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What is the 50 30 20 Rule and How Does it Work?

written By
Kimber Severance
Reviewed by
Tracy Rawle
February 19, 2025

Use the 50 30 20 rule in your monthly budget to help divide monthly income into portions for your wants, needs, savings, and debt repayments.

Budgeting tips like the 50 30 20 rule can be a game changer for your monthly budget. It can help you know how much you should be spending on different budgeting categories like your wants, needs, savings, and debt. To make the most out of the 50 30 20 budget, you want to understand what it is, how to use it, and why so many people love this budgeting method.


Bridge the Gap in Your Budget with a Payday Loan.


What is the 50 30 20 Rule?

50 30 20 rule meaning

The 50 30 20 rule is a budgeting method that divides monthly income into 3 categories: 50% for needs, 30% for wants, and 20% for savings. Using this budgeting method means you spend 50% of your monthly budget on needs, 30% on wants, and 20% on savings. 

This budgeting rule is used to help categorize expenses, establish financial priorities, and provide an estimate of how much you should be spending in each budget category.

For example, if you calculate your budgeting categories and find that you are actually spending 40% of your monthly budget on wants, then you might need to adjust your spending habits.

Budget 50% for Needs

examples of needs in a budget

The first category in the 50 30 20 rule is needs. Needs should take up 50% of your monthly income. Needs are essential expenses that you must cover to maintain your basic living standards. Needs includes your most important monthly expenses like rent or mortgage payments, bills, groceries, and healthcare. 

Examples of Needs

  • Housing expenses like rent or mortgage payments, property taxes, and home insurance.
  • Utility bills like electricity, water, gas, internet, and phone bills.
  • Grocery expenses like essential food items and household supplies.
  • Transportation costs like car payments, fuel, maintenance, or public transportation costs.
  • Insurance costs like health, auto, and life insurance premiums.
  • Healthcare expenses like medical bills, prescriptions, and health-related expenses.
  • Minimum debt payments like required monthly debt payments on loans and credit cards.

Budget 30% for Wants

examples of wants in a budget

The second category of the 50 30 20 budget is wants. Wants should take up 30% of your monthly income. Wants are nonessential expenses that enhance your lifestyle but are not necessary for your basic living needs. 

Examples of Wants

  • Dining out, going out to restaurants, getting takeout, or grabbing coffee at a cafe instead of at home.
  • Entertainment expenses like movies, concerts, sports events, or streaming services.
  • Nonessential travel costs like taking vacations, weekend getaways, and recreational travel.
  • Hobbies or recreational costs like photography, gardening, or sports.
  • Nonessential shopping like clothing, accessories, electronics, and other discretionary purchases.
  • Subscription services like magazines, gym memberships, streaming services, and more.

Budget 20% for Savings

examples of savings in a budget

The third category of the 50 30 20 method is savings. Savings should take up 20% of your monthly income. Savings can include setting aside money for future goals, emergencies, and investments. Building a strong savings foundation is crucial for financial security and growth.

Examples of Savings

  • General savings account that can be used for various purposes.
  • Emergency fund savings account to put money aside in case of emergencies. 
  • Investment savings to put aside funds to make financial or business investments. 
  • Retirement savings accounts to put money aside for retirement. 
  • College savings account to save money to pay for a child’s future higher education.

Or Budget 20% for Debt Repayment

If you have a significant amount of debt, you might decide to have this third category of monthly income go toward debt repayments. By using 20% of your monthly income to pay down debts, you can help improve your overall financial health.

Focusing a portion of your monthly budget toward tackling debt can reduce the amount of interest you’re ultimately paying, it can bring your minimum monthly payments down, and it can improve your credit health by making regular on-time payments and reducing your overall debt.

How to Budget with the 50 30 20 Rule

examples of savings in a budget

To start budgeting with the 50 30 20 rule you’ll need to calculate your total monthly income, divide that amount by 50%, 30%, and 20% for needs, wants, and savings, and then track your actual spending and make adjustments as needed to fit this ratio as best you can. 

Step 1: Calculate Total Monthly Income

You can calculate your total monthly gross income or net income, depending on whether you want to consider your income before or after taxes. Add together any sources of income you or your household might have to get the total amount of money you have to spend on monthly expenses. 

