If you've struggled to find a budget you can stick with, the 60/20/20 budget may be the one element you're missing. It's a useful tool that can help you take control of your financial life—rather than feeling like your budget is controlling you.
Here's a closer look at what the 60/20/20 rule is, and how to apply it to your life for the long term.
What's the 60/20/20 rule?
The 60/20/20 budget rule applies a simple approach to how you should allocate your monthly income.
In this method, 60% of your monthly income goes to monthly living expenses. These can be fixed costs, meaning you pay the exact same amount each month, such as with mortgage payments. Or they can be fluctuating, like an electric or phone bill. If it's a true need, it goes in the 60% bucket. Any monthly minimum amounts you owe for credit card balances, car payments and student loans should go in this category.
Then, 20% of your monthly income is dedicated to saving. This can be money you put into an emergency savings fund, certificate of deposit, brokerage account or retirement account.
Finally, 20% of your monthly income goes to things you want to buy but could live without. Depending on your lifestyle and preferences, this might be shopping, going out to dinner or travel. You decide what expenses fall into this bucket.
Balancing your financial life with the 60/20/20 rule
The 60/20/20 rule helps set a sensible budget.
- 60% living expenses: Housing, utilities, gas and groceries. Your must-pay bills.
- 20% savings: Save for retirement or a rainy day. Your cash cushion.
- 20% anything: Go on vacation, shopping or out to eat. Your choice.
How to use it
Figuring out how to use this budgeting technique is easy—there's no need for a budget calculator. Just start with your monthly income and do some simple math. Here's an example:
Let's suppose you make $3,000 a month. Because 60% of $3,000 is $1,800, that's how much you should spend on living expenses like rent, utility bills, gas and groceries each month.
Because 20% of $3,000 is $600, you'd put that much into some type of savings, investment or retirement account.
The remaining $600—the last 20%—is yours to allocate as you choose.
Once you figure out these boundaries, you just need to track where your money goes, so you know you're sticking to them throughout the month. The more you do it, the easier and more intuitive it'll become.
The benefits
This budget gives you the flexibility to spend some of your money how you want while ensuring you're making saving a priority. While managing debt and spending is key to financial stability, having a savings account gives you the safety net you need if you have an emergency, job loss or medical issue. Once you've built up an emergency savings fund equivalent to 3 to 6 months' worth of your monthly income, you might consider allocating your 20% savings toward building your net worth with investments or retirement contributions.
The 60/20/20 rule gives you plenty of freedom to make it your own. You can easily adapt it to fit your changing financial needs and priorities as you move through life. Want to get aggressive about knocking down that student loan debt? Maybe you allocate some of your 20% spending category to put more money toward your loan balance every few months. Need some new furniture? You could pull extra savings from your spending category for a few months until you're ready to buy.
Simple to implement and easy to stick to, the 60/20/20 budget puts adequate boundaries in place. This way, you're always aware of where your money goes, leaving you in charge of your financial choices. And if you ever need advice or have questions about budgeting, you can always talk with a banker at your local branch.
FAQs
If you have a large amount of debt that you need to pay off, you can modify your percentage-based budget and follow the 60/20/20 rule. Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.
How do you distribute your money when using the 50 20 30 rule responses? ›
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
Is the 50/30/20 rule realistic? ›
The 50/30/20 rule can be a good budgeting method for some, but it may not work for your unique monthly expenses. Depending on your income and where you live, earmarking 50% of your income for your needs may not be enough.
What is the 50 30 20 rule paying for needs should ideally not exceed? ›
Then give each dollar a role. Split your income into three categories, which will give you an upper limit for how much to spend each month. Ideally, you'll spend 50% or less of your income on necessities, 30% or less on items you want but don't need and 20% or more on savings and debt payments.
What is the 60 20 20 model? ›
A very simple model really. I believe people should be working 60% of their time in their business, 20% of their time on their business, and 20% of their time on themselves. When I say time, I mean the total amount of time you assign to work, not the total amount of time in a week.
What is the power of the 20 60 20 rule? ›
20% are actively engaged, 60% are socially influenced, and 20% are intentionally disengaged. Download this eBrief to learn how 80% of a school's students can become engaged. A school can influence their middle 60% of students to become engaged by making a few small changes to their offerings.
Is $1000 a month enough to live on after bills? ›
But it is possible to live well even on a small amount of money. Surviving on $1,000 a month requires careful budgeting, prioritizing essential expenses, and finding ways to save money. Cutting down on housing costs by sharing living spaces or finding affordable options is crucial.
Did Elizabeth Warren create the 50/30/20 rule? ›
Back in 2006, Warren—now a Democratic Senator from Massachusetts, then a Harvard Law School professor—popularized the 50/30/20 rule, detailed in the book All Your Worth: The Ultimate Lifetime Money Plan, which Warren co-wrote with her daughter, Amelia Warren Tyagi.
What is the 75 15 10 rule? ›
In his free webinar last week, Market Briefs CEO Jaspreet Singh alerted me to a variation: the popular 75-15-10 rule. Singh called it leading your money. This iteration calls for you to put 75% of after-tax income to daily expenses, 15% to investing and 10% to savings.
Is $4000 a good savings? ›
Ready to talk to an expert? Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.
While the 50 30 20 rule can be a useful way to manage your finances, it may not be suitable for everyone. Here are some potential disadvantages of the 50 30 20 rule: Some people might need more than 50% of their income for needs: some individuals or families may have higher essential expenses.
What is one negative thing about the 50/30/20 rule of budgeting? ›
Some Experts Say the 50/30/20 Is Not a Good Rule at All. “This budget is restrictive and does not take into consideration your values, lifestyle and money goals. For example, 50% for needs is not enough for those in high-cost-of-living areas.
What is the 50 30 20 rule of budgeting examples? ›
For example, if you earn ₹ 1 lakh, you can allocate ₹ 50,000 to your needs, ₹ 30,000 to your wants and ₹ 20,000 to your savings, every month.
What is the alternative to the 50 30 20 rule? ›
The 60/30/10 budgeting method says you should put 60% of your monthly income toward your needs, 30% towards your wants and 10% towards your savings. It's trending as an alternative to the longer-standing 50/30/20 method.
What is the 70 20 10 budget rule? ›
This system can help you get better acquainted with what you earn and where it goes, while tracking your daily spending (that's the 70% of your after-tax earnings) plus debt repayment and saving (the 20% and the 10%).
What is the 50 30 20 rule of money? ›
Key Points. The 50-30-20 rule is a simple guideline (not a hard-and-fast rule) for building a budget. The plan allocates 50% of your income to necessities, 30% toward entertainment and “fun,” and 20% toward savings and debt reduction.
What is the 10 20 30 rule for budgeting? ›
30% should go towards discretionary spending (such as dining out, entertainment, and shopping) - Hubble Money App is just for this. 20% should go towards savings or paying off debt. 10% should go towards charitable giving or other financial goals.
What is the 80 20 rule in financial planning? ›
The rule requires that you divide after-tax income into two categories: savings and everything else. As long as 20% of your income is used to pay yourself first, you're free to spend the remaining 80% on needs and wants. That's it; no expense categories, no tracking your individual dollars.
