March 6, 2021

pie chart showing 50 30 20 rule split into 50% needs, 30% wants, 20% savings


This post may contain affiliate links which means we may receive compensation when you click on links to those products. For an explanation of how we make money, visit this page. This just helps fund the site and is no cost to you. 

50/30/20 rule: Is it for me?

If you’re new to budgeting and want a simple way to organize your money the 50/30/20 budget can be a great way to start. Developed by Elizabeth Warren and Amelia Warren Tyagi, the 50/30/20 budget is a really easy way to organize your money.

What I have found useful is It allows flexibility and an easy three-way system to divide your money, helping you form good budgeting habits whilst still having freedom with your money. 

In this guide, I will go through step by step what exactly is entailed in the rule, its limitations, and an example of how to put it into practice.

If you decide this is a budget for you I also include a free spreadsheet template to get you started.

The 50/30/20 budget in a nutshell

  • 50% of your income on living expenses (rent, mortgage, groceries, bills transportation, etc.).
  • 30% of your income on wants and lifestyle choices (fun and entertainment, dining out).
  • 20% of your income toward debt payments and saving

Also good to know

  • You could tweak the percentages once you get the hang of things to your personal goals 
  • It’s a budget that gives you money to have fun!
  • You will need to put some work in to get your budget set up and keep track

What is the 50 30 20 budget rule?


The 50/30/20 budget is a way to allocate your after-tax income, it uses 3 principles to do this. 50% of income going to needs, 30% going to wants, and the remaining 20% going to savings and financial goals

It’s worth noting that although these appear to be broad topics there is detail in each about specifically what type of expense should fall into each category. 

I note this because it can be easy in my experience to think things like TV subscriptions fall into the needs category they are a want. 

pie chart split into 3 showing 50/30/20 rule budget 50% needs Housing Groceries Utility Bills Transport insurance 30% wants gym shopping 20% savings

50% to needs

Needs are what they say on the tin they are what you absolutely cannot live without. On your needs budget you might find the following:

  • Rent or Mortgage payment
  • Essential utility bills (electricity, water, etc)
  • Groceries
  • Car payment or travel costs
  • Any relevant insurance like life or health
  • Minimum debt repayments, such as minimum amount you have to pay back on a credit card payment each month

Now here is where needs can be a little tricky when first setting up your budget. The first thing I need to point out is you need to clear in your mind what is essential and what is not. 

Here are some examples of items that shouldn’t be on your needs budget:

  • Gym subscription (you could choose to exercise for free so this is a want)
  • Any TV subscriptions like Netflix
  • Car payments where you have made a significant upgrade, for instance, did you buy upgrades on your car that cost extra but arent essential? If this is the case but the additional cost of upgrades on your wants list. 

30% to wants

Wants are like needs but if you had to ask yourself to be without to survive your could. These include things like:

  • Socializing costs: meals out, cinema, etc
  • Holiday or vacation time (depending on where you are from)
  • Anything you subscribe to that you could like without like Netflix or Disney +
  • Anything you have paid extra for on a needs item, like upgraded wheels on your car which has increased the payment. The difference in that cost goes on this budget.

20% to financial goals

The financial goals section covers 2 main areas:

  • Any saving goals you have
  • Debt repayment (not the minimum amounts but additional payments to save you money in the long term on hefty interest)

Top Questions about the 50/30/20 rule

Is the 30% rule pre or post-tax?

The 30% wants is after-tax so if your take-home pay is $1500 your 30% would be $450. 

Does the 50 30 20 rule include 401k?

No, as the 50/30/20 is a post-tax budget and a 401k is taken pretax you do not need to include this in your budget calculation. Some people do but for me, it makes the budget more complicated and the idea of this budget is to increase your basic savings. 

I consider pensions/401k as basic savings so if you do not currently have a pension contribution set up then do this first.

What more budgeting tips first? Check out these 15 Budgeting Tips  


50/30/20 Calculator

Pop your email address in below to get a free 50/30/20 calculator and spreadsheet sent straight to your inbox for free today.



Who is the 50/30/20 budget good for?

If you are just getting started with your finance journey, then the 50/30/20 budget could be a good way to ease into budgeting. 

According to a survey from Bankrate.com, which found that 20 percent of Americans don’t save any of their annual income at all and even those who do save aren’t putting away a lot.

And this statistic isn’t just a universal problem for the USA, in the UK the Independent reported that a quarter of British adults didn’t have any savings.

