Michaela Estes and Alexandra Vincent/The Penny Hoarder
I always thought the right budget breakdown was the tried-and-true 50/30/20 method, where 50% of my monthly take-home pay goes toward living expenses, 20% toward savings and 30% toward whatever I want.
But when I finally got a financial advisor, I was surprised to hear that his recommendation wasn’t 50/30/20 after all — it was the 60/20/20 budget.
During our first meeting, we discussed all of my finances. I explained to him that I own a home in a costly state (hello, New Jersey), commute to work in New York City, aim to save a large amount every month and have little debt.
With all of this and more in mind, his recommendation of the 60/20/20 budget made perfect sense. I immediately became a huge fan of how the money I save and spend on whatever I want is equal — each 20%.
Plus, knowing I was allowed 60% of my monthly budget for my living expenses, I had a little more flexibility over my fluctuating bills like groceries and electricity.
How Does the 60/20/20 Budget Work?
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 the 50/-30/-20 budget, but it puts more of a focus on fixed expenses and savings than personal wants and spending.
My financial advisor, Northwestern Mutual insurance agent Nicholas Verard Zanoni, said this method can help you build structure into your budget and learn how to save.
“This is a rule-of-thumb guideline to start out with and visualize,” Zanoni said. “Whether it’s 50/30 or 60/20, it’s really just splitting hairs in a lot of ways. Ultimately, my goal is to help coach my clients at first to spend 80% and save 20%.”
When you take a step back and look at how much of your take-home pay goes into each of these three buckets, you can better analyze your spending in order to make smarter savings decisions.
How to Get Started With the 60/20/20 Budget
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 financial app to help you find ways to cut back and save even more.
“People should focus on treating their savings like a bill, an obligation and not so much of an option,” Zanoni said. “Focusing on fixed expenses and saving helps identify the money that might be being spent unnecessarily or without much recognition. More often than not, most individuals are not aware of all of the things they spend money on.”
How the 60/20/20 Budget Helps You Be Aware of Your Spending
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).
Instead of equally spending $800 on savings and $800 on your personal wants, perhaps you’d want to put $1,000 toward your savings and only spend $600 on your personal wants. That would shift the 60/20/20 budget to 60/25/15, and you’d be saving more.
“In order to reach the goals we have for ourselves, we very typically find that we need to increase savings to 25 or 30% over time to reach those goals,” Zanoni said. “People may not be able to start out at 20%, but that’s what we want to help them achieve and work toward at first. Over time, we will need to be saving more as we continue to progress in life every single year.”
Lastly, Zanoni said to keep your goals in mind and consider working with a financial advisor who can help you stay on track.
“Focusing on that budget and making sure that they work with someone to help optimize that budget for all of their goals is really the most important part,” Zanoni said.
Budgeting is all about finding ways to set yourself up for financial freedom. Starting now can really make a difference in the future.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) and its subsidiaries. Nicholas Verard Zanoni is an insurance agent of NM.
Hilarey Wojtowicz is the senior career and finance editor at Swirled, a lifestyle newsletter and website that helps millennials learn everything they need to know in order to truly start adulting.
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FAQs
How Does the 60/20/20 Budget Work? 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.
What is the 60 20 20 rule for budgeting? ›
Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.
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.
What is the 50 30 20 rule in your financial plan? ›
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.
What is the 5 15 20 60 budgeting rule? ›
To begin with, Mr Rapisura advocates a 5-15-20-60 budgeting rule: 5 per cent for insurance, 15 per cent for savings, 20 per cent for investments and 60 per cent for expenses. “When I tell them, that as a rule of thumb, [only] half of your salary should go towards your lifestyle, they get shocked,” says Mr Rapisura.
What is the 70/20/10 rule money? ›
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 80-10-10 rule? ›
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.
How do you use the 50 40 10 rule? ›
The 50/40/10 rule budget is a simple way to budget that doesn't involve detailed budgeting categories. Instead, you spend 50% of your after-tax pay on needs, 40% on wants, and 10% on savings or paying off debt.
What is Rule 72 in accounting? ›
The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double.
Why does Rule 72 work? ›
The value 72 is a convenient choice of numerator, since it has many small divisors: 1, 2, 3, 4, 6, 8, 9, and 12. It provides a good approximation for annual compounding, and for compounding at typical rates (from 6% to 10%); the approximations are less accurate at higher interest rates.
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 disadvantage of the 50 30 20 rule? ›
It may not work for everyone. Depending on your income and expenses, the 50/30/20 rule may not be realistic for your individual financial situation. You may need to allocate a higher percentage to necessities or a lower percentage to wants in order to make ends meet. It doesn't account for irregular expenses.
How to budget $4000 a month? ›
making $4,000 a month using the 75 10 15 method. 75% goes towards your needs, so use $3,000 towards housing bills, transport, and groceries. 10% goes towards want. So $400 to spend on dining out, entertainment, and hobbies.
What is the 60/40 rule in budgeting concepts? ›
Save 20% of your income and spend the remaining 80% on everything else. 60/40. Allocate 60% of your income for fixed expenses like your rent or mortgage and 40% for variable expenses like groceries, entertainment and travel.
What is the 80 20 rule of thumb for budgeting? ›
80/20 Rule: With this method, you immediately set aside 20% of your income into savings. The other 80% is yours to spend on whatever you want, no tracking involved.
What is the 60 10 10 10 rule? ›
In the 60% solution method, you cover all your wants and needs with 60% of your budget. The other 40% is for saving. Then, that 40% gets divided up into three savings categories (10% for retirement, 10% for long-term savings, 10% for short-term savings) with 10% left for “fun.”
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 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 60/20/20 approach? ›
To guarantee growth, 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.
