Managing money can often feel like a big challenge, especially when you’re struggling with pending bills, rents, groceries, and other expenses. The 60-20-20 rule is a simple rule that directs your money towards specific categories, making it easy for you to plan them rather than relying on guesswork or spending carelessly. This plan can allow you to live in comfort today while also preparing for your future. You don’t need fancy subscriptions or a deep understanding of finance to follow this rule, you just need willingness, a bit of consistency, and honesty with yourself to ensure the effectiveness of the whole process. This article will help you explore the dynamics of the 60-20-20 rule, helping you spend wisely, save intentionally, and still enjoy your life with balance.
What Is the 60-20-20 Rule?
The 60-20-20 rule is all about categorizing your expenses into 3 main categories, needs, savings or investment, and personal spendings. According to this rule, 60% of your monthly income goes towards needs, 20% goes into savings or investments, and lastly, 20% of your paycheck is assigned to everything you find pleasure in.
This rule can help you manage money in a structured and organized way while still making room for the activities and things you enjoy, striking the right balance between discipline and comfort. What makes this rule a more considerable option is the fact that it is straightforward, simple, and easy to manage, perfect for beginners as well.
Why the 60-20-20 Rule Works So Well
The reason this rule works the best for many people is the fact that it addresses every aspect of your finances, including that nice-to-have spending category as well. It doesn’t demand you to cut back on things you enjoy or hold back on activities you find pleasure in, it simply defines a spending criteria for it, making it easy for you to stick with the process.
The beauty of the method is that it naturally creates financial discipline without making you feel restricted or punished, allowing you to stay consistent with the process and spending on things you enjoy without any guilt or shame.
Step 1: Figure Out Your Monthly Income
Before you begin dividing your money into categories, you need to know exactly how much you’re working with each month, because without knowing your true income, any plan will feel confusing and hard to follow.
Start by calculating your total monthly income, which means the amount you actually take home after taxes, deductions, or contributions, this is called your net income. This could come from your job, side hustle, freelance work, or any other steady source of money you receive.
When you know the exact number, you can then confidently divide it according to the 60-20-20 rule and create a plan that fits your real situation instead of guessing or relying on estimates.
Step 2: Spend 60% on Needs
The first and biggest portion of your income, 60% goes toward your needs, which are the basic things that keep your daily life running smoothly and comfortably. This includes expenses like rent or mortgage payments, groceries, utilities, transportation, healthcare, insurance, and other bills that you simply cannot skip.
These are your must-haves, the things that ensure your comfort and security every single day. The goal here is to make sure that all your essentials are fully covered without eating into the other parts of your budget. If you find that your needs are taking up more than 60%, that’s a sign you might need to make small adjustments, such as cutting unnecessary costs, finding cheaper alternatives, or even trying to increase your income.
Step 3: Save or Invest 20%
The next 20% of your income should go directly into savings or investments because this is the portion that builds your financial future and keeps you safe when life surprises you. You can start by saving for short-term goals like emergency funds or vacations, and then move on to long-term ones such as buying a house, saving for retirement, or growing your money through investments.
Even if you can’t start with a full 20% right away, begin with a smaller amount and slowly increase it over time, because the habit of saving consistently is much more important than the number itself.
Step 4: Keep 20% for Personal Spending
The final 20% of your income is where you get to enjoy yourself guilt-free, and this is what makes the 60-20-20 rule so easy to stick to in the long run. This category is for your personal wants and fun spending, things like going out for dinner, watching movies, traveling, buying clothes, or any activity that brings you happiness and helps you relax.
By setting aside money for enjoyment, you avoid the feeling of being restricted or deprived, which is often the reason people quit budgeting. When you plan fun spending in advance, you get to enjoy it without any guilt because you know it fits within your plan.
Step 5: Track and Adjust as You Go
Once your budget is set, the next important step is to track your spending regularly and make small adjustments when needed. No budget works perfectly from day one, and that’s completely normal, because life often brings unexpected expenses or changes that need quick adjustments.
Try keeping a simple record, whether it’s through a budgeting app, spreadsheet, or notebook, to see where your money goes every week. When you review your spending, you’ll start noticing small leaks like frequent takeout or forgotten subscriptions that quietly eat away at your budget. By making little changes along the way, you’ll stay in control of your finances without feeling stressed or overwhelmed, and over time, you’ll naturally become more mindful of how you handle your money.
Step 6: Build the Habit Over Time
Like most good things in life, budgeting becomes easier and more effective with practice and patience. At first, sticking to a plan might feel uncomfortable or confusing, but the more you do it, the more natural it becomes. Think of budgeting as a habit, not a short-term fix, because real financial control takes consistency, not perfection.
You don’t have to get everything right immediately, just keep showing up, keep checking in, and keep making small improvements each month. Over time, you’ll notice that managing money starts to feel less stressful and more empowering, because you’ll know exactly where your money goes and how it supports your goals.
Step 7: Customize It to Fit Your Life
The best thing about the 60-20-20 rule is that it’s flexible, meaning you can adjust it according to your personal situation, income level, or lifestyle. For instance, if you live in an expensive city where rent and bills take up more than 60% of your income, you can slightly shift the rule to maybe 65-15-20, or if you have no debt and want to grow your savings faster, you can dedicate a bit more than 20% toward investments.
The idea is not to follow the rule strictly but to use it as a guide that helps you make smart, realistic choices. Everyone’s financial situation is unique, and this rule can be molded to fit your own needs, goals, and priorities without making you feel limited or pressured.
How This Rule Can Change Your Money Mindset
The 60-20-20 rule isn’t just about dividing your money, it’s about changing the way you think about it. It teaches you to be intentional with every dollar you earn, balancing between living comfortably today and securing your future. Over time, this mindset shift helps you feel calmer, more confident, and more in control, because you’re no longer reacting to your finances but actively guiding them.
It removes the stress and guilt that often come with spending and replaces them with clarity and balance, showing you that financial freedom isn’t about having more, it’s about managing what you already have in a smart and meaningful way.
Conclusion
At the end of the day, the 60-20-20 rule is one of the simplest and most practical budgeting methods you can follow, especially if you’re just starting to take control of your finances. It helps you stay organized without feeling restricted, saves you from careless spending, and ensures that every dollar you earn has a purpose. By following this plan, you’ll find it easier to live comfortably in the present, prepare for the future, and still make space for the little joys that make life enjoyable. Budgeting doesn’t have to be complicated, it just needs a plan that’s clear, balanced, and easy to stick to, and the 60-20-20 rule does exactly that.