The 50/30/20 Rule: Is it the Best Budget for you?

It can feel impossible to stay on top of your finances and ensure that you manage your money correctly. Luckily, an easy-to-follow budgeting rule takes all the guesswork out of financial planning: the 50/30/20 budget rule. Let’s look at how it works and if it’s the right strategy for you.

What Is The 50/30/20 Rule?

The 50/30/20 budget rule is a financial guideline and budget plan that suggests dividing your after-tax income into three main categories:

  •  50% of your monthly take-home pay goes to essential expenses (such as rent or mortgage payments, utilities, transportation, and food)
  • 30% goes towards non-essentials like entertainment, gym memberships, and eating out
  • 20% goes towards savings and debt repayment.
Woman holding a pencil while counting paper bills

By following the 50/30/20 budgeting plan, you can create a balanced budget for your monthly income that will help you reach your financial goals faster. You’ll be able to stay on top of all your bills, not worry about unexpected expenses, and still have enough left over for fun activities or vacations

4 Steps To Creating Your Own 50/30/20 Budget

  1. Figure out the monthly after-tax income
  2. Limit your needs to 50% of your net salary 
  3. Identify your wants 
  4. Put 20% towards savings and debt repayment 

Step 1: Determine Your Monthly After-Tax Income

The first step in putting together your own 50/30/20 budget is figuring out your income after taxes. This is the amount of money that you actually take-home each month.

How do you determine this?

Let’s say you have a new college grad making $45,000 a year. This number would be your gross income, but that is not the amount that actually hits your bank account each month.

The easiest way to know your net income is to check your bank account and see what the direct deposit amount is. As long as your employer is withholding the right amount from each paycheck, you won’t get hit with a massive tax bill in April.

If you’ve already started contributing to retirement accounts like a 403B, 401K, or IRA, then add that amount to your after-tax income. I’ll come back to those accounts later.

If you still aren’t sure, use this nifty tax calculator to know how much you can expect to foot each year. You can even have fun plugging in different states or countries to see how your taxes would change.

If you are self-employed and your income varies, finding out your after-tax income gets a little more difficult to figure out. As a self-employed person, you don’t have an employer setting aside your taxes which puts the burden on you. You are also responsible for paying your taxes. This year I actually technically became self-employed even though I work for someone else and this guide was super helpful to determine my self employment taxes.

Credit Karma Guide to Self-Employment Taxes

Once you know your after-tax income, you have your starting point.

Step 2: Limit your Needs to 50% of Take-home Pay

This next step is arguably the hardest. Now that you know how much you are bringing home each month, you have to find a way to limit your needs to only be 50% of this number.

Woman holding a calculator up to show to her husband

The key here though is distinguishing between your needs and your wants. This number might seem incredibly low to truly be living on, but you’ll get to add a few things back in at the end in your “wants” section.

This number needs to cover all of life’s basic necessities such as:

  • Rent
  • Groceries
  • Transportation 
  • Utilities
  • Prescriptions / Medicine
  • Health insurance
  • Car insurance
  • Basic phone service (RepublicWireless, ProjectFi)
  • Minimum debt payments
  • Car maintenance

Anything you can reasonably live without is not a need. In fact, you should be cutting unnecessary spending.

Here are some resources to help you spend less on monthly necessities:

46 Easy & Cheap Meal Prep Recipes (all $2 or less per meal)

150 Proven Ways to Save Money

Your needs section also has to include any minimums you have to make for paying back any debt. So if you have a $300 monthly car payment, this would be a required payment and be classified as a need. Any minimums you owe on credit cards should also be included here.

However, any extra money you are using to clear your debt off early is not technically a need (although you need to be doing that!). Debt payoff will fall into the last section.

Step 3: Identify Your Wants

The third step in following the 50/30/20 rule is to make sure all of your wants (Discretionary spending) are only 30% of your budget. On the surface, this might seem like living large, but I’ve still got some standard budget items that aren’t absolute needs.

