50/30/20 Budget Rule: The Full Breakdown

By Jackie Lam
February 15, 2021
Chime is a financial technology company. Banking services provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC

Have you found it super-duper challenging to set financial boundaries? Join the club. But we’re here with good news: Setting some simple guidelines on how to save and spend your dollars can be a game changer. We’re talking about the 50/30/20 budgeting rule.

What is the 50/30/20 budgeting rule?

In a nutshell, it’s a spending plan where 50% of your take-home pay goes toward Needs, 30% goes toward Savings & Debt, and the remaining 20% on whatever you please (aka Wants). Ready for the full breakdown?

Before we start, check out a quick video from our Money Tips series with  21 Savage with tips to master the 50/30/20 rule.

 

  1. Needs (20%)
  2. Wants (30%)
  3. Savings & Debt (20%)
  4. How to get started on the 50/30/20 budget rule
  5. Stay golden with the 50/30/20 rule

Needs (20%)

These are the must-haves: the things you absolutely need to get by in the day to day. 

Examples: rent, utility bills, health insurance premiums, groceries, a mass transit pass, gas for your car.

Expenses like car payments, minimum credit card and other debt payments also fall under your needs. While these Needs may be easy enough to remember, one missed payment could do some damage to your credit score, lead you to defaulting on a loan, or even losing your car. And having tip-top credit helps future you. How? It plays a major role in making sure you can snag decent terms and rates on future cards and loans.

Wants (30%)

This is the fun bucket: all the things you enjoy but aren’t necessarily essentials. 

Examples: eating out, clothes, cool gadgets, money spent on hobbies, fiber optics internet, that Netflix subscription.

How can you separate your Needs versus Wants, especially if they’re currently lumped together in your brain as being of equal importance?

Look at it this way: The cost of your Needs typically don’t change month to month, while your Wants could fluctuate a little more. For instance, rent is always X, the internet bill is X every month, and the gas bill is usually around X. So those are Needs. That new gaming console, when you already have three? Yep, that’s a Want.

Savings & Debt (20%)

Here, we’re talking about all things related to savings and debt.

Examples: emergency fund, retirement account, debt payments, etc.

Often, this bucket gets neglected, and treated like the ugly, muted stepchild of the 50/30/20 rule bunch. That’s because your money can easily get gobbled up by your Needs, which are louder; and your Wants, which have natural appeal.  

If you’re struggling with how to parcel out that remaining bit of your take-home between savings and debt, it might be best to focus on your emergency fund first. Why’s that? Well, if you don’t have a money cushion, should the unexpected happen where your finances take a hit, you’ll most likely be digging a deeper debt hole. If you can swing it, aim to set aside at least 20% of your paycheck to cover this base.

How to get started on the 50/30/20 budget rule

1. Look at your take-home-pay

An important thing to tune into is how you divvy up your income based on your Wants, Needs, and Savings & Debt. In other words, how much money gets dropped into your bank account after taxes are accounted for, set aside, or spent on a whim.

2. Be real about where your money actually goes

Next, do some simple math to figure out how much money goes into each bucket. If your take-home pay is $2,000, then the rule says to set $1,000 aside for your Needs, $600 for your Wants, and $400 for Savings & Debt. If you find that they don’t quite fall in line, don’t worry. This is the perfect time to roll up your sleeves and make some tweaks!

3. Cut back on your spending

Lowering your Needs can be a bit tricky. That’s because there’s only so much you can cut back on. But it’s not impossible.

Go through each expense and see what you can do to cut back on costs. Can you reach out to your internet provider and see if they have any special promos you can hop on? Are there any shopping apps that give you the lowdown on discounted groceries?

While hypothetically cutting back costs on your Wants is easier than cutting back on your Needs, it’s hard to give up spending on things you enjoy. To start, nix things that you actually don’t enjoy spending on, but might do so out of habit or plain forgot about it. Maybe you signed up for HBO Max months back, but no longer use it. That’s an easy drop.

Another way to cut back on your Wants? You can also try the “swap it, don’t stop it” tactic. Instead of dropping an expense entirely, look for lower-cost alternatives. Can you check out a book from the library, or ask your Buy Nothing group if they might have a copy on hand? Is there a friend who can loan you a digital copy? That sort of thing.

The key: Find that spending middle ground among the three main categories, and make some tweaks. It won’t be an overnight shift by any means. But making changes and seeing where you can slash expenses can help 

4. Make it easy to put money into savings and debt

Give your savings bucket some love by doing the following:

• Set up auto-transfers: If you’re a Chime member, make the most of Automatic Savings, which, well, rounds up each transaction you make on your debit card to the nearest dollar. Then, it saves the difference and moves that money from your Spending to your Savings account.

• Save a portion of your paycheck: When payday rolls around and money drops into your bank account, Chime’s Save When You Get Paid Feature enables you to sock away 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.

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 make sure and steady progress on your savings and debt payoff goals. Ready to get started? Let’s goooo! 🤑


This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.

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Jackie Lam is an L.A.-based financial writer whose clients include Fortune 500 companies and FinTech startups. Her work has appeared in Forbes, Business Insider, and GOOD.

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