The 50/30/20 rule: what it is and how to use it
How the 50/30/20 budget rule works, what goes in each part, examples on $3,000 a month and what to do if the numbers don’t work where you live.
The 50/30/20 rule splits your take-home pay into three parts: 50% for needs, 30% for wants and 20% for savings and debt. Elizabeth Warren and her daughter, Amelia Warren Tyagi, popularized it in their 2005 book All Your Worth.
It works because you only have to watch three numbers instead of fifteen categories.
An example on $3,000 a month
| Part | % | Per month |
|---|---|---|
| Needs | 50% | $1,500 |
| Wants | 30% | $900 |
| Savings and debt | 20% | $600 |
Run the numbers on your own pay with the 50/30/20 calculator.
What goes in each part
Needs (50%). What you’d still have to pay if you lost your job: rent or mortgage, utilities, groceries, getting to work, required insurance and minimum debt payments.
Wants (30%). What you could stop paying if you had to: restaurants, trips, extra clothes, streaming services, the gym or a nicer car than you needed.
Savings and debt (20%). Emergency fund, investing and any extra payments to clear debt sooner.
The line isn’t always clear. A grocery run is a need, but the expensive wine in the cart is a want. You don’t have to split every receipt. Pick an approach and stick with it.
If the numbers don’t work
On an average salary in an expensive city, rent alone can eat most of the 50%. That doesn’t mean you’re doing it wrong: the rule is a starting point.
On $3,000, these splits work out like this:
| Split | Needs | Wants | Savings |
|---|---|---|---|
| 50/30/20 | $1,500 | $900 | $600 |
| 60/20/20 | $1,800 | $600 | $600 |
| 70/20/10 | $2,100 | $600 | $300 |
Try to protect your savings. If you have to cut, take it from wants first and only lower savings when there’s nothing else left.
How to use it day to day
- Work out your three numbers.
- Schedule a transfer for the 20% on payday.
- Create your categories and split the 50% and 30% between them.
- Log your spending and check each week how you’re doing.
That last step decides whether it works. In Budget Pop each category has its own budget and fills with color as you spend. For more detail, follow the steps in how to make a monthly budget.
Frequently asked questions
What about bonuses? Add them up over the year and divide by twelve, or apply the rule to each one.
Is my mortgage a need or a debt? The regular payment is a need. Extra payments go under savings and debt.
