60-20-20 Budget Rule: How It Works (and How to Do It)
One of the best parts about budgeting is that it isn’t a one-size-fits-all thing. You can tailor it to your priorities and goals, which makes it easier to follow and less of a chore. A method that helps people who like structure but don’t want to spend too much time on minute details is the 60-20-20 budget.
The 60-20-20 budget rule budgets 60% of your income for necessities, 20% for savings or debt, and 20% for wants. You will have to decide what is a need vs. a want for you, but once you have that nailed down it’s simple from there. We’ll explain how you can get started with this plan and everything else you need to know.
What the 60-20-20 Budget Rule Is
The 60-20-20 rule is a percentage-based budgeting method that divides your monthly net income (so your take-home pay) into three broad buckets: needs, savings and wants.
- 60% needs: essential living expenses
- 20% savings/debt: financial goals and obligations
- 20% wants: non-essential spending
Let’s say your monthly take-home pay is $4,000. According to the 60-20-20 budget, you should allot 60% (or $2,400) to your monthly living expenses, 20% (or $800) to savings and then 20% (another $800) to your personal wants.
It’s not much different than other budgeting principles like the 50-30-20 budget. It just puts more of a focus on fixed expenses and savings than personal wants and spending. The benefit of these types of budgeting rules is you build a structure while also learning how to save. Even just the process of taking a step back and seeing how your money is being spent in each category can be helpful.
What Counts as Needs, Savings and Wants?
A very important question. The answer also will be different for everybody. The key is to be honest about what belongs in each category. Here are some examples of how it might look for some people.
- Needs (60%) typically include rent or mortgage, utilities, groceries, transportation, insurance and minimum debt payments. These are things that would significantly impact your life if you no longer had access to them. (Minimum debt payments is included here because missing those can have some pretty serious consequences.)
- Savings (20%) can include emergency funds, retirement contributions, sinking funds and extra debt payments.
- Wants (20%) covers things like dining out, entertainment and shopping. So areas where the impact wouldn’t be as bad if you didn’t spend money on them.
Basically, any expense that’s required to maintain basic living or avoid penalties is usually a need. Everything else is relatively flexible.
How to Apply the 60-20-20 Rule Step by Step
If you’re ready to use the 60-20-20 budget, start by taking inventory of your finances. Write down every monthly expense you can think of and keep track of them in a spreadsheet. Then look at how much you’re spending through the lens of the 60-20-20 budget.
From there, consider using a budgeting app like Rocket Money to help you find ways to cut back and save even more. This first step is important, because knowing the full picture of your spending is what allows you to make adjustments.
Here’s a step-by-step process to get your started:
- Calculate your monthly take-home pay (what you make after taxes and things like retirement contributions)
- Multiply your income by 0.60, 0.20 and 0.20
- List your monthly expenses
- Put each expense into the needs, savings or wants category
- Adjust spending so totals fit each bucket
- Make any changes as needed — or better yet, review monthly
If you’ve never set up a budget from scratch and this part is overwhelming, we made a guide on budgeting for beginners.
Examples of a 60-20-20 Budget
This is what the 60-20-20 budget would look like using real numbers.
Example 1: $3,000 monthly net income
- Needs: $1,800
- Savings/Debt: $600
- Wants: $600
Example 2: $5,000 monthly net income
- Needs: $3,000
- Savings/Debt: $1,000
- Wants: $1,000
Your spending also doesn’t have to be 100% aligned with the calculations. You can make little tweaks that fit your life better. For example, if your monthly income is around $5,000 and your needs go a little over the 60%, that doesn’t mean you have to ditch the method entirely.
Pros and Cons of the 60-20-20 Budget
The rule may simplify budgeting and encourage savings, but that doesn’t mean everybody needs to be using it. Consider these pros and cons.
Pros
- It’s relatively easy to understand and use
- It helps people who struggle to prioritize savings
- It’s less detailed and time intensive, potentially making it less daunting or tedious
Cons
- May not work in high cost-of-living areas
- Can be difficult with high debt or low income
- Less precise than category-based budgeting
If this method appeals to you but the percentages aren’t going to work, there’s also the 50/30/20 method. It uses the same categories but puts different amounts of money in each.
What to Do if Your Needs Exceed 60%
Essential expenses taking up more than 60% of income is common if you’re budgeting on a low income. If you’re determined to stick with this method, there are ways to make some accommodations. For example, instead of spending $800 on your personal wants, perhaps you’d want to put more toward necessities and only spend $600 on your personal wants.
Common adjustments include:
- Switching up the percentages a bit, like a 70/20/10 or 65/20/15 split
- Taking money out of the wants category
- Trying to lower fixed costs, like switching to a cheaper car insurance or changing the way you grocery shop
- Increasing your income with a side hustle
60-20-20 Budget FAQs
The 60-20-20 rule divides your net income into 60% for needs, 20% for savings or debt, and 20% for wants.
You should specifically use net (take-home) income, because that accounts for taxes and deductions that aren’t part of your spending capabilities.
Neither is inherently better than the other. The 60-20-20 rule emphasizes essentials and savings more, which works best for a lot of households.
Needs are required living costs like your rent and insurance, savings include future goals and extra debt payments and wants cover discretionary spending.
Yes. Many people adjust the percentages to fit their income, location or financial priorities.
Final Takeaway — When the 60-20-20 Budget Works Best
This budget could help you be more aware of your spending habits, especially when you’re doling out the dough for things you don’t really need (hi, super cute sweater from H&M) or that you’re not using (hello, monthly streaming subscriptions).
This particular method is great for people who want to get organized, but don’t want to get weighed down by details. It also puts a heavy focus on essential spending. But overall, budgeting is all about finding ways to set yourself up for financial freedom. Starting now can really make a difference in the future.
Hilarey Wojtowicz contributed to this post.
