We’ve talked before about how my family uses a zero based budget. If you haven’t read that post, you can click here to check it out. But what if our zero based budget format isn’t the one for you? Different budgets work for different people. I’m here to help you handle your finances, not force you to handle them exactly how I handle mine! Maybe a 60-20-20 budget is the one for you!
What is a 60-20-20 Budget?
It’s not as complicated as it may sound. Basically, a 60-20-20 budget splits your take-home (after tax) pay into 3 parts.
- 60% goes to your living expenses: food, shelter, utilities, transportation. All your fixed expenses you need to live!
- 20% goes to saving/investing.
- 20% goes to discretionary/fun money. Things like event tickets, dates, hobbies, whatever you like to do.
Who is the 60-20-20 Budget good for?
It can be good for anyone!
In my opinion, this budget can be incredible for somebody who struggles with saving. The person who’s always lived paycheck to paycheck. The person that sees more than $0 in their account the day before they get paid & goes and spends it all “just because.” The 60-20-20 budget teaches you to track your spending, focus on saving, and separate wants from needs.
It’s perfect for people who need to learn to get their finances under control. And, it’s super straight forward, which makes it beginner-friendly!
How to Start a 60-20-20 Budget
To begin, we need to figure out what your take-home pay is! This is the number we’ll start from.
For the sake of demonstration, let’s say you bring home exactly $1,000 a week after deductions, so an even $4,000/month.
Multiply your income by 0.6
ex: [4,000 x 0.6 = 2,400]
$2,400 is 60% of your pay.
Then multiply your income by 0.2
ex: [4,000 x 0.2 = 800]
$800 is 20% of your pay.
Your “Goal” for each portion of your 60-20-20 budget is: $2,400-$800-$800
Now, we need to analyze all of your expenses, and decide what category they fall under. Write out all your expenses, either on paper or in a spreadsheet if that’s what works for you.
What to include in your “60”
Living expenses such as rent/mortgage, utilities, household bills, food, car insurance, etc.
What to include in your lifestyle “20”
Discretionary spending, such as event/movie tickets, date nights, travel, etc.
Your final “20” is exclusively for saving/investing.
This is easy.
What if my numbers don’t fit exactly into my 60-20-20 budget?
That’s the beauty of managing your finances: it doesn’t need to be perfect. Especially not at first.
If you spend more like 65% of your income on your absolute necessities, that’s fine. If you aren’t big on going out and have affordable hobbies, and only need 10% of your income for lifestyle expensed, that’s fine too. Allocate the other 10% to saving! 65-25-10 is fine too.
It’s your money, make it work for you.
I think the point of a 60-20-20 budget is the emphasize the importance of saving. Having a perfectly even 60-20-20 ratio isn’t the point. Prioritizing SAVING and true “needs” over “wants” is the key.
Save that money.
I have an entire post discussing what my savings plan looks like. If you’re interested in learning why I have so many savings accounts, this post is for you.
What do you think of the 60-20-20 budget? Do you struggle with prioritizing saving? Do you think this budget method would help you? Let me know in the comments below!
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