Income Source A + Income Source B + Side Hustle = Total Monthly Income

Step 2: Divide Total Monthly Income by 50%, 30%, and 20%

Once you have your total monthly income added up, it’s time to take that number and divide it by 50%, 30%, and 20%. You’ll do this by multiplying your total monthly income by the numerical value of each of these percentages (0.50, 0.30, and 0.20). This will give you an estimate of how much you should be spending each month on your needs, wants, and savings.

Total Monthly Income x 0.50 = 50% of Total Monthly Income for Needs

Total Monthly Income x 0.30 = 30% of Total Monthly Income for Wants

Total Monthly Income x 0.20 = 20% of Total Monthly Income for Savings

Step 3: Track Your Actual Spending and Adjust as Needed

After you’ve calculated your total monthly income and how much of that income should be going toward needs, wants, and savings, then it’s time to insert your actual expenses for that month to see how closely you got to spending within this budget ratio.

Part of this step will include labeling all of your monthly expenses as either a need or want. Then, adjust as needed after reviewing your spending habits at the end of each month. For example, you might find that you actually spend 40% of your monthly income on wants and need to cut back on something unnecessary like eating out. 

50 30 20 Rule Examples

examples of savings in a budget

An example of using the 50 30 20 rule is if your income is $5,000 per month, then you will want to spend $2,500 on needs, $1,500 on wants, and put $1,000 into a savings account or toward repaying debts.

  • Total Monthly Income: $5,000
  • Needs (50%): $2,500
  • Wants (30%): $1,500
  • Savings or Debt Repayment (20%): $1,000

If you make an income of $4,000 per month, then you’ll spend $2,000 on needs, $1,200 on wants, and $800 on savings or debts to use this method.

  • Total Monthly Income: $4,000
  • Needs (50%): $2,000
  • Wants (30%): $1,200
  • Savings or Debt Repayment (20%): $800

If you make an income of $3,000 per month, then you’ll spend $1,500 on needs, $900 on wants, and $600 on savings or debts to use this method.

  • Total Monthly Income: $3,000
  • Needs (50%): $1,500
  • Wants (30%): $900
  • Savings or Debt Repayment (20%): $600

This clear allocation helps you manage your finances without feeling overwhelmed. Now you can take the guesswork out of figuring out if you’re overspending on any one budgeting category! 

50 30 20 Rule Calculator

50 30 20 budget calculations with examples

To calculate your 50 30 20 budget, you will just need 4 simple 50 30 20 formulas to calculate your total monthly income, 50% for needs, 30% for wants, and 20% for savings or debts.

$3,000 + $2,000 = $5,000 total monthly income

Income Source A + Income Source B + Side Hustle = Total Monthly Income

$5,000 x 0.50 = $2,500 for needs

Total Monthly Income x 0.50 = 50% of Total Monthly Income for Needs

$5,000 x 0.30 = $1,500 for wants

Total Monthly Income x 0.30 = 30% of Total Monthly Income for Wants

$5,000 x 0.20 = $1,000 for savings and debts

Total Monthly Income x 0.20 = 20% of Total Monthly Income for Savings or Debts

50 30 20 Rule Benefits

Using the 50 30 20 rule offers many benefits, including balanced priorities, more financial awareness of where your money is going, flexibility in how you determine wants vs needs, and the benefit of being a very simple budgeting method compared to more involved budgets like the cash envelope system.

Balanced Priorities

The 50 30 20 rule ensures that all aspects of your financial life are addressed by allocating funds to essential needs, lifestyle wants, and future savings or debt repayment. This balanced approach helps you cover your immediate necessities while also allowing for some discretionary spending and future financial security, promoting a well-rounded and sustainable budget.

Financial Awareness

By clearly categorizing expenses into needs, wants, and savings or debt repayment, the 50 30 20 rule promotes better financial habits and awareness. This method encourages you to be mindful of your spending patterns, helping you identify areas where you might be overspending and making it easier to adjust your budget to improve your overall financial health.

Flexibility

One of the key advantages of the 50 30 20 rule is its adaptability to different income levels and financial situations. Whether you have a high or low income, this budgeting method can be adjusted to fit your personal financial context, ensuring that it remains practical and effective regardless of changes in your earnings or financial goals.

Simplicity

The 50 30 20 rule is easy to understand and implement, making budgeting less daunting for those new to financial planning. By dividing your income into three straightforward categories—50% for needs, 30% for wants, and 20% for savings or debt repayment—this rule simplifies the budgeting process, allowing you to manage your finances with ease and clarity.

Keep Learning

How to Budget in 5 Steps
15 Frugal Tips that are Super Simple
What is a Cash Envelope System?

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