How to Use the 60-20-20 Budget to Take Control of Your Finances

Struggling to manage your money without feeling overwhelmed? The 60-20-20 budget makes it simple.

It splits your income into clear, easy-to-follow categories, so you can cover your needs, enjoy your wants, and still save for the future.

In this guide, you’ll learn exactly how it works, who it’s best for, and how to make it fit your life!

What is the 60-20-20 Budget Rule?

The 60-20-20 budget rule is a simple, percentage-based method that helps you manage your money by dividing your after-tax income into three categories: 60% for essentials, 20% for savings, and 20% for wants.

Essentials include rent, utilities, groceries, transportation, insurance, and any high-interest debt payments—things you must cover each month to maintain your basic needs.

Savings cover both short and long-term goals like emergency funds, retirement accounts, investments, and extra debt payments beyond the minimum.

The remaining 20% goes toward non-essential spending—dining out, entertainment, hobbies, shopping, and anything else you enjoy but don’t necessarily need.

It’s important to use your take-home pay, not your gross income, to make this budget realistic and sustainable.

Created by financial expert Scott Pape, this rule was designed to simplify personal budgeting, encourage saving, promote balance, and help people regain control of their finances without feeling deprived.

It offers structure without being rigid, which makes it easier to follow over time.

The method continues to grow in popularity because of its straightforward setup, its built-in flexibility, and its focus on saving as a priority.

It doesn’t overwhelm you with complicated spreadsheets or tracking tools—it simply gives you a solid starting point and a clear path forward.

Breaking Down the 60-20-20 Allocation

60% – Essential Expenses

This first category takes up the largest share of your income—60%—and it’s meant for all your necessary living expenses.

These are the bills and costs that keep your life running.

Think rent or mortgage, utility bills, groceries, car payments, insurance, and minimum debt repayments.

Even basic clothing or medication falls under this section. These are not optional; they’re the costs you need to cover just to get by.

That’s why staying within this 60% cap is so important. If this part of your budget gets too large, it squeezes out your ability to save or enjoy life.

In high-cost areas or situations with high debt, this category can feel tight, but the goal is to make adjustments, like cut back where possible, lower fixed bills, or rethink transportation, to bring balance back into your finances.

20% – Savings and Financial Goals

The next 20% is for building a secure financial future.

This is where you grow your emergency fund, invest in retirement accounts like a Roth IRA or 401(k), or pay off extra debt beyond your minimum payments.

Savings in this category are not about what you’ll spend next month, they’re about preparing for the unexpected and setting yourself up for long-term stability.

If you don’t have an emergency fund, this is the first place to start. Once that’s in place, shift focus to retirement and other investments.

And if you’re aggressively paying down debt, part of this 20% can go toward that goal, as long as you’re not adding new debt at the same time.

20% – Discretionary Spending (Wants)

The final 20% is all about flexibility. It’s the part of your budget that lets you enjoy life without any guilt.

This is where things like dining out, streaming subscriptions, hobbies, entertainment, new clothes, or vacations belong.

It also includes personal care, like hair appointments or gifts for others. The key is knowing that this money is limited.

Without boundaries, it’s easy to let wants eat into your savings.

But when you cap it at 20%, you give yourself freedom to spend while keeping your overall budget in check.

How to Set Up Your 60-20-20 Budget

Step 1 – Track Your Current Spending

Start by figuring out how much money you actually bring home each month.

This means your net pay—what hits your bank account after taxes, insurance, and retirement contributions are deducted.

If your gross income is $4,000 but you only receive $3,000 after deductions, that $3,000 is your real budget base.

Next, track where that money goes. List every monthly expense, no matter how small.

This includes rent, groceries, subscriptions, gas, and more. You can do this on paper, in a spreadsheet, or by using a simple budgeting app.

There’s no need for fancy tools; the goal is to get a clear picture of your spending habits.

Once you know how you spend, it becomes easier to take control and make intentional choices with your money.

Step 2 – Categorize Every Expense

Now that you know where your money goes, sort each expense into one of the three 60-20-20 categories.

The first 60% covers essential needs like housing, utilities, groceries, car payments, health care, and basic clothing.

These are the things you must pay for to live and function daily.

The next 20% is for savings and financial goals, which includes building an emergency fund, contributing to a retirement account like a Roth IRA or 401(k), investing in mutual funds or stocks, and paying off debt faster than the minimums.

The final 20% is for discretionary spending—the fun stuff. That means dining out, hobbies, movies, travel, gifts, and personal splurges.

This is the money you can enjoy without guilt because you’ve already taken care of essentials and savings.

Step 3 – Adjust and Allocate Accordingly

Once your spending is categorized, compare your actual percentages with the ideal 60-20-20 split. Most people won’t align perfectly right away. That’s okay.

The next step is to adjust.

If essentials are over 60%, look for ways to trim—maybe reduce utility bills, cut unused subscriptions, or switch to more affordable grocery options.

