50 30 20 budget rule


“Is the 50 30 20 budget rule really as simple and easy to do as it sounds?”


If the thought of tracking every minute expense sends shivers down your spine, fear not!

The 50/30/20 rule has arrived to save the day.

This budgeting method, which caters to those new to budgeting or disliking micro-level expense tracking, simplifies the process by dividing your monthly take-home income into three main categories.

Your needs, wants, and savings receive 50%, 30%, and 20% of your monthly take-home income, respectively.

Rather than requiring a granular approach to expense tracking, this rule promotes a broader categorization of expenses.

Not only does the 50/30/20 rule ease the overwhelming process of budgeting, but it also permits room for discretionary spending and facilitates the accumulation of savings.

Creating a realistic budget that suits your needs and wants has never been easier thanks to this beginner-friendly budgeting strategy.




The 50/30/20 budget rule has gained widespread popularity and was popularized by Senator Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan.

As I said above, the simple understanding of a “50/30/20 budget” is: This straightforward budgeting strategy divides your spending into three categories:


  • 50% for your needs.
  • 30% for your wants.
  • and 20% for your savings.


Simple scaling, right?

In fact, there is some flexibility between 20 and 30 percentages (50/20/30 budget rule). Many people spend 30% of their after-tax income to invest, save, and the remaining 20% for wishes.




Your after-tax income will be used for 50% of your needs.


Your needs are categorized as your basic expenses, such as housing, groceries, transportation, and insurance.


Your wishes will be taken from the budget of 30% of your after-tax income.


While your wants are considered luxury expenses like vacations, restaurants, concerts, and shopping.


Set aside 20% of your after-tax income to save.


The 20% category is reserved for your savings goals, including debt payments, emergency fund, retirement, and investments.


This budgeting rule provides a simple and effective way for individuals to manage their money and prioritize their spending.

The 50/30/20 rule eliminates the need for complex spreadsheets or tools and allows you to easily break down your budget using percentages. By writing down your spending on paper, you can create a realistic budget that’s easy to stick to.

The 50/30/20 rule is a popular choice for those who are new to budgeting or find the idea of tracking every individual expense overwhelming.

This budgeting strategy offers lots of flexibility and simplifies your spending by categorizing it into just three categories. By following this rule, you can save for emergencies and retirement while still enjoying discretionary spending.




For individuals who are perplexed about how much they should be spending monthly, let’s consider a scenario.

Imagine that you have a take-home salary of $5,000 per month. Using a budget calculator to break this amount into three primary budget categories is recommended.

Below, we have an illustration of the 50/30/20 budget rule:


  • Needs (50%) – Determining the amount to budget for your needs can be done by multiplying $5,000 by 0.50, which is equivalent to $2,500.
  • Wants (30%) – To establish the amount to budget for your wants, you should multiply $5,000 by 0.30, resulting in $1,500.
  • Savings (20%) – To determine the amount to budget for your savings, multiply $5,000 by 0.20, resulting in $1000.


Calculating these figures can be done manually, but there are free online budget calculators such as NerdWallet’s 50/30/20 budget calculator that makes the process much easier. Simply input your monthly income, and the tool will generate the figures you need to allocate to each category.

By allocating 50% of your monthly income to needs, 30% to wants, and 20% to savings, you can easily prioritize your spending without detailed expense tracking.

Many people find this rule simple and beginner-friendly, and it can help them achieve their savings goals while enjoying some discretionary spending.




Each person will have different income and different expenses and needs. Therefore, to apply the 50 30 20 budget rule to life, it is necessary to be flexible and detailed for each type. This makes it easier for you to manage your money. From there, there will be no pressure in the way of spending.


Calculate income after taxes and other expenses for the 50 30 20 budget rule.


Budgeting can be a daunting task, especially for those new to the game. But fret not, as long as you have a handle on your monthly income, you’re off to a good start.

Monthly income is the sum you receive each month, encompassing your take-home pay after all deductions are accounted for. Self-employed individuals need to factor in business expenses and taxes paid before determining their monthly income.

Employed individuals, on the other hand, have to consider deductions such as taxes, insurance premiums, and other mandatory deductions that their employers have withheld.


After these are taken out of the paycheck, the remaining amount is the monthly income. Additionally, any supplementary income streams must also be included in the monthly income computation.

Those with fluctuating monthly incomes should use the past six months’ earnings and calculate the average amount. This figure will be the monthly income amount.

Once you know your monthly income, you can start allocating it into three categories: Needs, Wants, and Savings.