If this sounds like you then the 50/30/20 could get a great way to start, because of its simple nature it is easy to adopt and get your head around. 


Why the 50/30/20 Rule works

Because it is really simple to understand most people can get to grips with this method and mold it to their lifestyle. 

It will also support you in learning good habits that will support you in your future financial goals. 

Everyone needs to start somewhere

Don’t be put off its simpleness and be fooled into thinking this is too good to be true. The simpleness of the 50/30/20 rule is exactly why the majority of us can work with it because it’s so simple to understand and thus committing to it. 

You actually might find once you have started you are able to save more than 20%. 

Tip

It’s best to combine the 50/30/20 rule with your own financial goals, for instance, is it about investing, paying debt or building high savings, or even a combination? 

Think about this and use the 50/30/20 to get there.

Forces you to evaluate your financial choices

Hindsight is a beautiful thing, and by taking the time to go through the steps listed in this article you will start to think about where your money is going.

Don’t stress if some of the costs like debt or high rent you can’t control right now, just think about the steps you can take now to deal with it down the line. 

Gives you a needs vs wants mindset

Because you will go through your expenses and think about if they are a need or a want you will naturally develop a mindset to make smarter financial decisions in the future. 

You will probably start asking yourself do I really need this, will it bring me pleasure? This sort of mindset will 

The budget allocates you money for fun

When most think of starting a budget they automatically think of cutting back and not being able to have any fun. The beauty of the 50/30/20 rule is there is room for wants and desires. 

Having fun in moderation will help you stick to your budget without feeling like you are missing out. 


Drawbacks to be aware of

Although the 50/30/20 is a great method for budgeting like anything in life it’s not perfect and does have some drawbacks that you should be aware of.

It can appear vague

There are a lot of grey areas in the budget and this can make it confusing initially. For instance, if you are buying lots of treats in your grocery budget that is not essential these officially should go into your wants pot. 

The key in my experience is to make the budget work for you and your goals. I believe it’s vague so you can make it work for you. 

Let’s look at it another way if the budget allows you to start a habit that is helping you save 20% each month I class that as a win, so dont get caught up in the fine details if you dont need to. 

Instead, focus on the bigger picture of building up your savings.

Don’t expect your pots to be exact straight away

The first thing you might be thinking is my wants arent 50% today etc. Let me set some expectations this probably won’t be and that’s ok.

This is because we aren’t starting from scratch, you had made financial commitments before you started looking into this method. 

Follow the steps and you might find initially you can’t save 20%, that’s ok just use the steps to work towards this. 

And on the flip side once you get going you might find saving 20% really easy, great - save money and adjust your goals to suit you and your goals. 

Think of the 50/30/20 as the starting point and increase it if you can. 


How do you set up a 50/30/20 budget?

The most time-consuming part of setting up the 50/30/20 rule is to evaluate your spending habits today and figure out exactly where you could be wasting money. 

Here’s what you need to before you can set up your budget:

  • A copy of your last few bank statements or access to your online banking so you can go through and start to identify where you are spending your money. If you have Starling bank you can do this through the app.
  • Pen and paper or get the 50/30/20 spreadsheet included in this article 
  • A calculator so you can start adding things up
  • A copy of your payslip or knowledge of your normal take-home pay (after tax)

Setting up the 50/30/20 rule

Step 1 - Calculate what you have in each pot

Once you have your take-home pay minus tax and pension contributions calculate the amount you have in each pot. 

Remember: If you live with a partner and share all bills add both of your salaries together first. 

You can do these via the free 50/30/20 spreadsheet template included in this article or use the following calculations:

Needs pot: take home pay x 0.50

Wants pot: take home pay x 0.30

Savings/financial goals pot: take home pay x 0.20

Step 2:  Allocate your current spending habits into these 3 pots

Go through your bank statements to understand what you are spending your money on today. Start to allocate the costs to each pot.

Whilst you are going through these costs start to ask yourself if any of these expenses are bringing you to benefit or if you are getting value for money. If the answer is no it could be time to cancel that service or stop spending your hard-earned cash on it. 

Step 3: Pay yourself first 

Once you have worked out your pots start a good habit each month by paying yourself first. 

This simply means start your payday by first allocating your 20% financial goals pot where it needs to go. This could mean paying debt down or putting it into a separate savings account. 

Step 4: Follow up

Go back once a month and see how you did. Don’t beat yourself if you can’t get to the 20% straight away, progress is progress. 

Everyone has to start somewhere even if you manage to save $50 that you haven’t done before it’s a start. 