If saving 20% feels too difficult, start smaller and work your way up. The point is to move in the right direction.

If you tend to overspend on wants, consider using cash envelopes or a separate account for discretionary funds.

That way, once the money’s gone, it’s gone. No surprises. Stay flexible, as some months may require tweaks.

And don’t forget to revisit your budget every few months to make sure it still fits your lifestyle and goals.

Benefits of Using the 60-20-20 Rule

Simple and Beginner-Friendly

One of the biggest strengths of the 60-20-20 rule is its simplicity. It breaks your budget into just three categories—needs, savings, and wants. That’s it.

There’s no need to sort every expense into dozens of detailed groups.

This makes it an ideal starting point for beginners or anyone who feels overwhelmed by complicated budgeting systems.

You don’t need fancy tools or apps to use it either. A notebook, a calculator, or a simple spreadsheet will do.

The clear structure makes it easier to organize your finances, understand where your money is going, and stay consistent from month to month.

Encourages Disciplined Saving

Saving often gets left behind when money is tight or spending habits go unchecked.

The 60-20-20 rule fixes that by making savings a non-negotiable part of your budget.

It carves out 20% of your income specifically for building an emergency fund, contributing to retirement accounts, or paying off high-interest debt.

This approach turns saving into a habit rather than an afterthought. Even if you start small, the consistent effort adds up.

It also helps you stay focused on long-term goals while reducing financial stress.

You don’t have to feel guilty about spending because you’re already taking care of your future.

Adapts to Different Income Levels

Flexibility is another major benefit. While we do suggest 60% for needs, 20% for savings, and 20% for wants, it’s not rigid.

If you live in an expensive area or have higher-than-average fixed costs, you can adjust the percentages to suit your situation.

You might start with 65% for essentials and work your way toward the full 20% savings goal over time. The rule gives you a framework, not a cage.

It’s meant to support your financial health, not add pressure. That adaptability makes it easier to stick with, even when life or income changes.

Promotes Mindful Spending

Overspending usually happens when there’s no plan. The 60-20-20 rule gives you one, and it builds awareness around your spending choices.

By assigning only 20% of your income to discretionary spending, it naturally encourages you to pause before buying things you don’t truly need.

It allows for guilt-free fun while keeping impulse purchases in check.

You still enjoy life, but with boundaries that protect your savings and financial goals.

This shift in mindset can make a big difference.

It helps you understand how much you can really afford to spend and where you might be wasting money without realizing it.

Is the 60-20-20 Budget Right for You?

Ideal for:

Stable income earners
- Works best if your monthly income is predictable.
- Easier to divide consistent paychecks into fixed percentages.
- No surprises make it simple to stick with.
Those new to budgeting
- Very beginner-friendly with no complicated math or tools required.
- Just three categories to manage: needs, savings, and wants.
- Helps you get started quickly and stay organized without overwhelm.
People looking for a financial structure without complexity
- Provides a clear, practical framework without micromanaging every dollar.
- Encourages consistent saving while allowing flexibility for spending.
- Great for those who want control over their money without a rigid system.

May Not Work If:

You have high debt loads
- Debt payments may exceed the 60% meant for essentials.
- Discretionary spending may need to be cut to prioritize debt payoff.
- The structure could feel tight or unrealistic if debt consumes most of your budget.
You live in a high cost-of-living area
- Housing alone might take up more than 60% of your income.
- Could require adjusting percentages to make it work.
- Savings may need to be temporarily reduced while focusing on core needs.
You earn irregular or low income
- Unpredictable pay makes fixed percentages harder to apply.
- Lower incomes often require more than 60% just to cover essentials.
- Might need to build a more flexible or custom budget month to month.

How to Make the 60-20-20 Budget Work for You

Practical Tips

Automate your savings

The easiest way to stay consistent with your budget is to automate as much as possible.

Set up direct deposit or automatic transfers on payday to move 20% of your income straight into savings or retirement accounts.

You can also separate your spending money by transferring it into a different account or taking it out in cash at the start of the month.

This keeps your spending, bills, and savings clearly separated, so you’re less likely to dip into money meant for other goals.

Reassess your budget quarterly

Don’t assume your first setup will be perfect. After a few months, review your spending and see what worked or didn’t.

Was 20% savings too much or too little? Were your essentials closer to 65%? Make small tweaks if necessary.

Your income, bills, or priorities might shift, and your budget should reflect those changes.

Checking in every three months helps you stay aligned with your goals and adjust based on real-life needs.

Use a budgeting app or calculator

While you can use a notebook or spreadsheet, budgeting apps can simplify the process.

Many track spending automatically, calculate category percentages, and give you insight into patterns.

If you’re not a fan of math or spreadsheets, a digital tool can help you stick with the system and avoid errors.

Budget calculators are also useful when setting up your plan, helping you divide your take-home pay based on accurate numbers.

Common Mistakes to Avoid

Misclassifying expenses

One of the most common mistakes is putting items in the wrong category.

