Chime® is a financial technology company, not a bank. Banking services, credit, and debit card provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.

The Ultimate Guide to the 50/30/20 Rule

Jackie Lam • December 16, 2023

Have you found it challenging to set financial boundaries? We have good news: setting some simple guidelines on how to save and spend your hard-earned dollars can be a game-changer. We’re talking about the 50/30/20 budgeting rule.

Easy online banking

  • Checking Account with no monthly fees
  • 50,000+ fee-free ATMs~
  • Chime Visa® Debit Card
Get Started

What is the 50/30/20 budget?

The 50/30/20 budget is an easy strategy for better money management. The basic rule of thumb is to divide your monthly after-tax income into three spending categories: needs, wants, and savings or financial goals like paying down debt. It’s not a hard-and-fast rule but a guideline to help you build a solid monthly budget.

The simplicity makes it easier to keep an eye on your finances. It helps ensure your money is used in the best way possible for your financial goals. Don’t feel like you have to stick precisely to the proportions – this budget method is customizable.

With a clear, big-picture overview of your budget month to month, you can confidently avoid overspending and build up your savings over time — all without making the process tedious.

The 50/30/20 budget rule can be a helpful tool for people who don’t have the patience to track their spending in very detailed categories. Organizing your funds into these buckets can be easier for those who become overwhelmed with more detailed budgeting methods or budgeting apps.

Needs (50%)

These are the must-haves or essential expenses covering the things you need to get by day to day. Needs should be prioritized in your budget and account for fifty percent of your after-tax income.

This includes monthly expenses like:

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

Expenses like car payments, minimum credit card payments, and other debt responsibilities also fall under needs.

This budget may differ from one person to another. If you find that your cost of living is higher and your needs add up to much more than 50% of your take-home income, you may be able to make some changes to bring your expense down.

This could be as simple as changing your internet provider or finding some new ways to save money while shopping. It could also mean exploring bigger life changes, such as looking for a less expensive living situation.

Wants (30%)

This is the fun bucket: the things you enjoy but aren’t necessarily essentials. Anything in the “wants” bucket is optional and may make your daily life more enjoyable, but you don’t need these expenses to survive.

Wants includes monthly expenses like:

In addition to not being essential to living your life, the cost of your wants may fluctuate month to month, where the cost of your needs typically stay the same.

For instance, rent and the internet bill are always the same amount, and the gas bill is usually around the same cost each month as well. These are needs you’ll want to prioritize. However, non-essential expenses like entertainment or clothing could vary every month, adjusting your budget.

This category can also include upgrades. For example, if you decide to purchase a nicer car instead of a less expensive one, that dips into your wants category. If your cost of living has increased, some of your wants may be the first expense to consider cutting.

Don’t feel guilty about what you want to spend your money on in this category. If you value going to the gym and can afford it, keep your gym membership. That’s what it’s there for! Be mindful of how much you’ve allocated to this bucket, and do your best to stay within the limits you’ve set for yourself.

Savings and debt (20%)

This category covers all things related to savings, debt, and other financial goals. Often, this bucket gets neglected and might be considered the least exciting place to put your money. That’s because your net income can get taken over by your essential needs and your wants, which are more appealing.

Savings and debt include things like:

  • Transferring money to your emergency fund
  • Contributing to retirement
  • Paying down loan or credit card balances

While student loans are technically considered debt, they are also a required monthly obligation, so paying your student loan bill will fall under the needs category.

If you’re struggling with dividing out that remaining bit of your take-home pay between savings and debt, start by focusing on your emergency fund. Most experts recommend setting aside at least six months of living expenses in the case of a sudden event or job loss. If you can swing it, aim to set aside at least 20% of your paycheck to cover this base first.

After that’s taken care of, you can move on and have this bucket of money go toward other savings goals or investments. This may include making individual retirement account (IRA) contributions to a mutual fund account or investing in the stock market. If you have access to a 401(k) account through your employer, it can be a smart way to save a portion of your income pre-tax. You may also want to save for short-term and long-term goals, like a down payment for a home.

This category for savings can also include debt repayments. While minimum payments are part of the “needs” category, any extra payments that reduce the principal and future interest owed are considered savings. Only debt payments above the minimum payment required should be considered in this savings category.

Why savings are important

Getting caught up in the cycle of earning and spending money without saving for the future can be easy. In fact, there’s a name for spending more as you earn more: lifestyle inflation.

However, saving money contributes to your financial stability and long-term success for several reasons.

  • Retirement savings: To stay comfortable during your golden years, prioritize retirement contributions. Start saving for retirement early and consistently contribute to a retirement account, such as a 401(k) or IRA.
  • Emergency expenses: Whether it’s a medical emergency or a car repair, having money set aside can alleviate financial stress and allow you to handle the situation without going into credit card debt or taking out a loan.
  • Financial freedom: Ultimately, saving money allows for financial freedom by giving you the ability to make choices without being limited by financial constraints. You can use your savings to invest in opportunities, travel, give generously, or even retire early.

Why the 50/30/20 budget rule works

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. This popular budgeting plan works because it:

  • 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 it comes to managing your income and expenses.
  • Balances future goals with current needs and wants: The 50/30/20 budget rule also balances satisfying current needs and planning for long-term goals. Think you can’t afford to pay off a credit card? With this budgeting method, you can automatically start allocating 10% of your income toward your debt and still make room to cover your basic needs and non-essential purchases.
  • Flexibility for your personal finance journey: This budgeting plan is flexible according to your needs. If you have a fluctuating income, you can still use the percentage-based budgeting guidelines to divide your income to cover important living expenses, long-term goals, and other priorities.
  • Works regardless of how much you make: The 50/30/20 budgeting plan helps you cover basic needs, wants, and savings goals without overspending or living beyond your means. The percentage categories are realistic and easy to follow so you can make the most of your money.

