60/20/20 Rule Calculator
60/20/20 rule calculator is an online budget calculator that helps you to allocate your monthly income using the 60/20/20 rule.
Enter your monthly income in the income input field, and let this calculator do its work. This calculator will allocate your monthly income into three parts: 60% for your living expenses, 20% for your savings and the remaining 20% for your wants.
What is the 60/20/20 Rule?
The 60/20/20 Rule is a simple yet powerful budget strategy outlined by the Investor 'Scott Pape'. This rule provides you a simple and easy to follow budgeting strategy that you can use in your day to day life.
The 60/20/20 rule states that 60% of your post-tax income should be allocated to your living expenses and debt repayment, 20% to savings and investments, and the remaining 20% to fulfil your wants and desires.
In this method, 60% of your monthly income goes to your monthly living expenses (house rent, internet bills, grocery, electricity bill, and water bill etc). These are basically the things you need to spend on to live a smooth life. Any form of debt repayment or loan will fall in this category.
After that, 20% of the income goes to your savings and investments. These basically include items like emergency fund, rainy day fund, or retirement funds.
Finally, you can spend the remaining 20% to fulfil your wants. These are basically the items and services you want to buy but could live without. For example: shopping, going on vacations, going out for dinners, and entertainment etc.
Following this budgeting rules gives you the flexibility to work on your long-term financial goals without compromising a lot in your day to day life.
60/20/20 Budget At a Glance
1. Needs (60%)
This category covers your essential living expenses. These are the bills one need to pay to maintain a decent standard of living.
- House rent and mortgage payments
- Utility bills (like gas, electricity, water, internet, phone bills)
- Grocery and household items
- Debt repayment
2. Savings (20%)
This category focus on building your financial stability and security. This category also covers your long term financial goals.
- Emergency funds
- Rainy day funds
- Retirement funds
- Savings
- Investments
- Long Term Financial Goals
3. Wants (20%)
This category allows you to spend your money on the things which you want to buy but are not necessities.
- Travel
- Entertainment
- Eating out
- Shopping
- Fun activities
How to Use the 60/20/20 Rule Calculator?
- Visit the 60/20/20 rule calculator page
- Enter your monthly income in the income input field (post-tax income)
- After that, click on the 'Calculate' button
- This calculator will allocate your monthly income using the 60/20/20 budgeting strategy and will display the result to you
60/20/20 Rule Formula
The following formulas are used to allocate your monthly income using the 60/20/20 rule.
Living Expenses (60%):
Living Expenses = Income x 0.6
Savings and Investment (20%):
Savings = Income x 0.2
Wants and Desires (20%):
Wants = Income x 0.2
How to Allocate Your Income Using 60/20/20 Rule?
Step 1 - Determine Your Post-Tax Income
First, calculate your monthly post-tax income by subtracting the tax from your monthly income. This will be the income which we will be dividing into three categories. Let's take an example, suppose your post-tax monthly income is $5000, therefore we will be allocating this $5000 into three different categories.
Step 2 - Living Expenses (60%)
In the 60/20/20 budgeting method, 60% of your monthly income goes to your monthly living expenses.
60% of $5000 is $3000, so you can spend $3000 to sustain your life and repay the debts.
Step 3 - Savings (20%)
Now, you will save or invest 20% of your income.
20% of $5000 is $1000, so this amount can be use to build your emergency funds and investments.
Step 4 - Wants (20%)
At last, you can spend the remaining 20% of your income to your fulfil your wants like entertainment and travel.
20% of $5000 is $1000, so this remaining amount can be used for travel, shopping or entertainment purposes.
Solved Example
Example: Mr. Jordan wants to keep his finances simple and easy to track. Therefore, he decided to use the 60/20/20 rule for his budgeting. His post-tax monthly income is $3250. Allocate his monthly income using the 60/20/20 rule.
Post-Tax Monthly Income (I) = $3250
Using the above formulas, we'll get:
Living Expenses (60%):
Living Expenses = Income x 0.6 = $3250 x 0.6 = $1950
Savings (20%):
Savings = Income x 0.2 = $3250 x 0.2 = $650
Wants (20%):
Wants = Income x 0.2 = $3250 x 0.2 = $650
Thus, Mr. Jordan can use $1950 to sustain his life and pay bills, $650 for savings and the remaining $650 to fulfil his wants.
Reference
60/20/20 Rule Retrieved from "Balancing Your Financial Life With the 60/20/20 Rule"