50/30/20 budget example

Here’s an example of using to steps above to work out a budget.

List of Steps

step 1

Calculating the pots

Let’s say me and my partner have a monthly combined income of $5400 (the amount deposited in your bank account after tax paid and pension contributions)

So let’s start by calculating what amount goes in each pot

Needs pot: $5400 x 0.50 = $2700

Wants pot: $5400 x 0.30 = $1620

Financial goals: $5400 x 0.20 = $1080

step 2

Allocate spending habits into these pots

Now that I have my numbers I need to see what the state of play is with my current finances. 

It is quite possible that I could already be allocating more than 50% to my needs pot or more than 30% to my wants pot. 

Don’t be worried if this is the case for you, after all the reason you are probably looking at the 50/30/20 is that you are saving little to no money. 

Here's what your list could look like:

Wants

Needs 

Financial goals/ Savings

Rent $1700

Netflix: $10.99

Debt payment: $500

Electric bill $111

Gym: $50

Emergency fund pot: $500

Recycling: $40

Eating out: $200

Invest: $80

internet : $20

Latest iPhone $50 (this phone wasn't essential so I've split the cost out of my Wants list)

Cell

Home insurance: $30

Cell
Cell

Cell phone: $30

Cell
Cell

Car and travel: $400

Cell
Cell

Groceries: $400

Cell
Cell

Total: $2801

Total: $260.99

Total : $1080

In your wants column be sure to allocate some money in here specifically for going out/having fun. Just because you need to set a budget doesn’t mean you have to miss out on what life has to offer. 

Tip: When looking into the wants pot are there any subscriptions you are paying for that you could cancel which could give you further fun money or more money than you could invest?

Notes on savings pot

Now that I start to look at my savings pot it’s clear although I am slightly over in the needs pot (due to the area I live) I have some wiggle room in my wants pot so at this stage I could decide to further save or keep some money for fun activities that I want to do. 

You will notice in this example savings pot I have allocated into 3 sections the first for debt payment. If you have a high-interest debt you should consider making extra payments. 

The next is an emergency pot/fund, if you don’t have one already this is a must to set up. Think of it as a rainy day fund that will keep your finances in check should any unexpected bills happen. 

‘a good rule of thumb is to set aside enough money to cover three to six months' worth of living expenses, including rent or mortgage payments, grocery bills and car payments’ 

So if you dont have an emergency fund already set up start allocating your 20% to this first. Once you have an amount you are comfortable with you can start increasing your payments into your investing pot.

So you will notice that in this example there is a small amount being deposited into investing this is because the main goal at the moment is building the emergency fund. 

I also wanted to point out you don’t need lots of money to start investing you can start small, the key is to start and build up.

Related article: How to start investing

step 3

Try to automate the savings part

Now that I’m clear I go about contacting my source of debt and set up additional standing orders if possible. 

I also make sure to log into my bank account on payday and withdraw the amount I have agreed to save for emergency funds and investing and deposit it into the relevant accounts. 

step 4

Follow up

Following the strategy, I have the main thing I would be following up on would be adjusting my savings strategy when I have reached my emergency fund threshold. 

I would also consider if I can save more considering I have leftover funds in my wants pot. But this would be based on my financial goals and personal preference. 

Related article: How to save 10k in a year



Free 50 30 20 rule spreadsheet

Are you ready to have a go yourself? Get my free 50/30/20 spreadsheet sent straight to your inbox to make setting up your budget really easy


Bottom line - Does the 50 30 20 budget work?

Yes, the budget and its principles work but like with every model you need to make it work for you and your circumstances. 

If you live in a high expense city like New York or London you might think that being able to save 20% is unrealistic because of the high expenses of living in these areas.

The best thing to do in this circumstance is to take the principles of the model and make it personal to you and adjust to your goals. 

On the flip side if you plan to retire early 20% saving might not be enough so it’s always wise to adjust everything to your needs.

From a basic principle of dividing your earnings into 3 posts makes complete sense to me and helped me get a hold of my spending and think about my goals. 

What do you think? Will you use the 50/30/20 budget? Let me know in the comments below. 

About the author 

Mary Elizabeth

Founder of MeMoreMoney. A self-taught finance nerd, learning by doing and experiencing. Bought first house at 21, paid off student debt, and save 100k by 30. Featured Personal Finance Expert in GO Banking Rates and Yahoo! Finance

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Join the  exclusive MeMoreMoney club

Be among the few in the know and join the MeMoreMoney club today

>