60/30/10 Budgeting Rule: This Could Be the Key to Budgeting During Inflation
Written by
Gabrielle Olya
Edited by
Gary Dudak
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The 50/30/20 budgeting rule has long been considered the gold standard for budgeting. This rule of thumb entails dedicating 50% of your income for needs, 30% for wants and 20% for savings. However, in an inflated economy, these percentages may no longer work. That’s why some experts are recommending a switch to the 60/30/10 budgeting rule.
Here’s a closer look at what this budget means and why it might be a good option for you.
What Is the 60/30/10 Budgeting Rule?
The 60/30/10 budgeting rule calls for dedicating 60% of your income toward needs, 30% toward wants and 10% toward savings.
According to Andrew Harris, managing director at Jenius Bank, needs include “rent, mortgages and monthly utilities.” Wants include “the fun stuff like concerts, clothes, etc.” and savings can be money you put into an emergency fund, retirement savings account or towards paying off high-interest debt, he said.
A Realistic Alternative in an Inflated Economy
As costs rise and incomes remain largely stagnant, it’s difficult for many people to cover all of their essential expenditures with just 50% of their income.
“Many consumers are finding that they’re spending closer to 60% of their income on necessities instead of 50%,” Harris said. “External factors like inflation are making it difficult to make ends meet and still feel like we can enjoy our lives. The reality is that our financial priorities need to shift with the times. Saving for a new car or a house may have been No. 1 at this time last year, but now it could be just paying rent.”
This new budget breakdown may better enable you to cover your needs while also leaving room for wants.
“The 60/30/10 rule could be a better fit for today’s consumers, as it allows more coverage for those non-negotiable items,” Harris said. “In the shift to 60/30/10, the 30% for ‘wants’ stays stable, and that can be appealing, especially for younger generations who may still be satisfied with saving 10% of their income in their early professional years.”
Save More If You Can
While the 60/30/10 budget makes it OK to save just 10% of your income, it’s always better to save more if you can.
“[Some] may want to continue saving at that 20% pace, depending on their life stage or personal goals,” Harris said. “Those consumers may choose to reduce that 30% bucket instead, dialing back the fun purchases in exchange for more security of money in the bank.
“That’s why budgeting rules like these are good guidelines, but everyone needs to make the choices that work for their own situations,” he continued. “There are also ways to help battle inflation that don’t involve cutting spending. For example, putting your savings in a high-yield savings account could help your money work harder for you.”
Why You Need a Budget
Whether you adhere to a 60/30/10 budget, a 50/30/20 budget or another budgeting breakdown, it’s important that you have some kind of budget in place.
“Consumers with budgets feel more in control of their finances than those without, and there are quite a few studies out there backing this up,” Harris said. “The most important part of creating a budget is establishing your priorities and channeling funds for those areas first. Having your wants, needs and goals clearly defined makes finances, and the tradeoffs that may be required, significantly more manageable.”
If you’re just starting out in your career, sticking to a budget is particularly essential.
“Younger generations may be more susceptible to impulse spending, encouraged by external pressure from social media influencers or friends,” Harris said. “Having a budget is a good discipline and provides a compass pointing you in the right direction to help achieve your financial goals.”
How Often To Adjust Your Budget
Establishing a budget can be the hardest part, but once it’s set, you do need to revisit it regularly.
“Regularly reviewing your budget and comparing it to your actual spending is critical,” Harris said. “The exact cadence depends on your comfort level. For people with tighter budgets or short-term savings goals, it may be beneficial to monitor progress monthly and rebalance your allocations — or your expectations.
“For everyone, budgets should be revisited when you encounter major changes, like a pay raise or unexpected expenses, or establish new financial goals like savings for a house or a family,” he continued. “Ensuring your budget consistently aligns with your lifestyle and aspirations is key to helping you achieve financial success.”
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