Limit needs to a maximum of 50% of income.


The ensuing stride in your quest entails ascertaining the extent of your financial outlay on your requisites. These are your obligatory subsistence costs and charges that are absolutely imperative to settle on a monthly basis.

Contemplate your lease or mortgage, edibles, automobile remunerations, insurance, healthcare, minimum debt payments, and utilities.

The dichotomy between your “needs” and “wants” can be convoluted. For instance, while you require water to stay hydrated, acquiring soda and exorbitant bottled water is a mere “want.”


Deciphering your needs and wants will require your discernment.


Your needs ought to consist solely of the essentials that are indispensable for survival. Endeavor to allocate 50% of your post-tax monthly earnings to your needs. These are requisite expenses that you can’t evade, as they could adversely impact the caliber of your existence.

To provide an illustration, if you are reimbursing credit card debt, abstaining from making the minimum payment could harm your credit score. Consequently, the minimum payment is deemed a “need”.


Limit what you want to 30% for 50 30 20 budget rule.


The impending task at hand necessitates that you engage in an exhaustive examination of the quantum of cash currently expended on your superfluous desires. These indulgences are not imperative for basic sustenance or occupational obligations.

They are, however, the sole classification of spending that can have the most profound impact on your financial plan, particularly if you aspire to rapidly accumulate funds or reimburse outstanding debts.

While an allocation of 30% of your earnings towards your desires may seem like a substantial amount, it is effortless for these expenditures to accumulate rapidly.


It is even plausible that you are at present squandering more of your earnings on your wants than you perceive.

These are your non-obligatory subsistence expenses, such as an upgraded cellular network plan, coffee from Starbucks, a Netflix subscription, voyages, hobbies, shopping, amusement, eateries, gymnasium memberships, presents, and the likes.

These costs are distinct for each individual, predicated on their way of life and readiness to relinquish certain amenities. Furthermore, they typically fluctuate from month to month.

For example, one month may require a higher expense on gifts, whereas another month may entail increased entertainment expenses. The crux of the matter is to restrict the expenditure on wants to a maximum of 30% of your disposable income.


The remaining 20% is for savings, investments or debt repayment.


Congratulations are in order if you find yourself without any debt; however, if you are one of the many who do, have no fear as extra payments can be classified as “savings” and fall under the 20% heading.


50 30 20 budget rule for debt repayment.


It is recommended to prioritize paying off the debt with the highest-interest rate first, as this method, known as the debt avalanche, will save you the most money.

Once you have successfully paid off all of your debt, except for your mortgage, you can then use the 20% portfolio to deposit more money into your savings and investments. As a result, you will be well on your way to financial freedom.

There are various examples of savings and debt repayments that fall within 20% of your budget, including short-term and long-term savings.


For instance:


  • You can pay off credit card debt above the minimum payment.
  • Build your emergency fund.
  • Save for home repair.
  • A wedding or honeymoon.
  • A car.
  • Or a house upfront.


50 30 20 budget rule for saving money.


Additionally, long-term savings can be achieved through saving to pay off your mortgage, saving for retirement beyond what is already deducted from your gross income, saving for your child’s education through a 529 plan, and saving to start a business.

Overall, if you follow these guidelines, you can ensure a sound financial future.




A 50/30/20 budget can be suitable for people who don’t like the idea of MUST budgeting or those who are new to budgeting, because you can simply divide your spending into three categories: Needs, Expectations Want and Save.

The 50/30/20 budgeting strategy has gained recognition for its effectiveness in managing finances, particularly for individuals with an average income.




  • Suitable for people with average income.
  • Simple, easy to follow for those new to budgeting.
  • It encourages people to prioritize their spending and allocate their income accordingly.
  • This rule is flexible and can be adjusted to suit individual needs and financial situation.
  • Accelerate your savings and debt repayment.
  • It’s a great start for people who don’t have a budget and plan for their financial well-being.




  • Difficulty distinguishing between “needs” and “wants”.
  • 20% for savings and debt repayment may not be enough for people with large debts.
  • Skip the emergency fund: The 50-30-20 rule does not include an emergency fund, an essential component of any financial plan. This can leave individuals vulnerable in the event of unexpected expenses or job loss.
  • Some people who live in high-cost areas find it difficult to follow this rule.
  • Some people argue that the 50 30 20 budget rule is an oversimplification for unpredictable financial situations such as: Inflation, job losses, rising taxes.


Trả lời

Email của bạn sẽ không được hiển thị công khai. Các trường bắt buộc được đánh dấu *