50/30/20 Rule: A Realistic Budget When Saving Isn't Your Forte

There’s a lot more that goes into budgeting than figuring out how much money you should save by the time you're 30 or how much of your income should go to rent. It’s about handling all of your finances and all of your expenses. It’s knowing where every dollar comes from and where it's going. 

If you’re new to budgeting, it can feel like a daunting task—after all, few people get excited about tracking every penny they spend. But creating a budget doesn’t have to be difficult or soul-sucking. The 50/30/20 rule allows you to take control of your finances without turning your calculator into your most-used app.  

This simple budgeting method gives you a realistic picture of where your money goes each month, so you don't end up in that “I have to put everything on my credit card the last week of the month” hole. Here's how the 50/30/20 budget rule works:

What is the 50/30/20 rule?

In the 50/30/20 rule, your income is divided into three categories: 50% goes towards needs, 30% goes towards wants, and 20% goes towards savings. This way, you can have a little fun while knowing that your necessities are covered, as well as your long-term goals.

The budget in a snapshot:

This proportional budgeting tool puts you back in control of your finances and breaks down your income based on what you earn, instead of giving you a numbered amount to put towards bills or necessities, and it’s an easy lifestyle choice to make.

Whether you’re just starting out in your budgeting endeavors, or you’re a seasoned budgeter looking for a plan with a little more flexibility, following this simple 50/20/30 budget will set you on a path towards financial success. If you’re tired of living paycheck to paycheck, this is the budgeting method for you.

How to work out the 50/30/20 rule?

Before defining which expenses go into each category, it's important to assess your current financial situation. You need to know what's not working well in order to fix it—and having clear goals will help you to stick to your budget. 

Follow these steps:

1. Calculate your monthly income: This is your after-tax income. Whether you’re paid weekly, bi-weekly, or monthly, it’s important to know how much you make overall. This way, you can make a plan and break down your expenses accordingly.

2. Set some financial goals for yourself: Do you want to spend less overall? Do you want to save more? Do you just want to stop living paycheck to paycheck? Once you’ve mapped out your financial objectives, you’ll know what you need to do to get there.

3. Take note of your spending habits: Do you spend like crazy on food? Are you a compulsive shopper? Any budget is going to teach you about discretionary spending, but it’s good to make a mental note of what you spend most of your money on so you can correct that behavior faster.

How to apply the 50/30/20 budget

The 50/30/20 rule divides your income among necessities, discretionary spending, and savings, respectively. Here's what each category covers:

50: Needs

Fifty percent of your after-tax income goes towards essential spending. These are your “needs” and include bills you have to pay in order to survive, basically. Think:

• Rent

• Mortgage

• Property taxes, HOA

• Student loans

• Electricity bills, internet, water and other utilities

• Transportation costs

• Groceries

• Child support or alimony

• Health insurance, life insurance

Make sure you make enough that rent and utilities all make up 50% or less of your monthly after-tax income. This might be the hardest part—making sure you aren’t already living outside of your means.

30: Wants

Your wants are things you don’t necessarily need, but you want. They can include your morning coffee run, brunch budget or your ClassPass subscription. This portion is also entirely discretionary. You don’t need to spend the entire 30% of your budget, but this is money that you are allowed to spend on what you want. For example:

• Shopping for new clothes and accessories

• Tickets to the movies and sporting events

• New electronics (i.e. cell phones, tablets, etc)

• Going out to lunch, dinner, or drinks

This is where you can have your fun—so make the most of it. But proceed with caution. This is still a budget, after all, and you don’t want to be blowing all the free money you have on things like new shoes. 

20: Savings

Twenty percent of your income goes towards savings or debt repayment. This is the money you're saving for the future—it can include a savings account, emergency funds, a travel fund, and a retirement fund. You can also use this towards debt repayment or paying off credit cards past the “minimum” payment required, too. Here are a few more examples:

• Investing

• Making IRA contributions

• Paying high-interest debt (i.e. credit card)

• Saving for long-term goals (i.e. downpayment for a house)

If you haven’t started saving up money yet, this budgeting method is a great way to start. If you can put a little bit away after each paycheck, then you won’t be struggling down the line. It also gives you a safety net if you ever lose your job or need to move. 

It’s also good to begin putting money into savings accounts now so that you have money to make big purchases in the future, like a house, apartment, or business. Twenty percent doesn't have to be the amount you save; if you can save more, you absolutely should do so. 

50/30/20: Example

Picture a mid-career tech recruiter who is single and child-free, let's call her Jessica. Her monthly after-tax income of $5,000 comfortably covers her bills, but she's constantly wondering where the rest goes—it seems to simply disappear. Jessica wants to build a safety net with a three-month emergency fund, contribute to her 401(k), and save for a dream vacation. The 50/30/20 rule is just what she needs to achieve those goals.

Jessica dives in with a budgeting app and starts taking notes on her spending habits. She soon realizes that she's spending too much money on takeouts and unnecessary streaming subscriptions. 

She decides it's time to make some cuts—without changing her lifestyle completely; she uses an online budget calculator to determine what's nonnegotiable and splits her monthly income into the 50/30/20 categories: needs, wants, and savings. Like this:

• 50% for needs = $2,500: rent, utilities, groceries, health insurance, and gas

• 30% for wants = $1,500: dinner out twice a month, Netflix, gym, and miscellaneous (clothes, accessories, skincare, and such)

• 20% for savings = $1,000: $500 for emergency fund, $200, and $100 for a vacation

By doing this, Jessica is able to have fun while living within her means and achieving her savings goals.

50/30/20 budget FAQs

1. Does the 50/30/20 rule work?

Yes, the 50/30/20 rule works. However, like any budgeting method, it relies on your commitment. Budgeting is a lifestyle choice and it’s important to get in the habit of smart spending. 

2. Is the 50/30/20 realistic?

For most people, yes. However, some may find it challenging depending on their financial situation. For instance, if your living expenses eat up 60% of your salary because you live in a big, expensive apartment, it might be the case to adjust your budget for 60/20/20 until you can downsize. The key is to assess your expenses and spending habits and tailor a budget that leads you to a more balanced lifestyle.

3. When might the 50/30/20 not be the best saving strategy to use?

The 50/30/20 rule might not be ideal for everyone. If you're low-income, saving 20% may not be feasible. In this case, prioritize saving what you can, even if it's $30 dollars each month. For those with high-interest debt to pay, it might be wiser to temporarily adjust the spending category percentages. Focus on increasing savings and debt repayment until you're debt free, then you can re-evaluate your budget allocation.

The bottom line

Committing to a budget will do wonders for your finances for years to come. It’s a lifestyle choice that will put you in control and ensure you never struggle with money or debt ever again. And the 50/20/30 rule is a simple, straightforward method that can help you to get there.

Be patient with yourself if you're new to budgeting—building financial discipline takes time and commitment. The good thing about this budget is that it's pretty flexible and broad, and allows you room to have money to do what you enjoy.  

You can still go out for drinks with friends or go check out that new movie—and feel good doing it. Keep plugging away at your 20 percent savings and watch your bank account fill up right before your eyes.

Amanda Cardoso contributed to the latest version of this article.