three on a percentage rate. While dividing it consider the highest part of your spending and give it the most percentage.
The 60/30/10 budget is another type of budget that will entice you and you will find it most convincing and suitable. Learn below how it works.
60 percent
The 60% in the budget rule is the highest category of expenses. Now that you know the amount you earn on each specific period, you need to estimate your overall expenses.
Group them into three according to how they are related and assign the percentages according to the highest amount. For instance, you have fixed expenses, unfixed expenses, and your savings. Out of these three categories of expenses pick the one that has the highest amount when calculated.
You can do your calculations in the following ways fixed expenses: Rent, Light, Water, car fueling, Transport, and mortgage all amount to $5,000.
Fixed expense are those expenses that remain constant regardless of whether the amount changes or not. There are reoccurring expenses that must always be made.
Then your unfixed expenses are Groceries, Laundry, Picnic, entertainment, Charity, Miscellaneous, and Emergency all amounting to $3,000. Your savings are also your expenses because you set the amount aside for future goals.
Meanwhile, in your savings, you may still divide it into two. One for your savings and the other for your emergency savings.
Now the 60% in this illustration should go to fixed expenses because it has the highest amount.
30 percent
The 30% of the budget rule is the second highest expense. Looking at the simple illustration, the 30% should go to the unfixed expenses.
Unfixed expenses are the spending that may not necessarily occur every month. They are subject to changes and you can also substitute them.
For instance, you may choose not to buy certain groceries or buy a few of them. You may decide not to include a picnic or entertainment and postpone them till next time. Therefore 30% of your estimated budget should go to unfixed expenses.
10 percent
The 10% takes the least amount in the budget rules and this percentage goes to savings. Yes and indeed you need to save for so many reasons. Learn why it is important to save here.
After allotting 60% to fixed expenses, and 20% to unfixed, make sure to exhaust all your spending with these two categories. Next is to think of your future goals and perhaps your emergency savings.
Emergencies may or may not occur so if you keep saving it periodically without using it, it may accumulate. You can use the accumulated amount to realize an objective like establishing an investment. This is why it should go to 10% for savings.
Benefits of the 60/30/10 budget rule
1. Simple to implement
The 60/30/10 budget rule is very easy to execute. Even an individual who is not conversant with a budget can easily implement it.
Once you start allocating the different percentages, you already know which amount goes to a particular expense. If on the contrary, your income did not come at once you still understand what amount to allot to fixed or unfixed expenses.
2. It encourages you to save
By allotting percentages to various expenses, you already understand the particular amount to set aside for savings. Therefore, even if you have different means of income that do not arrive at once, you already know what percentage to save.
3. It reduces emotional and financial stress
The 60/30/10 method of budget could minimize emotional stress. After dividing your total income into three categories and assigning the amount to each your mind becomes restful.
Hence every expense is taken care of including savings, miscellaneous, and emergencies. Any other money that comes in within that period you can use it for enjoyment or whatever you want.
4. It could help you achieve goals easily.
You may plan to use the 10% for savings on achieving a particular objective. This could be easy once you receive your paycheck you immediately set aside the 10%.
When you have accumulated enough savings then you can use it to establish your goals. It might be to start a new business or start an investment.
The 60/30/10 budget rule vs. the traditional budget
Both are types of budget but when you take a deep study of them you will realize that they seem to have similar features.
1. Both types of budget are very simple to create and use for allotting expenses.
2. Every individual or household understands the traditional budget too well and that is why it is widely used. While the 60/30/10 budget is gaining popularity gradually and is mainly used by income earners.
3. The traditional budget takes the form of listing out all expenses and income and making sure to balance the amount. While the 60/30/10 budget uses percentages to allocate expenses.
