The 50/30/20 Budget Rule Explained

The 50/30/20 rule is one of the simplest ways to budget. Instead of tracking dozens of categories, you split your after-tax income into three buckets. The idea was popularised by Elizabeth Warren and Amelia Warren Tyagi in their book All Your Worth.

The three buckets

• 50% for needs. Things you must pay: rent or mortgage, groceries, utilities, transport, insurance and minimum debt payments.
• 30% for wants. Things that make life enjoyable but are not essential: eating out, entertainment, subscriptions, hobbies, shopping and holidays.
• 20% for savings and debt payoff. Your emergency fund, other savings goals, and any debt payments above the minimums.

An example

If you take home $3,000 a month:

• Needs: $1,500
• Wants: $900
• Savings and debt payoff: $600

At $600 a month, you would save $7,200 in a year.

How to use it

1. Start with your income after tax.
2. List last month's spending and sort each item into needs or wants. Our budget planner does the math and compares you with the guide.
3. Move the 20% into savings on payday, ideally by automatic transfer.
4. Adjust your wants until they fit the 30%.

Needs or wants?

Some items are in between. Groceries are a need, but a big share of restaurant meals is a want. A basic phone plan is a need, but the newest handset is a want. When unsure, ask: would I be in serious trouble if I stopped paying for this?

What if the numbers do not work?

The rule is a guide, not a law. In an expensive city, needs may take 60% or more. Try 60/20/20 or 70/20/10 and work towards 50/30/20 as your income grows or your bills come down. On a low income, even 5% into savings is a great start. See our guide on saving on a low income.

What to do with the 20%

Build a starter emergency fund first. Then, if you have debt, compare methods with the debt payoff calculator. After that, put it towards goals using a savings challenge like the 52-week challenge.

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This article is general information, not financial advice.