Needs are costs you genuinely can’t avoid — housing, utilities, groceries, transportation to work, insurance, and minimum debt payments. Wants are everything that improves your life but isn’t essential to keep it running, like dining out, streaming subscriptions, hobbies, and upgraded versions of things you already have.

Most financial educators recommend using your take-home pay — the amount that actually lands in your bank account after taxes and payroll deductions — since that’s the real money you have to allocate. Using gross income can make your budget look more comfortable than it actually is.

This is common in higher cost-of-living areas, and it doesn’t mean you’re doing anything wrong — it usually means adjusting the ratio to fit your reality, such as 60/20/20, while still prioritizing some savings. Use the Customize My Percentages option above to build a split that actually matches your situation.

Minimum required debt payments are generally treated as a “need,” since missing them has real consequences, while any extra, above-minimum debt payments are usually grouped with the “savings” category since they’re building your financial future. This calculator follows that same split in the Compare My Spending tab.

It’s a helpful starting framework rather than a strict law — very low incomes may struggle to hit 20% savings, while high earners often can save well beyond 20%. Treat it as a benchmark to compare yourself against, then adjust the ratio to something realistic and sustainable for your own numbers.