What Is the 50/30/20 Budget Rule?

Finding a budgeting method that really works for you can be challenging. If you're looking for budgeting tips that can actually work, you may want to consider trying the 50/30/20 budget rule.

But what is it? 

The 50/30/20 rule is a popular way to carve up your income and allocate it more efficiently. It's based on the idea that you should only spend a certain percentage of your income on different areas of your life. 


How does the 50/30/20 budget rule work? 

The 50/30/20 rule divides your income into three pieces:

• 50% is for needs —This covers things you need to spend money on

• 30% is for wants — This covers things that you want to spend money on that are not essential

• 20% is for saving — Set aside 20% of your income for savings goals

Let's take a closer look at what each of these three budget allocations looks like.

Spend 50% on needs

With this method, aim to spend no more than 50% of your income on necessary expenses such as:

• Rent/mortgage

• Insurance

• Debt repayments

• Energy and utility bills

• Food

Spend 30% on wants

Many budgets fail because they don't account for an important part of spending — buying things you actually want.

While it's good to avoid overspending, you don't have to cut everything you want to buy. Instead, aim to spend no more than 30% of your income on things you want. 

Purchases in this category may include:

• Movie tickets

• Vacations

• Non-essential foods, like desserts or dining out

• Clothes

Save 20%

Finally, the last 20% should be allocated to your savings pots. These will look different depending on your own personal goals but can include:

• Retirement savings

• Investments

• Saving for a vacation

• Saving for a wedding

• House down payment

• Emergency fund savings


Benefits of the 50/30/20 budget rule

Why is the 50/30/20 budget rule so popular? 

It's simple

One of the biggest appeals of this budgeting method is that it's so simple. There's no intricate budgeting system needed. All you need to do is look at your take-home pay and divide it.

You can adjust it

While the 50/30/20 rule looks pretty rigid, you can definitely tweak it to your own circumstances. If you live in an area with a high cost of living, you might find that 50% isn't enough to cover all of your needs. 

Or perhaps you really want to prioritize saving for a house. You can easily increase your savings goal to 30% instead of 20% and cut back on fun expenses instead. 

You can automate it

With some online banks, you can set up auto payments to transfer a set sum of money to other accounts. This can help you avoid overspending and keep your money separate. 

For example, you could automatically send your "needs" money to a prepaid debit card so you can't overspend. You could then send your "wants" spending to another personal account just for fun. Similarly, you could set up automatic investing for retirement accounts. 

That way, you don't even have to think about it because you know your money is taken care of. 


Get started with the 50/30/20 budget rule

To get started with this budget method, you need to follow four simple steps:

1. Calculate your monthly income to see how much you're earning each month. Remember to take any workplace retirement plans into account.

2. Calculate a spending threshold. If you're following the 50/30/20 rule, all you need to do is multiply your take-home pay by 0.50 for needs, 0.30 for wants, and 0.20 for savings to get a spending figure for each category.

3. Plan your budget. Once you have the figures ready and know how much to spend in each category, get to work planning a new budget. You might have to only tweak your spending, or you may need to make some major cutbacks, depending on your current spending. Comb through your accounts to see what you're currently spending your money on to get a clear picture of your finances. 

4. Stick to your budget. To stay on target, you should continue to track expenses each month. This will help to ensure you stay on track in each category.


Sounds simple, right? The 50/30/20 is a simple yet effective budgeting plan that can help you get your finances back on track. The key is to stick with it and see how much more you can save.

This method can help you achieve your savings goals more quickly because your budget is more focused. It can also help you avoid overspending and start saving once you have a better idea of where your money is really going. 

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