50/30/20 Budget Rule: How It Works & Calculator

The 50/30/20 budgeting rule is a simple and effective way to manage your finances. Learn how it works and how to allocate funds for your essentials, wants, and savings.

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Faith Boluwatife is an experienced financial writer and has an extensive background of writing about budgeting, loans and insurance.

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Taking control of your finances is essential for living smart and living life on your terms. The 50/30/20 budgeting rule is a simple blueprint for managing money and reaching financial goals that everyone should consider incorporating. Find out what this revolutionary budgeting method is all about and how you can apply it to change your finances for the better.

Key takeaways
  • The 50/30/20 budgeting rule is a structure for managing money that states you should spend 50% of your after-income tax on needs, spend 30% on other wants, and separate 20% as savings.
  • It is a simple and friendly money-managing structure that ensures people have enough to save for emergencies, outlined huge needs, and other financial goals such as retirement.
  • Incorporating the 50/30/20 budgeting rule in planning your financial needs can help you achieve a more balanced life and a secure financial future.
  • Use our 50/30/20 calculator to determine how much you can spend on your needs, wants and savings.

What is the 50/30/20 budgeting rule?

The 50/30/20 budgeting rule is a budgeting structure made popular by US Senator, Elizabeth Warren. In her, book, All Your Worth: The Ultimate Lifetime Money Plan, Senator Warren explains that the budgeting structure simply follows the pattern of spending 50 percent of income on needs, 30 percent on wants, and saving the remaining 20 percent.

How does the 50/30/20 budget method work?

The 50/30/20 budgeting rule is a very simple structure. And we will explain it using this analogy:

Supposing Mrs. X, who works as a project manager earns $5,000 after deducting tax, she would begin budgeting by outlining what her needs are. This could be transportation costs, utilities, home upkeep, and hairdo. She would also outline her wants, such as a dream spa visit to the hottest spa in town, new additions to her closet, and a couple of other indulgences. She would also not forget that she needs to save. Perhaps, she wants to change her car by the end of the year or she wants to have enough to travel with her family to visit their Mexican home during Thanksgiving, or she has a debt that needs to be cleared.

After Mrs. X, outlines all of these needs, wants, and aspirations, she would apportion money to them using the 50/30/20 budgeting rule. 50% of her income, which amounts to $2,500 will be used to cater to her needs. 30%, which is $1,500 will cater to wants and the remaining, $1,000, which is 20% of her monthly income will be put away as savings.

50/30/20 Budgeting Calculator

How to implement the 50/30/20 budgeting strategy

To implement the 50/30/20 budgeting rule, you will have to outline your wants and needs as we have already explained. You may also have a savings goal, which is something you are saving towards or you may just choose to save for emergencies.

Adjust the percentages to your situation

Although there is a standard allocation of funds, the 50/30/20 budgeting rule can be adjusted to fit individual circumstances or attend to emergencies. For example, you could tweak things to spend 60% on needs, 20% on wants, and the remaining 20% on savings. You could also choose to spend less and save more. What matters is to ensure you stay through to yourself and your financial goals, and to the virtue of leading a balanced life devoid of unnecessary extravagance.

Nevertheless, this budgeting rule believes that you should ideally not spend more than 50% of your income on your needs and 30% on your wants. If you, therefore, find out that your needs and wants are requiring more than the apportioned percentage, it could mean that you need to cut down on your lifestyle or that you perhaps, need to get a better-paying job.

Decrease unessential spending

Cutting down on your unnecessary expenses should be your first step before you look into increasing your income. You may consider cooking your own meals and buying foodstuff in bulk to save money instead of eating out, or you could consider switching to public transportation if car maintenance seems too much than what your budget can handle.

Your wants are things you can do away with and still be fine. But the truth is, we all always end up with an endless list of wants – the list just never stops growing. It does not matter how long your list of wants is, 30% of your income will just have to suffice for attending to them. Consider working with the things you consider most important, ticking each one off one at a time, and postponing what cannot be ticked off to the next month.

Use 20% to achieve your financial goals

The remaining 20%, which is your savings can be locked up in an emergency fund account, fixed deposit account, or high-yield savings account. You may also choose to invest some or all of your savings in worthy investments. Financial experts believe that you should have a minimum of three months of your savings as emergency savings, should you lose your job or face a major unforeseen challenge. After achieving this, you may then start saving towards other specific financial goals.

Advantages and limitations of the 50/30/20 budget method


  • Simplicity: This budgeting strategy is devoid of complexities and is easy to understand and follow.
  • Balance: It factors in necessities, wants, and savings and has a plan for attending to all of them.
  • Quality Savings Structure: The 50/30/20 budgeting rule has a strong focus on savings that ensures discipline and will help anyone with their financial goals faster.
  • Encourages Financial Awareness: This budgeting structure encourages the intentional monitoring of spending and prioritizing of expenses.
  • Debt Reduction: Helps in paying off debt by dedicating a portion to debt payment.


  • Rigidity: The 50/30/20 strategy may not work well during unexpected fluctuations in income or expenses and may not work well if you earn irregular income.
  • May Not Work Well for Everyone: The strategy may not be feasible for those with high debt, low income, and other unique financial situations.


If you want to avoid living life from paycheck to paycheck and experiencing financial stagnancy, then budgeting is very important. You shouldn’t be afraid to approach your finances and face how. Rather, you should be eager to take control and bring balance to how you spend. The 50/30/20 budgeting rule presents a simple, yet effective way to do this. Stick to the principles and watch as yourself build a solid financial foundation and reach your financial dreams faster.

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Faith Boluwatife is an experienced financial writer and has an extensive background of writing about budgeting, loans and insurance.