What is the 50/30/20 Budgeting Rule?

With bills, groceries and loans, do you tend to reach the end of the month and wonder where all your money has gone? Know that you’re not alone, and there are resources out there to help. 
 
One of those resources is the 50/30/20 rule, a simple budget guideline that makes it easier to understand how much money you should spend and save each month based on your income and needs. 

50% Needs 

According to the 50/30/20 rule, 50% of your after-tax income should be used for your needs. These are things you cannot live without, such as your mortgage or rent, internet, childcare, debt payments, groceries and utilities. Transportation-related expenses, including vehicle insurance, car loan payments, bus or train tickets, car maintenance and gas, could also be included. 

30% Wants 

This percentage includes your wants, such as streaming services, travel, dining out, concerts, coffee and shopping trips. These are extras we enjoy, but they’re not necessarily essential to daily life. 

20% Savings 

This category focuses on saving, whether that’s for retirement, vacations or other large expenses. Setting money aside now can build a more financially stable future for yourself and your family. If you have a specific goal in mind, try our savings calculator to map out a plan. 

Find Your 50/30/20 Numbers

Calculate your take-home pay for the month. Multiply that number by 0.5 to understand how much you should set aside for needs. Multiply it by 0.3 to calculate the amount you can spend each month on wants. Multiply it by 0.2 to determine how much you should be saving every month. For example, $4,000 in take-home pay would be $2,000 for needs, $1,200 for wants and $800 for savings. 

Plan Your Budget Around These Numbers 

Sometimes, the numbers you calculate are surprising. It’s helpful to look at your previous monthly spending and compare the numbers to see if there’s anything you can cut back on. Subscriptions, takeout and shopping may be good places to start. If you have a lot of debt, consider using part of your 30% wants category to make extra debt payments. 

Setting up automatic payments through digital banking for bills, debt and savings can also reduce stress by ensuring everything is paid on time each month. 

Know That It’s Flexible 

Your 50/30/20 rule may look more like a 60/30/10 rule—and that’s OK. It all depends on your specific needs. On the flip side, if you’re able to spend less than 50% on needs or less than 30% on wants, you can reallocate more money to savings. From creating a monthly budget to setting financial goals, we have several resources in our blog to help you get started.