Using the 50/30/20 rule to amplify your savings

The 50/30/20 budgeting rule allows you to build a budget with room for a financial cushion. Here are four tips to help you maximize your savings while covering basic wants and needs.

1. Look at your take-home pay

Note how much money gets dropped into your checking account after taxes are accounted for – this is the exact amount you’re working with for the 50/30/20 budget rule.

2. Keep track of where your money goes

Next, do some simple math to figure out how much money goes into each bucket. If your take-home pay every two weeks is $2,000, then the rule would say to set $1,000 aside for your needs, $600 for your wants, and $400 for your savings.

If you find that they don’t quite fall in line, that’s okay! This is the perfect time to roll up your sleeves and tweak your finances.

3. Cut back on your spending

Cutting the cost of your needs can be tricky, especially since most of these costs are unavoidable. You can cut back on only so much, but it’s not impossible.

Start by reviewing each expense and see what you can do to reduce monthly costs. Can you contact your cell phone provider and see if it has any special promos you can take advantage of? Are there any shopping apps that give you coupons for discounted groceries?

Cut things you don’t enjoy spending on but might do so out of habit or because you forgot you were paying for it. Maybe you signed up for HBO Max months ago, but no longer use it and are still paying for it every month. That’s an easy drop, just by canceling the subscription.

You can also try the “swap it, don’t stop it” tactic. Instead of dropping an expense entirely, look for lower-cost alternatives. If you enjoy reading, instead of buying new books every month, maybe borrow them from your local library or swap them with a friend.

Take the guesswork out of your budget — use our budget calculator.

4. Make it easy to put money into savings

Give your savings bucket some love by doing the following:

  • Set up automatic transfers: If you’re a Chime member, make the most of Automatic Savings features. If you turn them on, Round Ups round each transaction you make on your debit card to the nearest dollar. Then, it saves the difference and moves that money from your Checking Account to your savings account.
  • Save a portion of your paycheck: When payday rolls around and money drops into your bank account, you can turn on Save When I Get Paid to save a percentage of each paycheck into your savings. So, let’s say you get paid $500 each week. If you opt for 10% of each check to go automatically into your savings, that’s $50 that gets set aside. It’s an easy, painless way to save.
Grow your savings automatically with Round Ups* and Save When I Get Paid† to reach your financial goals faster.

An example of the 50/30/20 Budget Rule

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.

Chelsea Chime is a recent college graduate who just landed her first job in the city. Like other American college graduates, she has accumulated credit card debt during her college years and is determined to pay it off as quickly as possible. However, she must also consider the rising costs of living in the city, including rent, transportation, and other necessary expenses. On top of that, Chelsea needs to prioritize budgeting for healthcare costs since her job only offers partial coverage.

Joanie earns $4,300 per month after taxes, benefits, and retirement contributions. Here’s how her budget breaks down using the 50/30/20 budget rule.

  • (50%) $2,150 on needs like rent split with her roommate, utilities, groceries, a transit card, and insurance
  • (30%) $1,290 on wants like dining out, her gym membership, travel, hobbies, and shopping
  • (20%) $860 on savings split between her credit card debt and to build her emergency fund.

Stay golden with the 50/30/20 rule

The 50/30/20 rule is a simple, golden approach that, when applied, can help you stay within your means and help ensure steady progress on your savings and debt payoff goals.

Here’s how sticking to a budget you feel comfortable with can help you pay down your debt faster.


Where does the 50/30/20 budgeting rule come from?

The 50/30/20 budgeting rule comes from the book “All Your Worth: The Ultimate Lifetime Money Plan,” written by U.S. Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi. The rule is the result of decades of research with a focus on simplicity to maintain healthy finances.

Is there an online budget calculator to help calculate my own percentages?

Yes! We offer a budget calculator right here at Chime.

Should student loan payments be a part of the needs category?

Since your student loan payments, whether they are private or federal, require repayment, they are considered a need and belong in that category.

Not making payments or missing payments can affect your credit score. Keep these payments in your needs category when separating your income to make sure they are being taken care of and not forgotten.

Easy online banking

  • Checking Account with no monthly fees
  • 50,000+ fee-free ATMs~
  • Chime Visa® Debit Card
Get Started

Chime® is a financial technology company, not a bank. Banking services are provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC. The Chime Visa® Debit Card and the Chime Credit Builder Visa® Credit Card are issued by The Bancorp Bank, N.A. or Stride Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit and credit cards are accepted. Please see the back of your Card for its issuing bank.

While Chime doesn’t issue personal checkbooks to write checks, Chime Checkbook gives you the freedom to send checks to anyone, anytime, from anywhere. See your issuing bank’s Deposit Account Agreement for full Chime Checkbook details.

By clicking on some of the links above, you will leave the Chime website and be directed to a third-party website. The privacy practices of those third parties may differ from those of Chime. We recommend you review the privacy statements of those third party websites, as Chime is not responsible for those third parties' privacy or security practices.

Third-party trademarks referenced for informational purposes only; no endorsements implied.

Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of The Bancorp Bank, N.A. and Stride Bank, N.A. (“Banks”). Banks are not responsible for the accuracy of any content provided by author(s) or contributor(s).

*Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.

† Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.

~ Out-of-network ATM withdrawal and over the counter advance fees may apply.

Address: 101 California Street, Floor 5, San Francisco, CA 94111, United States.

No customer support available at HQ. Customer support details available on the website.

© 2013-2024 Chime Financial, Inc. All rights reserved.