Budget Types: The 80/20 Budget

The 80/20 budget is very similar to the 50/20/30 budget in that you simply take your income and chunk it up into broad categories. However, the 80/20 budget is even less specific than the 50/20/30 budget making it quicker and easier to use than the 50/20/30 budget. Here is how an 80/20 budget would work: 

Let’s use a take-home pay of $3,000 (after taxes and deductions). With an 80/20 budget, you first set aside 20% of your income to put into savings leaving yourself with the remaining 80% to spend on whatever you want. This type of budget is also commonly known as the “pay yourself first” budget. With $3,000 of income, $600 would go into savings and $2,400 would be free to spend.  

What is Included in Savings? 

The things that you would include in savings for an 80/20 budget are basically identical to what you would include in savings in a 50/20/30 budget: large purchases and retirement. Large purchases would include things such as a house, a car, a boat, etc. Depending on your values and wants, you might even save for big vacations.  

Who Should Use an 80/20 Budget? 

Because this budget is so similar to a 50/20/30 budget, the people who would benefit from an 80/20 are similar to those that would benefit from a 50/20/30 as well. The 80/20 budget is good for people who: 

  • Do not have any non-mortgage debt.  
  • Have a fully funded emergency fund. 
  • Have had success with budgeting in the past.  
  • Want something quick and easy and don’t want to dedicate a lot of time and energy to tracking monthly expenses and balancing the budget.  
  • Have a good handle on their spending habits and are able to live below their means.   

If you are out of debt and have a fully funded emergency fund but are absolutely burnt out with budgeting and don’t even want to think about it anymore, then the 80/20 budget might be a good fit for you. You could automate your savings to be withdrawn from your account before you are able to spend it so that you are free to spent whatever your balance in the bank is. I am going to reiterate, though, that it is vital that you have no debt, a fully funded three-to-six-month emergency fund, and are easily able to live below your means in order for this budget to work well for you. It might even be a good idea for you to have your house completely paid off before you try the 80/20 budget. If you have bad spending habits, debt, or an insufficient emergency fund, then the 80/20 budget probably isn’t your best fit for you right now. I would recommend trying a different budget to get out of debt, build up an emergency fund, and reign in your spending habits first, then maybe move on to the 80/20 budget.  

The Down-Side of an 80/20 Budget 

Just like with the 50/20/30 budget, this budget should be approached with caution. You might want to think twice about using an 80/20 budget if you: 

  • Have a tendency to overspend your money. 
  • Have specific financial goals you want to achieve. 
  • Have multiple things you are wanting to save for.  
  • Have never budgeted before. 

To be honest, I simply don’t like this type of budget. It would make me extremely uncomfortable to not have every single expense or goal written out, planned out, and budgeted for. But, that’s just me. I still have several financial goals that I am wanting to achieve within a certain time frame. If I were at a different stage in my life, I might think differently. For example, if I had my house completely paid off, had a massive emergency fund (I’m talking, like, a twelve-month emergency fund), and had enough money set aside in savings to cover all of the vacations I wanted to take in the foreseeable future, then I might give the 80/20 budget a try. Actually, that probably isn’t true. That’s just not my personality type. I am very much a nerd and not at all a free spirit. I need to see the numbers and know everything that is going on in my budget.  

There is one thing that I do like about an 80/20 budget, though. It doesn’t actually have to be an 80/20 budget. It could be a 70/30 budget, a 60/40 budget, or even a 50/50 budget. Heck, it could even be a 68/32 buget! My point is that you can play with the numbers to make them reflect your financial goals. If you want to retire sooner, increase the savings portion of the budget. If you want to buy a new car in a year, increase the savings. You get my point.  

Really, the only time I would recommend an 80/20 budget, or a variation of an 80/20 budget, would be if you make plenty of money every month, have no debt (not even a mortgage), and have an extra-large emergency fund. Even then, I would want for you to be certain that you are on track to retire when you want to retire by only setting aside whatever percent you decide on for your savings. For me to be confident in the effectiveness and reliability of this type of budget, a lot of boxes would have to be checked first.  

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Published by Myranda Griebel

It is my goal to reach as many people as possible that need help, guidance, or advice with any aspect of budgeting so that they can work toward living the life they deserve and desire.

One thought on “Budget Types: The 80/20 Budget

  1. I agree with you, an 80/20 budget would be far too lose for me. I am very happy to get things paid off. Not being in debt is a fantastic feeling.


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