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
This 20% slice of your income pie is for your future. This is why the 60/20/20 rule is especially good if you're keen to focus on long-term savings. This slice goes directly into your savings account, retirement fund, or maybe even into investments.
Is the 50/30/20 rule still realistic? ›
The 50/30/20 rule may not be realistic for everyone, especially considering high inflation and the rising cost of living. For example, if you live in a high-cost-of-living area, it may be impossible to limit your needs to 50% of your pay.
What is the 70 20 10 rule of money and how is it used? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. It's an approach to budgeting that encourages setting aside 70% of your take-home pay for living expenses and discretionary purchases, 20% for savings and investments, and 10% for debt repayment or donations.
What is the 40 40 20 budget rule? ›
The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.
Which budget rule is best? ›
Key Takeaways
The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.
What is an example of a 60 20 20 budget? ›
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.
What is the 10 10 80 budget plan? ›
When following the 10-10-80 rule, you take your income and divide it into three parts: 10% goes into your savings, and the other 10% is given away, either as charitable donations or to help others. The remaining 80% is yours to live on, and you can spend it on bills, groceries, Netflix subscriptions, etc.
What is one negative thing about the 50/30/20 rule of budgeting? ›
Cons. Risk of overspending. Allocating 30% of your income for non essential wants is a large amount of money, especially when compared with only 20% toward savings. Try not to spend money on things that aren't important.
How much money should you have left over every month? ›
As a result, it's recommended to have at least 20 percent of your income left after paying bills, which will allow you to save for a comfortable retirement. If your employer offers matching 401(k) contributions, take advantage so you can maximize your investment dollars.
What's better than a 50/30/20 budget? ›
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. Experts warn that putting just 10% of your income into savings may not be enough.
9 Essential Rules of Personal Finance That You Should Follow
- #1 Don't Spend More Than You Make. ...
- #2 Get Out of the Debt Spiral & Stay Out. ...
- #3 Creating an Emergency Fund is a Must! ...
- #4 Get Your Budget in Order. ...
- #5 The 70:20:10 Budgeting Rule. ...
- #6 Always Do Your Research Before Making a Purchase.
50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).
What is the 80 20 spend rule? ›
YOUR BUDGET
The 80/20 budget is a simpler version of it. Using the 80/20 budgeting method, 80% of your income goes toward monthly expenses and spending, while the other 20% goes toward savings and investments.
Is 10 percent good for retirement? ›
There is a general rule of thumb: When saving for retirement, most financial experts recommend an annual retirement savings goal of 10% to 15% of your pre-tax income.
What is the monthly savings rule? ›
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 60/20/20 good? ›
A healthy diet is one that features balanced nutrition. A 60-20-20 ratio diet plan provides a well-balanced approach by properly portioning out your carbohydrates, proteins and fats, respectively. The idea behind this meal plan is to maximize your energy levels, muscle tone and cardiovascular health.
Is the 20-20-20 rule legit? ›
Lack of Evidence for 20-20-20 Rule
While many experts may have embraced the 20-20-20 rule as a go-to intervention, recent studies cast doubt on its effectiveness. Noting the lack of peer-reviewed evidence to support its clinical benefits, researchers put the popular technique to the test in a 2023 study.
Does the 20-20-20 rule improve eyesight? ›
Conclusions: The 20-20-20 rule is an effective strategy for reducing DES and dry eye symptoms, although 2 weeks was not enough to considerably improve binocular vision or dry eye signs.
What is the 20 60 20 rule of performance? ›
The 20-60-20 Rule: Twenty percent of the time, we feel pretty bad – tired, sore, grumpy, error-prone, etc. Sixty percent of the time, we feel ok but not ideal. And 20% of the time, things feel great and we seem to be executing ideally with little effort.
