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
Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings. Once you've been able to pay down your debt, consider revising your budget to put that extra 10% towards savings.
What is the 70 20 10 budget rule? ›
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
What is the 50 30 20 rule of money? ›
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 be split between savings and debt repayment (20%) and everything else that you might want (30%).
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%.
What is the 80 20 rule in financial planning? ›
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.
What is the #1 rule of budgeting? ›
The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
What is the 75 15 10 budget rule? ›
This iteration calls for you to put 75% of after-tax income to daily expenses, 15% to investing and 10% to savings.
What is the 20 10 rule money? ›
The 20/10 rule of thumb is a budgeting technique that can be an effective way to keep your debt under control. It says your total debt shouldn't equal more than 20% of your annual income, and that your monthly debt payments shouldn't be more than 10% of your monthly income.
Is the 50/30/20 rule realistic? ›
For many people, the 50/30/20 rule works extremely well—it provides significant room in your budget for discretionary spending while setting aside income to pay down debt and save. But the exact breakdown between “needs,” “wants” and savings may not be ideal for everyone.
What is the best budget ratio? ›
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.
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 the 80 20 rule of thumb for budgeting? ›
The 80/20 Rule
If you think you might fare better following an even simpler plan, consider the 80/20 rule as another option. A stripped-down version of the 50/30/20 rule, this budget advises setting aside 20% of your income for savings and using the remaining 80% for both necessities and luxuries.
What is the 10 20 30 rule in finance? ›
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 90 10 rule for budgeting? ›
The 90–10 rule refers to a U.S. regulation that governs for-profit higher education. It caps the percentage of revenue that a proprietary school can receive from federal financial aid sources at 90%; the other 10% of revenue must come from alternative sources.
What is the 50 30 20 rule financial experts recommend monthly savings of? ›
At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items.
Is 80 20 a good investment strategy? ›
The 80/20 rule is a concept suggesting that 80% of your results come from 20% of your efforts. This rule can be used in various contexts; however, investing experts caution against using it in portfolio management.
What is the 70/20/10 model with examples? ›
With the 70:20:10 model you learn 70% from on the job experience and from doing. You learn 20% from others in the way of observing, coaching and mentoring. 10% is down to formal training like courses, reading and online learning.
Is the 70/20/10 rule good? ›
Final Thoughts. The 70-20-10 rule helps you manage your finances and plan for the future. It is an excellent opportunity to maintain the luxuries you enjoy and still pay the bills, while evening putting some cash aside for a rainy day.
What is the golden budget rule? ›
Simply put, it states that you should always save a portion of your income before spending it. This fundamental principle encourages you to prioritize saving over impulsive spending, ensuring a secure financial future. When it comes to managing personal finances, the golden rule serves as a guiding principle.
