Detailed budgets are hard to keep up. The 50/30/20 rule offers a simpler approach: three categories and three percentages. It gives you a quick way to see whether your spending matches your priorities.
The three categories
Needs: 50%
Costs you must pay to live and work: rent or mortgage, utilities, basic groceries, transport to work, insurance, and the minimum payments on your debts.
Wants: 30%
Things that improve your life but are optional: dining out, streaming services, hobbies, trips, new gadgets and upgrades.
Savings and extra debt payments: 20%
Your emergency fund, retirement contributions, other investing, and payments on debt beyond the minimum.
The percentages apply to your income after tax, meaning your take-home pay.
Example on a $4,000 monthly income
| Category | Share | Amount |
|---|---|---|
| Needs | 50% | $2,000 |
| Wants | 30% | $1,200 |
| Savings and debt payoff | 20% | $800 |
How to start
- Work out your monthly take-home pay.
- Go through a month of bank and card statements and mark each item as a need, a want or savings.
- Compare the totals with 50/30/20. Where are you over?
- Choose one or two changes, such as lowering a subscription or moving savings to payday.
The 50/30/20 budget calculator shows the exact amounts for your income.
When the rule does not fit
In expensive cities, needs alone can pass 50% of take-home pay. That does not mean you are failing. Try 60/20/20 or 70/20/10, and revisit the numbers as your income grows. If you are carrying high-interest debt, temporarily shifting a share from wants to debt payoff, as described in our guide to paying off credit card debt, can save you a lot of interest.
Tips that make it stick
- Pay yourself first. Automate the savings transfer for the day your pay arrives.
- Build an emergency fund. A common goal is three to six months of essential expenses.
- Review every few months. Your income, rent and goals change, and your budget should follow.
- Do not aim for perfection. A rough budget you follow beats a perfect one you abandon.
Once you have a savings figure, the savings goal calculator can tell you how long a target will take.