Managing money and handling change in life or work can feel overwhelming. The 60 20 20 rule is a simple yet powerful framework that can help you stay organized and make smart decisions. This rule is used both in personal finance to manage income and in change management to understand how people react to change. In this blog, we will explain the 60 20 20 rule in detail, provide examples and calculations in dollars, and show how you can use it in daily life.
What Is the 60 20 20 Rule?
The 60 20 20 rule is a guideline that divides a whole into three parts, depending on the context:
a) In Personal Finance (Budgeting)
The rule suggests dividing your income into three portions:
- 60% for essential expenses – things you must pay to live comfortably, like rent, food, bills, and transport.
- 20% for savings – money you put aside for emergencies, retirement, or investments.
- 20% for wants – non-essential spending, such as entertainment, travel, dining out, and hobbies.
This method helps you maintain financial balance without stressing about overspending or undersaving.
b) In Change Management (Workplace Behavior)
In organizations, the 20-60-20 rule describes how employees respond to change:
- 20% are early adopters – these people support change quickly and help others adapt.
- 60% are neutral or hesitant – they may take time to adjust but can support the change with guidance.
- 20% are resistors – they resist change and may require more encouragement or alternative approaches.
This insight helps leaders plan change strategies effectively.
How the 60 20 20 Rule Works in Budgeting
Step 1: Calculate Your Monthly Income
Start with your monthly net income (after taxes). For example, let’s assume you earn $4,000 per month.
Step 2: Allocate 60% to Essentials
Essential expenses are necessary for daily living. This includes:
- Rent or mortgage
- Utilities (electricity, water, gas, internet)
- Groceries
- Transportation (car payments, fuel, public transport)
- Insurance
- Minimum debt payments
Calculation:
60% of $4,000 = 0.60 × 4,000 = $2,400 for essentials.
Step 3: Allocate 20% to Savings
Savings are crucial for financial security. You can divide savings into:
- Emergency fund
- Retirement fund (401k, IRA)
- Investments (stocks, mutual funds)
Calculation:
20% of $4,000 = 0.20 × 4,000 = $800 for savings.
Step 4: Allocate 20% to Wants
Wants are non-essential but improve your quality of life. Examples include:
- Dining out
- Movies or entertainment
- Hobbies
- Shopping
- Short vacations
Calculation:
20% of $4,000 = 0.20 × 4,000 = $800 for wants.
Step 5: Example of a Monthly Budget
| Category | Percentage | Amount ($) |
| Essentials | 60% | 2,400 |
| Savings | 20% | 800 |
| Wants | 20% | 800 |
| Total | 100% | 4,000 |
This simple allocation ensures your essential needs are met, savings grow consistently, and you still enjoy your lifestyle.
Benefits of the 60 20 20 Rule
a) Simple to Apply
Unlike complex budgeting methods, this rule divides income into three easy categories. Beginners find it very easy to follow.
b) Promotes Financial Balance
It prioritizes essentials, encourages saving, and still allows for spending on leisure.
c) Encourages Consistent Savings
Even small savings every month can grow into a significant amount over time. For example, saving $800 per month can grow to $9,600 in one year. If invested with a 5% annual interest, this can grow even more.
d) Flexible
You can adjust percentages slightly based on your needs. For example, if your rent is lower, you may save more or spend more on wants.
Common Questions About 60 20 20 Budgeting
Q1: Is the 60 20 20 rule better than 50 30 20?
Both methods work. The 60 20 20 rule is better for people who want to save more or whose essential expenses are high. The 50 30 20 method is slightly more flexible for lifestyle spending.
Q2: Can debt repayment be counted as savings?
Minimum payments are part of essentials (60%), but extra debt repayment can be counted as part of savings because it reduces liabilities.
Q3: Can I adjust the percentages?
Yes, the rule is a guideline. You can customize it depending on goals, emergencies, or changing income.
How the 20-60-20 Rule Works in Change Management
In organizations, implementing change is challenging because people react differently. The 20-60-20 rule helps leaders understand behavior.
Step 1: Identify the Groups
- 20% supporters: They adopt the change immediately and influence others.
- 60% neutral: They are unsure but can be guided to accept change.
- 20% resisters: They resist the change and may need alternative strategies.
Step 2: Plan Communication
- Communicate benefits clearly to supporters and neutral employees.
- Offer training or one-on-one discussions for hesitant employees.
- Accept that resisters may need more time or may not fully adopt the change.
Step 3: Example
Imagine a company introducing a new software system to 100 employees:
- 20 employees (20%) immediately support it.
- 60 employees (60%) take time but learn with guidance.
- 20 employees (20%) resist and may need additional support.
By identifying these groups, leaders can focus efforts efficiently.
Advantages of Using 20-60-20 in Organizations
- Predictable Response: Leaders can anticipate reactions.
- Efficient Resource Allocation: Focus on the 60% who need guidance.
- Reduces Frustration: Understanding resisters reduces conflict.
- Improves Communication: Supports targeted messages to different groups.
This rule is not just theory—it helps real teams adopt change faster and more smoothly.
Combining Both Uses of the Rule
Interestingly, the 60 20 20 rule can apply to both personal life and professional life. Whether managing your money or leading a team, understanding how to divide resources or plan strategically is key.
- Money management: Divide income into essentials, savings, and wants.
- Change management: Divide employees into supporters, neutral, and resistors.
In both cases, the rule provides structure, balance, and predictability.
Practical Tips for Using the 60 20 20 Rule
For Budgeting
- Track expenses for at least one month to understand spending habits.
- Automate savings by setting up direct deposits to savings or investment accounts.
- Adjust wants category to include occasional treats but avoid overspending.
For Change Management
- Communicate clearly and frequently.
- Offer training, guidance, and support to hesitant employees.
- Recognize supporters publicly to motivate the middle group.
- Be patient with resisters; they may eventually accept change or adapt differently.
Real-Life Example of 60 20 20 Budgeting
Let’s consider David, who earns $5,000 per month:
- Essentials: $3,000 (rent $1,500, utilities $400, groceries $800, transport $300)
- Savings: $1,000 (emergency fund, investments)
- Wants: $1,000 (dining, movies, hobbies, shopping)
By following this rule, David has financial control, builds savings steadily, and still enjoys leisure activities without guilt.
Also Read: Transfer Payment: Meaning, Types, Examples, and How It Works
Conclusion
The 60 20 20 rule is a simple, effective tool for managing both finances and change. In budgeting, it helps balance spending, savings, and wants, while in organizational change, it helps understand employee behavior and guide them effectively.
By applying this rule, you can make smarter financial decisions, reduce stress, and improve planning in personal and professional life. Whether you are a beginner in budgeting or a manager implementing change, this rule provides clarity, structure, and predictability.
Start today by reviewing your income or your team, and apply the 60 20 20 principle for better results.