Essentials (60%) should include only true needs: housing, groceries, utilities, transportation, basic clothing, and minimum debt payments.

Savings (20%) goes to emergency funds, retirement, investments, or aggressive debt payoff.

Discretionary spending (20%) includes wants like dining out, subscriptions, hobbies, and vacations.

Also, make sure you’re using your net (after-tax) income—not your gross pay. Using the wrong figure will throw off your entire budget.

Ignoring irregular costs

Not all expenses come monthly.

If you forget to plan for things like annual insurance premiums, back-to-school supplies, or holiday spending, your budget will feel tight when those costs hit.

Use part of your savings to build “sinking funds”—small, regular deposits set aside for known but irregular expenses.

Also, track averages of variable bills like electricity or water to smooth out unexpected spikes.

Not adjusting for life changes

Life doesn’t stay the same—and your budget shouldn’t either.

If you get a raise, move to a new city, start a family, or pay off a major debt, your spending needs will shift.

Sticking to the original percentages without re-evaluating can lead to imbalance.

For example, after a raise, you might be able to save 25% instead of 20%.

Or if your rent goes up, you may need to temporarily adjust your spending on wants.

The key is flexibility. Your budget is a tool, not a rulebook, and you may need to adapt it as your life evolves.

60-20-20 Budget Example

To see how the 60-20-20 rule works in practice, let’s break it down using a sample monthly net income of $3,000 (after taxes and deductions).

Here’s how that would look when divided across the three budget categories:

Monthly Breakdown:

Total Net Income: $3,000

60% – Essentials ($1,800)

Rent: $1,000
Utilities & Internet: $200
Groceries: $300
Car payment & gas: $200
Health insurance & medication: $100

20% – Savings ($600)

Emergency fund: $200
Roth IRA contribution: $250
Extra student loan payment: $150

20% – Discretionary Spending ($600)

Dining out: $150
Streaming subscriptions: $30
Shopping & hobbies: $170
Weekend activities & entertainment: $150
Gifts/personal care: $100

Alternatives to the 60-20-20 Rule

The 60-20-20 budget is a great starting point, but it isn’t the only way to manage your money.

If your needs don’t align with this method or if life circumstances change, there are several other approaches worth considering.

Below are popular alternatives that suit different goals, incomes, and lifestyles.

Other Popular Budgeting Methods

50-30-20 Rule

Allocates 50% to needs, 30% to wants, and 20% to savings.
Good for those with savings already in place.
Offers more flexibility for lifestyle spending.

70-20-10 Rule

Assigns 70% to all spending, 20% to savings, and 10% to giving (charity, gifts, or debt repayment).
Ideal for people with strong spending discipline.
Encourages generosity while still saving.

30-30-30-10 Rule

Splits income into 30% for housing, 30% for other necessities, 30% for savings or debt, and 10% for wants.
Works well for people focusing on homeownership or tracking housing costs separately.
Provides a balanced look at fixed and variable needs.

Zero-Based Budgeting

Every dollar of income is assigned a specific job—spend, save, invest, or pay off debt—until nothing is left unallocated.
Ensures total control and intentionality over spending.
Great for those who like precision and detailed planning.

80/20 Rule (Pay Yourself First)

20% of income goes straight to savings first, while the remaining 80% covers both needs and wants.
Simplifies budgeting for beginners.
Encourages saving without tracking multiple categories.

60-30-10 Rule

Prioritizes savings first: 60% to savings, 30% to needs, and 10% to wants.
Best for aggressive savers or those aiming for financial independence or early retirement.
May require a very lean lifestyle, but builds wealth quickly.

When to Consider Switching

No single budget works for everyone forever. If the 60-20-20 method feels limiting or unrealistic, it may be time to pivot. Here’s when a switch makes sense:

Major Lifestyle Change

Marriage, divorce, or starting a family can dramatically change expenses and income.
A new family budget might be needed to reflect joint bills or child-related costs like daycare and medical care.
Big life events are the perfect time to rethink your approach.

Income Shift

A raise or promotion could open more room to save or invest.
Conversely, a pay cut or inconsistent income may require more conservative planning.
If you’re freelancing or in a commission-based role, you might need to over-save in good months to cover lean ones.

Struggles Staying Within the Rule

If your needs constantly exceed 60%, especially due to high housing or debt costs, you may need a budget that allows for higher essentials.
If saving 20% feels out of reach, trying a smaller savings goal while increasing it gradually may be more realistic.
After trying the 60-20-20 rule for a couple of months, if it still feels forced or frustrating, it’s okay to switch to a method that better fits your financial life.

Final Thoughts

The 60-20-20 budget is simple, flexible, and easy to start. Try it for a month or two and see how it fits your lifestyle.

If something feels off, adjust the percentages until it works for you.

Budgeting isn’t one-size-fits-all—it’s about finding what helps you save, spend wisely, and reduce stress.

Even small changes can lead to big progress over time!