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The Ultimate Guide to the 50/30/20 Rule

In this article

  1. What is the 50/30/20 budget?
  2. Budget percentages: Crunching the numbers
  3. Using the 50/30/20 budget to save more money
  4. FAQs
  5. Final thoughts: Stay golden with the 50/30/20 rule

The 50/30/20 budgeting rule is a method that divides your paycheck into 3 different categories: 50% for needs, 30% for wants, and 20% for savings. It’s a good rule of thumb to follow to help manage your finances more responsibly.

Jackie Lam • February 3, 2022

Have you found it super-duper challenging to set financial boundaries? Join the club. But, 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.

What is the 50/30/20 budget?

The 50/30/20 budget is an easy strategy that allows for better money management no matter your financial needs. The basic rule of thumb is to divide your monthly after-tax income into 3 spending categories: needs, wants, and savings or financial goals, such as paying down debtIt’s not a hard-and-fast rule but rather a guideline to help you build a solid budget. 

The simplicity of this rule makes it easier to keep an eye on your finances and better ensures your money will be used in the best way possible for your financial goals. It’s customizable and personalized for everyone yet with only 3 categories to remember, it will give you peace of mind when it comes to spending (and saving). 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. 

Again, the 50/30/20 budget rule can be a great 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.

Budget percentages: Crunching the numbers

When it comes to creating (and sticking to) a budget, things can get overwhelming. With the simple 50/30/20 budget rule, you only need to remember 3 different percentages that easily break down to fit your financial situation.

With a bucket for needs, wants, and savings, here’s a closer look at each bucket and how it all breaks down.

Needs (50%)

Simply put, these are the must-haves or essentials: the things you absolutely need to get by in the day to day. Fifty percent of your after-tax income should cover your most necessary costs.

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

Expenses like car payments, minimum credit card payments, and other debt responsibilities 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. And having tip-top credit helps future you. How? It plays a major role in making sure you can snag decent terms and interest rates on future cards and loans.

This budget may differ from one person to another. If you find that your needs add up to much more than 50% of your take-home income, you may be able to make some changes to bring those expenses down a bit

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: all of the things you enjoy but aren’t necessarily essentials. Anything in the “wants” bucket is optional if you boil it down.

Examples: eating out, clothes, electronic gadgets, money spent on hobbies, vacations, that Netflix subscription.

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

Look at it this way: In addition to not being essential to living your life, the cost of your wants may fluctuate month to month, whereas 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. However, entertainment or clothing costs unregulated could vary every month, threatening your budget. That new gaming console, when you already have 3? Since you’ll most likely survive without it, that’s a want. 

Also, keep in mind this category can include luxury upgrades. For example, if you decide to purchase a nicer car instead of a less expensive one, that dips into your wants category. 

Don’t feel guilty about the things you do want and spend your money on in this category. That’s what it’s there for, but be mindful of how much you’ve allocated to this bucket, and do your best to stay within the parameters you’ve set for yourself.

Savings & debt (20%)

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

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

Often, this bucket gets neglected and might be considered the least exciting to put your money toward. That’s because your income can easily get taken over by your needs, which are obviously important, and your wants, which inevitably have a natural appeal.  

If you’re struggling with how to parcel out that remaining bit of your take-home pay between savings and debt, start by focusing on your emergency fund. Why’s that? Well, if you don’t have at least 6 months of living expenses set aside in the case of a sudden event or job loss, your finances will otherwise take a big hit. 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. And, if you have access to a 401(k) account through your employer, it can be a great way to save a portion of your income pre-tax.

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. 

Using the 50/30/20 budget to save more money

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. In other words, how much money gets dropped into your checking account after taxes are accounted for, and what’s the exact amount you’re working with when it comes to the 50/30/20 budget rule. 

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 every 2 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 make some tweaks, so it will work for your financial circumstances!

3. Cut back on your spending

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

Start by going through each expense and see what you can do to reduce monthly costs. Can you reach out to 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 or the lowdown on discounted groceries?

While hypothetically cutting back costs in your wants bucket is easier than cutting back on your needs, it’s hard to give up spending on things that you enjoy. And you don’t want to put yourself in a cycle of restricting yourself too much and then overspending.

To start, nix things that you actually don’t enjoy spending on, but might do so out of habit or just 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.

Looking for 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. If you enjoy reading, instead of buying new books every month, maybe borrow them from your local library or swap with a friend. That sort of thing.

The key: Find that spending middle ground among the 3 main categories, and make some adjustments. It won’t be an overnight shift by any means. But making changes and seeing where you can slash expenses can help over time.

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, which 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 Checking to your Savings account. This way, you are saving money without having to think twice about it.
  • 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.


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

In the book, “All Your Worth: The Ultimate Lifetime Money Plan,” written by U.S. Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi, the authors outline the specifics of the 50/30/20 rule. 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?

There are several different online budget calculators to help you better adhere to the 50/30/20 rule. A financial wellness calculator operated by OPERS is a user-friendly option that lets you easily input your information to calculate your percentages. It takes the legwork out of the process, making it a no-brainer to start today! 

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

Great question! Since your student loan payments, whether they are private or federal, require repayment, they are considered a need and belong in that category. They’re definitely not a want (unless you enjoy paying them back), and they don’t belong in the savings bucket either.

Not making payments or missing payments can affect your credit score; therefore, it’s a good idea to keep these in your needs category when separating your income to make sure they are being taken care of and not forgotten. 

Final thoughts: 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. 

Ready to get started? Let’s goooo! 🤑

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