Budgeting basics: The 50-30-20 rule (2024)

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For one easy way to plan your spending, try this method.

2-minute read

In brief

  • Understanding your spending can help you better plan for the future.
  • The 50-30-20 rule organizes spending into needs, wants, and goals.

Creating a budget can help you make confident decisions and enjoy peace of mind. A detailed budget, though, can be complex to manage.

The 50-30-20 rule splits expenses into just three categories. It also offers recommendations on how much money to use for each. With some basic information, you can get on the road to financial well-being.

Getting started

Start by taking a look at your paycheck. If taxes are withheld, subtract that amount from your total earnings. Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let’s take a closer look at each category.

Budgeting basics: The 50-30-20 rule (1)

Needs: 50%

About half of your budget should go toward needs. These are expenses that must be met no matter what, such as:

  • Utility bills
  • Rent or mortgage payments
  • Health care
  • Groceries

If you can honestly say “I can’t live without it,” you have identified a need. Minimum required payments on a credit card or a loan also belong in this category.

Wants: 30%

You subscribe to a streaming service to watch your favorite show, not because you need the subscription to live. Wants are things you enjoy that you spend money on by choice, such as:

  • Subscriptions
  • Supplies for hobbies
  • Restaurant meals
  • Vacations

Savings: 20%

The remaining 20% of your budget should go toward the future. You may put money in an emergency fund, contribute to a retirement account, or save toward a down payment on a home. Paying down debt beyond the minimum payment amount belongs in this category, too.

In summary

Options to save for the future at UNFCU include savings accounts and share certificates.

The 50-30-20 rule is just one way to consider organizing your budget. To find the perfect fit for your situation, consult a professional financial planner.

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Budgeting basics: The 50-30-20 rule (2024)

FAQs

Budgeting basics: The 50-30-20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

How does the 50 30 20 rule work for budgeting? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

What is the 50 30 20 tool for budgeting? ›

50% goes into necessities (essential expenses such as rent and bills) 30% goes towards wants (such as food, activities, subscriptions and petrol) 20% goes towards savings or debt repayments.

What is the 40 40 20 budget? ›

The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.

What is the 75 15 10 rule? ›

The 75/15/10 rule is a simple way to budget: Use 75% of your income for everyday expenses, 15% for investing and 10% for saving. It's all about creating a balanced and practical plan for your money.

Is the 30 rule outdated? ›

The 30% Rule Is Outdated

To start, averages, by definition, do not take into account the huge variations in what individuals do. Second, the financial obligations of today are vastly different than they were when the 30% rule was created.

How much do I need to save a month to get 20000? ›

“Saving $20,000 per year is about $1,667 per month or about $385 per week,” she said. “Thinking about it in smaller terms makes it less daunting of a goal.”

Is the 50 30 20 rule realistic? ›

For many people, the 50/30/20 rule works extremely well—it provides significant room in your budget for discretionary spending while setting aside income to pay down debt and save. But the exact breakdown between “needs,” “wants” and savings may not be ideal for everyone.

What does a 50 30 20 budget look like? ›

Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

How do you budget for beginners? ›

Start budgeting
  1. Make a list of your values. Write down what matters to you and then put your values in order.
  2. Set your goals.
  3. Determine your income. ...
  4. Determine your expenses. ...
  5. Create your budget. ...
  6. Pay yourself first! ...
  7. Be careful with credit cards. ...
  8. Check back periodically.

What is the 80 20 plan money? ›

The rule requires that you divide after-tax income into two categories: savings and everything else. As long as 20% of your income is used to pay yourself first, you're free to spend the remaining 80% on needs and wants. That's it; no expense categories, no tracking your individual dollars.

What is the 80 20 budget? ›

YOUR BUDGET

The 80/20 budget is a simpler version of it. Using the 80/20 budgeting method, 80% of your income goes toward monthly expenses and spending, while the other 20% goes toward savings and investments. Of course, the 80/20 budget rule won't work for everyone.

What is the 80 20 budget plan? ›

The 80/20 rule says that you should first set aside 20% of your net income for saving and paying down debt. Then split up the additional 80% between needs and wants. When using the 80/20 rule, calculate the amounts based on your net income - everything leftover after you pay taxes.

What is Rule 72 in accounting? ›

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double.

Why does Rule 72 work? ›

The value 72 is a convenient choice of numerator, since it has many small divisors: 1, 2, 3, 4, 6, 8, 9, and 12. It provides a good approximation for annual compounding, and for compounding at typical rates (from 6% to 10%); the approximations are less accurate at higher interest rates.

What is the rule of 7 and 10 investing? ›

Definition and explanation of the 7/10 rule

In other words, the 7/10 rule is a time and interest-based investment rule. For example, you invest ₹100 at 10%, it will take 7 years for it to touch ₹200. Here, 7 is the time and 10% is the interest rate.

When might the 50 30 20 rule not be best saving strategy? ›

But the exact breakdown between “needs,” “wants” and savings may not be ideal for everyone. If you're behind on your retirement savings or have a lot of credit card debt to pay down, you might want to allocate more than 20% of your take-home pay to that category.

How do you distribute your money when using the 50 20 30 rule group of answer choices? ›

Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment. Find out how this budgeting approach applies to your money.

Does the 50 30 20 rule include 401k? ›

A 401(k) can count as savings in a 50/30/20 budget plan. But if 401(k) contributions are automatically deducted from your paycheck, they're not included in your take-home pay calculation.

What is the 50 30 20 rule financial experts recommend monthly savings of? ›

The 50/30/20 rule is a budgeting strategy that allocates 50 percent of your income to must-haves, 30 percent to wants and 20 percent to savings.

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