The 50/20/30 budget method has been around for years, and has traditionally been a great approach for many families. The concept is that 50% of your net income should go to your needs, 20% should go to savings, and 30% should go to your wants. But times change. And in today’s inflated economy, the 60/30/10 budgeting method could be a better option for your situation. The financial experts at Kiplinger explain:
When using the 60/30/10 you’ll allocate 60% of your monthly income towards essential expenses, such as gas, utilities, groceries and rent. Thirty percent of your income will go towards discretionary spending, such as shopping or dining out, and the final 10% is either put in savings or used to pay off high-interest debt. This method of spending is particularly well-suited for younger individuals who have more time to save for long-term goals, as well as those who live in high-cost cities like New York or Los Angeles, shares Harris. And while this method doesn't allocate as much money towards savings as the 50/30/20 model does, a savings category is still essential to any budget.
"It’s widely recommended that consumers put away 15% of their pre-tax earnings for retirement, so the 10% goal isn’t far off from the recommended amount, Harris tells Kiplinger. "The 60/30/10 rule may be suitable for all consumers depending on their individual goals and situations but may appeal more to younger generations who can adjust their contributions as their income increases. Though saving may fall lower on the list of priorities for young people, the benefits of compounding, in savings accounts as well as investments, could pay off later."
However, while using the 60/30/10 can be a great starting point for budgeting, Harris advises individuals to tailor their budget towards their unique financial situation and priorities. For example, older individuals may want to prioritize savings over spending, leading them to trim down the 30% allocation on discretionary spending and save more for retirement. Once you establish a budget that works for you, it's important to regularly revisit it to ensure it aligns with your actual spending, current savings goals and any major life changes.
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Of course, everyone’s situation is unique. The best budgeting system is the one you will actually be able to stick to. You may have to spend some time trying out different approaches to find what works best for you. Once you do, sticking to a budget has been proven to have favorable long term outcomes.