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The 50/30/20 Budget Rule Explained With Examples

Angela Mae Updated: January 16, 2024 • 5 min read

Having a personal budget is a great way to gain control over your finances. With one, you can stay on top of bills, save money, create an emergency fund, and prepare for the future. A budget shouldn’t be stressful. It should be realistic, easy to follow, and match your lifestyle.

The Savings 50/30/20 rule aims to prioritize financial goals and make handling your finances easy and uncomplicated, which is why it works for almost any type of lifestyle. Whether you’re new to budgeting rules or are looking for a better way to handle your money, this financial planning 50 30 20 rule could work for you.

What is the 50/30/20 Budget?

The 50/30/20 budgeting method is a savings rule that guides the allocation of your after-tax income. The rule suggests that you should distribute your income as follows: 50% towards necessities, 30% towards wants, and 20% towards savings or debt repayment. The 50/30/20 rule is a percentage-based budget that splits your monthly net income into three categories: needs, wants, and savings budget.

50% - Needs

These are your essential expenses, things you can't live without. For example, if your monthly take-home pay is $3,000, you'd allocate $1,500 (50%) for needs. This could include:

  • Rent or mortgage payments.
  • Utilities like electricity, water, and gas.
  • Groceries.
  • Health insurance.
  • Basic transportation costs (like car payments or public transit fares).
  • Minimum debt payments.

30% - Wants

These are non-essential expenses that enhance your lifestyle. From the same $3,000, you'd allocate $900 (30%) for wants. Examples include:

  • Dining out at restaurants.
  • Entertainment like movies, concerts, or streaming services.
  • Hobbies or leisure activities.
  • Travel and vacations.
  • Shopping for non-essentials (like clothes, gadgets, etc.).
  • Gym memberships

20% - Savings

This is for your financial goals and paying off any debts faster. From the $3,000, this means setting aside $600 (20%) for:

  • Building an emergency fund.
  • Contributing to retirement accounts like a 401(k) or IRA.
  • Saving for a down payment on a house or a new car.
  • Paying more than the minimum on credit card debts or loans to reduce them quicker.

Keep in mind that this smart budget rule uses a person’s net income, not gross. Net income is your take-home pay after an employer takes out any taxes such as Social Security or income tax.

50/30/20 calculator

Monthly after-tax income






Savings and Debt Repayment


50/30/20 Budgeting Rule Examples

To better understand the savings rule 50/30/20, consider these examples.

Let's say your monthly after-tax income is $5000. According to the 50/30/20 rule, you should allocate:

  • $2500 for your needs (50%)
  • $1500 for your wants (30%)
  • $1000 towards savings or paying off debts (20%)

Another way to calculate these amounts is by using a 50/30/20 calculator. With this tool, you input your after-tax income, and it will calculate the amounts you should allocate toward your needs, wants, and savings.

For example, you take home $2,500 monthly after taxes. In this case, you would split your paycheck as follows:

  • 50% or $1,250 for needs – house payment, utilities, loan payments, groceries
  • 30% or $750 for wants – fun/entertainment, gym memberships, etc.
  • 20% or $500 for savings and investing – emergency fund, long-term financial goals, retirement planning

On the other hand, if your net income is $3,750 every month, your budget would look like this:

  • 50% or $1,875 for needs
  • 30% or $1,125 for wants
  • 20% or $750 for savings and investing

50/30/20 budget rule

As with all budget rules, the 50/30/20 budget isn’t perfect, nor does it work for everyone. For many people, 50% isn’t enough to cover all of their household’s necessary living expenses. It can also be tough to set aside 20% of your income for savings.

However, the point of this budget rule isn’t to stress you out. It’s meant to be flexible enough to fit your financial needs. If, for instance, you need to spend more money on bills one month, you can draw from the wants category. Once things get back on track, you can return to the usual 50/30/20 split.

Ultimately, this budget rule is a general savings goal to help you become more financially secure. If you’re unsure it’s the right budget, consider using an online budget calculator.

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Is the 50/30/20 Savings Rule Realistic?

Many people often ask, "Is the 50/30/20 rule realistic?" Yes, it is. This rule is based on simple math and common sense, making it an effective way for most people to manage monthly expenses and their money. However, like all financial planning strategies, its success will depend on individual financial circumstances and discipline.

Why the 50/30/20 Rule Generally Works

One reason why the 50/30/20 rule usually works is because it’s so straightforward. Unlike other personal budgets, you only need to focus on three categories – needs, wants, and savings. This makes handling finances a lot less stressful and more concrete, especially for those new to budgeting.

Plus, this budge rule has some wiggle room as it lets you take some money from other categories as needed on a month-by-month basis. Typically, the result is that you can make a budget that works for you.

There are many budget rules of saving money. But this particular one dedicates a large percentage – 20% - of your income to doing just that. This makes the 50/30/20 rule especially useful for people who need to start preparing for big-ticket items like a house.

Finally, since 30% of your income is dedicated towards wants, this budget makes spending money a hassle-free experience, too. That said, you still need to track your budget. Otherwise, you could end up overspending.

Importance of Savings

Saving money is important for several reasons. One of the key aspects to consider is whether the 50/30/20 rule includes retirement. This could be anything from a sudden medical bill to a lost job or a damaged roof.

Every household should prioritize creating an emergency fund covering 3 to 6 months of their total expenses. This money should only be used for emergencies and kept separate from your regular savings. With this money, you won’t have to draw from your regular income to cover these costs. If you have enough money, you might not have to take on other forms of debt.

Even if there aren’t financial emergencies, having savings can give you a sense of financial security and reduce the stress of the unknown. It can also make it easier to build wealth or purchase big-ticket items in the future. And it can make investing in your future or a retirement account more feasible.

Implementing the 50/30/20 Rule in Your Financial Planning

Incorporating the 50/30/20 rule into your financial planning can help you balance meeting your present needs and securing your financial future. Remember, the savings rule 50/30/20 isn't just about saving money—it's also about spending your money wisely and mindfully.

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Ultimately, the 50/30/20 budget rule is a great way to start budgeting your finances while preparing for a more financially stable future. It’s a straightforward, no-frills budget that can work with almost any income or lifestyle. By following it, you can also reduce financial stress, build wealth, and potentially avoid debt.

With this budget rule, 50% of your net income goes toward needs, 30% towards wants, and 20% towards savings. There are a lot of budgeting rules for saving money. This one, though, stands out because it can help you get ahead of financial emergencies while still having money for fun.


Written by Angela Mae

Angela Mae is a personal finance writer specializing in loans, debt management, investing, retirement planning, and financial literacy. She comes from a journalistic background and pulls from hands-on experience and deep-dive research to breathe life into her stories. Her goal is to help others achieve financial stability and independence. When not writing, she can be found traveling, honing her yoga skills, hiking, or exploring new means of healthy, sustainable living.