What Is the 50/30/20 Budget Rule?

The 50/30/20 rule is a budget method that divides your monthly after-tax income into three spending categories: needs, wants, and savings or financial goals like paying down debt.¹

Here’s what it looks like, at a glance.

Now let’s look at each bucket in more detail.

50%: Needs

Half of your income goes to needs with the 50/30/20 rule. Needs are the essential or must-have expenses you have to pay to live day-to-day.

Examples of needs include:

• Rent or mortgage payments
• Utility bills
• Health insurance and life insurance premiums
• Groceries
• Transportation costs¹

Is the 50/3/20 rule gross or net? When you make a budget, use your net income. This is your take-home pay, or the money you keep after taxes and other deductions are taken out.

Using net income vs. gross for the 50/30/20 rule (or any other budget system) ensures that you’re only budgeting money that you actually have to spend, save, or pay down debt.

30%: Wants

Wants are your “fun” expenses, the things you spend money on but don’t need to maintain your standard of living. The 50/30/20 rule lets you enjoy some of your hard-earned dollars while keeping the amount you spend under control.

Examples of wants include:

Eating out
Clothes
Hobbies
Vacations
Subscriptions and streaming services¹

The amount you spend on wants can change month to month. And since these expenses are optional, it’s easier to adjust if you need to create wiggle room in your budget for something else.

For example, you might decide to buy a nicer car to replace your old one that keeps breaking down. Buying it means taking on a car payment and shelling out more each month for auto insurance, to the tune of an extra $700 per month.

Now you need to find room for that $700 in your budget. You can’t cut your rent or skimp on utilities, but you could cancel streaming services you don’t use, curb your weekly dinners out with friends, and hit pause on new clothes so you have more cash to save each month.

20%: Savings and debt

The 50/30/20 rule encourages you to work toward your financial goals, whether that means saving, paying down debt, or doing a little of both. Building goals into your budget helps you commit to them and removes the temptation to spend money unnecessarily.

For example, your goals might include:

• Saving $10,000 for an emergency fund
• Putting $500 a month into a retirement account
• Paying off $5,000 in credit card debt in the next 12 months¹

Should you save or pay down debt first? It’s a good question, and the answer depends on your priorities and situation.

For example, if you have $0 saved for a rainy day, you might consider dedicating 20% of your take-home pay to saving before tackling your debt repayment. Having a little cash in the bank means you won’t need to turn to a credit card or loan to cover an unexpected expense.

If you have a small emergency fund (or a big one), you could consider putting more of that 20% toward student loans, credit cards, and other debts. Once your debt is gone, you could ramp up your savings efforts and fund an individual retirement account (IRA) or max out your 401(k) account at work.

Of course, you could always split the difference and put 10% toward saving and 10% toward debt. Playing around with the numbers helps you determine your sweet spot for allocating this part of your budget.

While the 50/30/20 budget rule is a popular and effective way to manage your finances, seeing how this budget plan works in a real-life scenario can be helpful.

Let’s say that you take home $3,000 a month from your 9-to-5 job. You also pull in another $600 from various side hustles. You share an apartment with a friend from college, and drive a paid-off car.

Here’s what your budget would look like if you’re using the 50/30/20 rule.

• (50%) $1,800 for needs, including your half of the rent and utilities, groceries, and car insurance
• (30%) $1,080 for wants, like dining out, your gym membership, and the dance classes you started taking
• (20%) $720 for savings and debt, with $400 going to student loans, $200 to credit cards, and $100 to your emergency fund

Is the 50/30/20 rule realistic? It is, in the sense that anyone can use this budget method. You just have to know how to do a little basic math to figure out the percentages.

Whether your actual budget would look like the above, based on the same net income of $3,600, depends on how you spend. Living in a more expensive city, for instance, could mean that more than 50% of your income goes to needs.

Tracking your expenses for a month or two can give you an idea of where your money goes. You can group each expense into the needs, wants, or goals category, then calculate how much of your net income is spent in each area to see how closely you match up with the 50/30/20 rule.

If you’re new to budgeting or looking for a more flexible approach, the 50/30/20 budget rule may be just what you need. However, there are some potential downsides to consider.

Pros of the 50/30/20 rule

• Simplifies financial planning. By categorizing your expenses into needs, wants, and savings, you have a clear overview of where your money is going. This allows for more strategic decision-making when managing your income and expenses.
• Balances future goals with current needs and wants. The 50/30/20 rule helps you manage your money today and tomorrow. You always know how much progress you’re making toward your goals each month.
• Flexibility for your personal finance journey. A budget is meant to give structure but be adaptable. It’s easy to tweak your budget categories with the 50/30/20 budget if you need to account for a fluctuating income or an unexpected expense.
• Works regardless of how much you make. The 50/30/20 budgeting plan helps you cover basic needs, wants, and savings goals with any income. Whether you make a little or a lot, it’s a budget system designed to fit everyone.

Cons of the 50/30/20 rule

• Less detailed. If you’re a numbers nerd who likes to dig into every single penny that goes to individual expenses, the 50/30/20 rule may not be a great fit. You may prefer something like the zero-based budget system.²
• Challenging for irregular income. The 50/30/20 rule is adaptable, which is great if you have irregular income. But you may find it difficult to adjust your spending to fit your income if you experience wide income swings month to month.
• Savings take a backseat to wants. Wants get a bigger chunk of your income in the 50/30/20 budget, leaving you less to save or pay down debt. If you’re not proactively adjusting the percentages, it could take you longer to reach your goals.

Whether you should use the 50/30/20 rule or another budget system is a matter of personal preference. You might consider this budget system if you:

• Want a simple way to decide how to divide your money each month
• Would like to commit to paying down debt or building a savings habit
• Have struggled to make other budgeting systems work for you

What is the 50/30/20 budget rule meant to do for you? In a nutshell, this budget system is all about simplicity.

With a clear, big-picture overview of your budget month to month, you can confidently avoid overspending and build up your savings over time without making the process tedious. The 50/30/20 rule is great for people who may become overwhelmed with other budgeting methods or budgeting apps that require a more detailed spending breakdown.

The 50/30/20 budget is undeniably popular, and if you haven’t tried it yet, now may be a good time to take it for a spin. Experimenting with different budget methods is the best way to find the one that works for you. At the end of the day, what matters most is creating a budget that you can consistently stick to.

Want to kickstart your savings efforts? Check out some of the best money challenges.