I’ll be honest. This is probably the most difficult part in implementing the 50/30/20 rule. The reality is that way too many people have the wrong mindset about wants and needs. Usually when people think of “wants,” they immediately think of things like vacations, traveling the world, or buying swanky new clothes.  

The problem is that your “wants” bucket has to cover budget items that probably seem like everyday things: cable, wifi, eating out, gifts for weddings and family, your cell phone bill, and any other non “absolute essentials.”

Step 4: Savings and Debt Repayment

The last step in the 50/30/20 budget is to allocate all of the remaining income to monthly savings. The money in this category can and should be put into a handful of different “savings buckets” based on future your needs and priorities.  Shop around before opening a savings account so you get the best option.

Two priorities that should be on the top of your list when saving money at are:

Person sitting down while holding paper bills with both hands

The sooner you can become debt free, the more cash you have available every month to put towards other goals. The emergency fund is critical because it enables you to avoid taking on additional debt in case of life emergencies.

Other savings buckets you might want to consider are a downpayment for a house, setting up a 529 for your kids’ college fund, and of course, saving for retirement (Especially if you don’t have an employer sponsored retirement plan).

Using The  50/30/20 Budget Calculator

You can use a free budget calculator if you don’t want to manually calculate your 50/30/20 budget. 

The 50/30/20 budget calculator is a tool that helps you calculate your budget according to the 50/30/20 rule. This calculator will automatically allocate 50% of your income toward essential expenses, 30% towards discretionary spending, and 20% towards savings and debt repayment.

To use the calculator, you simply enter your monthly income, and the calculator automatically calculates the amount they should allocate towards each category of expenses. Some 50/30/20 calculators will also allow you to input your specific expenses and see how they fit into the 50/30/20 rule.

Benefits of Using a 50/30/20 Rule Calculator

  • It is more accurate than manual calculations
  • It saves time by automatically doing the calculations for you when you enter your monthly earnings. 
  • It allows users to quickly and easily design a budget that aligns with the 50/30/20 rule
  • It allows users to input their specific expenses and see how they fit into the 50/30/20 rule
  • It can help users identify areas where they may be overspending and adjust the three categories accordingly 
  • It can provide users with a clear and concise breakdown of their monthly expenses and income.

Examples of Good 50/30/20 Rule Calculators

If you need a reliable 50/30/20 rule calculator, here are some good options:

Who Is The 50/30/20 Budget Good For?

The 50/30/20 budget rule is suitable for individuals who:

  • Are just starting to budget and need a simple and straightforward plan to follow
  • Want to prioritize saving for their financial goals and reducing debt
  • Have variable income or expenses that make it challenging to create a detailed budget
  • Have multiple sources of income and want to allocate their income fairly
  • Have a high amount of debt and want to focus on clearing it
  • Want to save for a specific goal, such as a down payment on a house or a vacation
  • Want to balance their spending between needs, wants, and savings.

Example of a 50/30/20 Budget

To help better understand how this budgeting method works, let’s look at an example. Assuming you make $2,000 per month, here is an example of how a 50/30/20 budget might look for you:

  • Needs: $1,000 (50% of income)
    • Rent: $550
    • Utilities: $100
    • Food: $150
    • Transportation: $100
    • Health insurance: $100
  • Wants: $600 (30% of income)
    • Entertainment: $150
    • Dining out: $150
    • Clothing: $150
    • Gym membership: $150
  • Savings/Debt repayment: $400 (20% of income)
    • Emergency fund: $150
    • Debt repayment: $250

This is just an example, and the specific proportions and categories you use in your budget will depend on your income and financial goals. However, in most cases, dividing your expenses and savings goals into three categories should work. 

With all of this being said, there are a few weaknesses to the 50/30/20 rule.

3 Weaknesses Of The 50/30/20 Budget

The 50/30/20 budget is great for many people, but it’s good to be aware of some of the weaknesses before you make a budget yourself.

1. Difficult for Low Income

The reality is that for many people, especially low income earners, saving 20% of your earnings is going to be tough as hell to hit. It might even be impossible at first.

