What the 50/30/20 rule says
The 50/30/20 budget divides your income after tax into three groups. It was popularised by Senator Elizabeth Warren and her daughter Amelia Warren Tyagi in their book All Your Worth.
- 50% for needs: housing, utilities, groceries, transport, insurance, minimum debt payments and other things you cannot easily skip.
- 30% for wants: dining out, entertainment, subscriptions, hobbies, travel and upgrades.
- 20% for savings and extra debt payments: emergency fund, retirement contributions, investing and payments beyond the minimum.
Example
With $4,000 a month after tax, the rule gives $2,000 for needs, $1,200 for wants and $800 for savings and debt payoff. That is $9,600 a year going toward your future.
Adjusting the rule to your life
The percentages are a starting point, not a law. If rent is high where you live, needs may take 60% or more, and you can shrink wants to keep saving. If you have expensive debt, you might choose 50/20/30 to speed up repayment. Use the boxes above to try a split that works, and check that the three add up to 100%.
How to put it into practice
- List your fixed monthly bills and see whether they fit inside the needs share.
- Automate the savings transfer for the day you are paid.
- Track spending for a month or two to find where the wants share really goes.
- Adjust the split and revisit it whenever income or expenses change.
Use the savings goal calculator to see how long a goal will take at your monthly savings amount.