Ever wondered if there’s a simple way to balance your income, meet your needs, and even save a little for the future? The 60/30/10 rule might be just what you’re looking for. This easy budgeting method can help you manage your income more effectively, whether you’re just starting out or are looking to simplify your finances.
In this guide, we’ll dive into the 60/30/10 rule, break down its benefits, and explore how it can be adapted to fit your unique needs. We’ll also share tips on using Canadian resources to get the most out of every dollar you earn. By the end, you’ll have all the tools you need to start budgeting confidently!
What is the 60/30/10 Rule?
The 60/30/10 rule is a practical, no-nonsense approach to budgeting that divides your monthly after-tax income into three simple categories:
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60% Essentials
Rent, groceries, utilities, and anything you need to live comfortably.
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30% Discretionary
Dining out, entertainment, and hobbies—things that bring joy to your life.
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10% Savings and Investments
Building your financial future, whether for emergencies or retirement.
This rule can work for people at any stage in life, allowing flexibility to adjust spending and save effectively. Let’s look at each category to see how you can make the most of this budgeting approach.
Essentials (60%)
The essentials are your must-haves: rent or mortgage, groceries, transportation, and bills. Covering these costs first ensures that your basic needs are met. However, not every expense you consider “essential” truly belongs here.
Read our article on deciding whether an item is a want or a need. The Basic Rule of Personal Finance: Needs vs. Wants.
Tips for Managing Essentials
1. Assess Your Essentials Regularly
Take a hard look at each essential expense and ask, “Can I lower this?” Canadians can shop around for better rates on car or health insurance or even switch utility providers to reduce costs.
2. Set Boundaries
Avoid stretching this category by putting non-essentials here. For example, keep entertainment separate and don’t let it trickle into your essentials category.
3. Save on Groceries
Consider buying in bulk, opting for generic brands, and planning meals to reduce waste. Apps like Flipp can help you track weekly discounts at Canadian retailers.
Discretionary Spending (30%)
Discretionary spending is your “fun” money—the 30% that lets you dine out, buy concert tickets, or try a new hobby. This category is essential for your well-being and mental health, so don’t skip it. Just keep it balanced!
Tips for Managing Discretionary Spending
1. Prioritize Joyful Spending
Spend on things that genuinely make you happy. If dining out makes your week better, budget for that over something less fulfilling.
2. Use Free Apps to Track Spending
Budgeting apps like YNAB and the free app from your bank can track discretionary expenses so you always know where you stand. Paper and pencil works just fine, or you can use our free spreadsheet Free Planning Materials.
3. Avoid Impulse Buys
Limit unplanned purchases. If you spot something you want, wait 24 hours. If you still want it, add it to next month’s budget.
Impulse Buying: What It Is and How to Stop.
Savings and Investments (10%)
This 10% goes towards building a secure future, whether it’s an emergency fund, a retirement plan, or an investment. Even if it’s a smaller amount, it can add up significantly over time.
Tips for Saving and Investing
1. Automate Savings
Set up automatic transfers to your savings account on payday. Out of sight, out of mind!
2. Start a Tax-Free Savings Account (TFSA)
Canadians can use a TFSA for tax-free growth. Whether it’s an emergency fund or investments, a TFSA lets your money grow tax-free.
3. Explore Registered Retirement Savings Plans (RRSP)
An RRSP offers Canadians a tax-sheltered way to save for retirement, with potential deductions at tax time.
RRSP vs TFSA: Which Is Right for Your Retirement Plan?.
Adapting the 60/30/10 Rule for Your Personal Situation
No budget is one-size-fits-all. Life events, income changes, or specific financial goals might mean you need to adjust the 60/30/10 approach. For example:
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Saving More Than 10%
If you’re aiming to buy a home, you may need to increase your savings rate for a down payment.
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Reducing Discretionary Spending Temporarily
When paying off debt, you might reduce discretionary expenses until it’s under control.
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Adjusting for Family Needs
Families with kids might find essentials take up more than 60%, which is normal. Shift slightly to accommodate these needs.
Practical Tips for Making Adjustments
1. Review and Tweak Monthly
Adjust your budget to match your circumstances. If essentials start to creep over 60%, explore ways to trim back.
2. Scale Slowly
If the 10% savings goal seems too high right now, start with 5% and work your way up.
3. Use a Budget Calculator
Sites like the Government of Canada’s Financial Consumer Agency offer free budget calculators that can help you get started.
Tips for Sticking to the 60/30/10 Rule
Sticking to any budget can be tough, but these tips can help you stay on track with the 60/30/10 rule.
1. Track Your Spending
Monitoring where your money goes is key to staying within your budget. Apps like YNAB or your bank’s app can make this easy, letting you see trends in your spending and adjust accordingly. We have a free tracking spreadsheet at Free Planning Materials.
2. Review Monthly
Your budget doesn’t have to be static. Reviewing monthly gives you a chance to adjust for unexpected expenses or shift allocations based on upcoming needs. This flexibility can help you stick to the rule in the long run.
3. Be Flexible
Some months, you may have higher essentials or need extra in your discretionary category. That’s okay! The 60/30/10 rule is a guideline, so adjust as needed while keeping balance in mind.
Conclusion: Try the 60/30/10 Rule and See the Benefits
The 60/30/10 rule offers a balanced, straightforward way to manage your finances. By sticking to this rule, you’re ensuring your needs are covered, you have room for enjoyment, and you’re building a future through savings. Start small, adjust as you go, and find the balance that fits your life.
Action Steps:
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Create a Budget
Set up your 60/30/10 budget for the next month.
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Download a Budgeting Template
Use a template to keep track of spending and saving.
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Share Your Journey
Join a community or find an accountability partner to keep you motivated!
With a little consistency and a plan, the 60/30/10 rule can help you reach financial freedom. Start today, and watch your money work for you!
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences. Jim does not provide advice on any specific investments
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