What Is the 50/30/20 Budget Rule?

The 50/30/20 rule divides after-tax income into three parts: 50% for needs, 30% for wants, and 20% for savings. It’s a simple budget method that helps you balance spending today with saving for tomorrow.

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

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

50%: Needs

With the 50/30/20 rule, up to 50% of your after-tax income goes toward needs. 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 costs

30%: Wants

Wants are your “fun” expenses, the things you like to 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 your spending under control.

Examples of wants include:

• Eating out
• Clothes
• Hobbies
• Vacations
• Subscriptions and streaming services¹

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

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 an extra $700 per month for auto insurance.

Now you need to find room for that $700 in your budget. You can’t cut your rent or skimp on utilities, but you can adjust your wants. Here’s how:

• Cancel streaming services you don’t use
• Cut back on weekly dinners out with friends
• Hit pause on buying new clothes

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 months

Should you save or pay down debt first? It depends on your situation. Here are three approaches:

• No emergency fund? Put your full 20% toward savings first, so you have a cushion for unexpected expenses.
• Have some savings? Focus your 20% on paying off high-interest debt, then fund an individual retirement account (IRA) or max out your 401(k) once the debt is gone.
• Want to do both? Split it – 10% to savings and 10% to debt repayment.

Playing around with the numbers helps you find your sweet spot.

Seeing how this budget plan works in a real-life scenario can be helpful. Let’s say that you take home $5,000 a month from your 9-to-5 job. You also pull in another $1,000 from various side hustles, share an apartment with a friend from college, and drive a paid-off car.

Here’s what your budget would look like using the 50/30/20 rule:

• For this budget, 50% ($3,000) goes to needs, including your half of the rent and utilities, groceries, and car insurance.
• (30%) $1,800 for wants, like dining out, your gym membership, and the dance classes you started taking.
• (20%) $1,200 for savings and debt, with $500 going to student loans, $400 to credit cards, and $300 to your emergency fund

Is the 50/30/20 rule realistic? Yes – anyone can use this budget method with a little basic math.

In some situations, such as high-cost areas, needs exceed 50% of your income, and guidance on the 50/30/20 rule notes that this may require temporary adjustments.

Want to see how you stack up? Track your expenses for a month or two. Group each expense into needs, wants, or goals, then calculate the percentages to see how closely you match the 50/30/20 split.

Ready to give this budget method a try? Here’s how to put the 50/30/20 rule into action.

1. Look at your take-home pay

Start by figuring out how much money lands in your bank account after taxes and deductions. This is your net income – the number you’ll use to calculate your 50/30/20 split.

2. Track where your money actually goes

Do some simple math – or try a budget calculator – to figure out how much money goes into each bucket. To apply the 50/30/20 budget, allocate 50% to needs, 30% to wants, and 20% to savings (which corresponds to multiplying take-home pay by 0.50, 0.30, and 0.20). If your actual spending doesn’t line up with these targets, don’t worry – that’s what the next step is for.

3. Adjust your spending to fit the rule

If your spending doesn’t match the 50/30/20 split, here’s how to adjust:

Cutting needs (harder, but possible):

• Ask your internet provider about promotional rates
• Use shopping apps to find discounted groceries
• Shop around for lower insurance premiums

Cutting wants (easier to adjust):

• Cancel subscriptions you don’t use, like that HBO Max subscription you forgot about
• Try “swap it, don’t stop it” – find lower-cost alternatives instead of cutting completely
• Borrow books from the library instead of buying them

The key is finding a middle ground. It won’t be an overnight shift, but small changes add up.

4. Automate your savings and debt payments

Make saving effortless with automation:

• Set up auto-transfers: If you’re a Chime^® member, use Automatic Savings to round up each debit card purchase to the nearest dollar and save the difference automatically.¹
• Save a portion of your paycheck: With the Save When You Get Paid feature, you can automatically set aside a percentage of each paycheck.¹ Get paid $500 weekly and save 10%? That’s $50 saved without thinking about it.

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. This helps you track your progress toward your goals each month.
• Flexibility for your personal finance journey. A budget gives you structure while remaining 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 plan helps you cover basic needs, wants, and savings goals with any income. Whether you make a little or a lot, it’s a system designed to fit many different financial situations.

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 a zero-based budget system.
• 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 match your income if you experience significant month-to-month income swings.
• 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 long-term financial goals.

The budgeting system you choose is a matter of personal preference. You might consider the 50/30/20 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

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 rule is a simple approach that helps you balance spending today with saving for tomorrow. If you haven’t tried it yet, now’s a great time to give it a spin. After all, experimenting with different budget methods is the best way to find what works for you.