The hope is that over time, with hundreds of small improvements, you can work yourself into a better financial situation. You may have to hustle, find some side gigs, and do everything you can to boost your income. But if you can slowly pay off your debt, you’ll have more cash each month to hit your goals.

It’s good to remember though that the 50/30/20 budget is just a rule of thumb to aim for. Nothing more than that.

Man writing on a document with a calculator, paper bills and laptop on his table

2. Lifestyle Inflation Is Built-In

This is one of my biggest issues with the 50/30/20 rule of thumb. Let’s say that you’re successful at creating a budget that fits this method. You’re saving a solid 20% of your earnings, and then you change jobs, get a promotion, or find a side gig to bring in some extra income.

What do you do with that extra cash?

According to the 50/30/20 budget, you would split it up accordingly. This doesn’t make sense to me though because it’s not like your needs suddenly grew? I definitely get rewarding yourself for success and celebrating wins in life like a promotion.

Why not funnel the vast majority of your increased income into savings or debt payoff?

The point here is that the 50/30/20 budget does not scale well as your income increases. It expects your needs and wants to inflate over time.

3. Saving 20% Of Your Income May Not Be Enough

I’ll be straight with you… This is really only a weakness if you’re a fairly high-income earner or DINKS (dual income, no kids).

If you frequently save money, saving 20% of your income may not be aggressive enough to work on all of your financial goals. Paying off student loans, getting out of credit card debt, saving for retirement, a house downpayment, or your kids’ college.

All of these take a significant amount of savings and 20% of your income won’t be enough to do it all.

Here Are 3 Reasons That People Avoid Making A Budget

  • Budgets are constricting. There’s no way around this one. Budgeting forces people to make sacrifices and to say no to things they want.
  • Budgets reveal financial weakness. The reality is that many people would rather bury their head in the sand than confront their financial situation. They know they are struggling, up to their eyeballs in debt, and living paycheck to paycheck. The first step towards making progress is recognizing where you stand, but this is often the hardest.
  • Creating a budget requires hard work. Creating a budget is simple, but sticking to a budget takes hard work. Who wants to spend precious free time keeping track of receipts and plugging expenses in? No one!

At the end of the day the most effective budget is not what you can put together on paper or in an excel doc.

The most effective budget is the one you will actually put into practice. Personally, I prefer the zero based budgeting method over the 50/30/20, but read both and do what works for you!

Related Questions 

Where Did the 50/30/20 Rule Come From?

The 50/30/20 budgeting advice was first popularized by Elizabeth Warren, a U.S. Senator from Massachusetts, and her daughter, Amelia Warren Tyagi. They wrote about it in their book “All Your Worth: The Ultimate Lifetime Money Plan.” 

Is the 50/30/20 Rule Weekly or Monthly?

The 50/30/20 rule is typically applied every month, as it allows you to allocate your income in a way that aligns with your monthly expenses and financial goals. However, some people may choose to apply the rule on a weekly or bi-weekly basis if they prefer to budget in smaller increments. 

Does the 50/30/20 Rule Include Retirement Savings?

Yes, the 50/30/20 rule suggests that a portion of the 20% allocated toward savings should go toward retirement savings. However, the amount you should save for retirement can vary depending on your financial goals and situation. Experts recommend saving at least 10-15% of your income for retirement. 

Big Fat Takeaway

The best budget is the one you’ll actually stick to. The 50/30/20 budget is a fantastic place to start if you’re trying to learn how to budget. It’ll get your financial snowball rolling in the right direction and over time you can work on increasing your savings to a higher percentage of income.

Join me in the comments!

Have you tried the 50/30/20 budget before? What was your experience like?

Do you see any other pros or cons to this kind of budgeting system?

Jared Bauman is the owner and editor of He has started and sold several companies, along with owning several investment properties. His interest in personal finance started as a young kid, developed through his entrepreneurial ventures and real estate investments, and continue through his conversations with friends and colleagues.

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