How to budget using the 50 | 30 | 20 rule

What is the 50 | 30 | 20 rule?

Whether you’re struggling to make ends meet or trying to find a way to save for an important milestone, understanding how to set and follow a budget can not only help you meet your personal finance goals, but also form a better relationship with money and spending habits. There are many methods to creating and setting a budget. The 50 | 30 | 20 rule is only one of these. It is popular because it’s simple to follow and doesn’t require extensive tracking or math. It just requires categorizing your spending into one of three categories and making sure you stay within certain thresholds. The 50 | 30 | 20 rule breaks down as follows:

50% of your income goes to needs and essentials.

30% of your income goes to wants and extras.

20% of your income goes to savings and paying down debt.

 The exact numbers are a baseline and can be adjusted to fit your lifestyle and needs. The goal of the 50 | 30 | 20 rule is to promote saving money for the future, while still allowing you to enjoy yourself with money set aside for discretionary spending. 

Why should I follow the 50 | 30 | 20 rule?

There’s a lot of advice online about budgeting, and many different ways to do it. Is there anything special about the 50 | 30 | 20 rule in particular? This rule is used widely because it’s fairly simple to set up and follow. Other budgeting methods may give you more control but can often be more complicated or require more tracking of your spending. No matter which method you follow, creating a budget helps you save for the future and avoid debt. If you are unfamiliar with setting and sticking to a budget, starting with the 50 | 30 | 20 rule is simple, and then you can see if you need to adjust or use a different method down the line.  

What you need to follow the rule

In order to make a monthly budget with the 50 | 30 | 20 rule, you’ll need to have a few important pieces of information. You can likely find all or most of this on your bank account and credit card statements, and they will help you calculate your 50 | 30 | 20 rule budget:

Your net income
There are two ways to look at income: gross and net. Gross income is how much you make on paper. However, taxes and Social Security are usually taken out of your paycheck before you get it. You may also be contributing to a 401(k) or health savings account. This lowers what you take home at the end of the day. Net income is what actually goes into your bank account after that. This is the number we want to start with. It’s okay if your income is variable from month to month. In that case, base your budget on the rough average or the lower end of your take-home.  

Recurring monthly costs
These are costs that are the same (or very close) every month, like rent, car payments, water and electricity, your phone payment, childcare, and insurance. Listing all of these out and putting them in their respective categories will give you a start figuring out where your money is going.  

Your debt and savings goals
At least 20% of your budget will be set aside for paying down debt and starting an emergency fund for any unexpected costs. You’ll need to know your minimum debt payments for credit cards and student loans, and your total debt to decide how to break this category down. 

One more note: Many rules for budgeting often talk about a household, but this is also good advice if you are single and living on one income. 

Breaking down the 50 | 30 | 20 rule

What exactly fits into each category of spending with the 50 | 30 | 20 rule? Here’s how you should think about your spending and dividing them into needs, wants, and savings:

50% reserved for needs

Needs are expenses that are absolutely necessary and can’t be avoided. They include basic essentials that we all require to live in today’s modern society. Needs may change depending on your location and situation, but in general, needs cover:

• Housing (rent or mortgage)
• Utilities like water and electricity
• Basic groceries and food (not restaurants)
• Transportation or car payments
• Mobile service
• Childcare
• Minimum debt payments
• Insurance and healthcare

If your needs exceed 50% of your take-home income, you may need to adjust your lifestyle. That could mean shopping for a cheaper mobile plan, adjusting your childcare hours, or even moving to a more affordable home. In addition, there are some things that may seem like needs, but probably aren’t such as cable TV, new smartphones, or a gym membership. These might be important, but you can live without them. They should go in your  “wants” category. 

How much should I spend on rent/housing?

The most common guideline is to spend no more than 30% of your income on housing and utilities. However, this can be easier or nearly impossible depending on where you live. Housing costs have gone up almost everywhere, which is causing a shortage of affordable housing. Search for the best deal you can for the space you need, and if necessary, make some tradeoffs to keep costs low like being a little farther away from work or forgoing a second bedroom. 

30% to spend on wants

Your wants are basically all your other expenses that aren’t considered needs. They will vary—sometimes greatly—from month to month. Wants are still very important, and that’s why a significant portion of your budget is allocated for them. This balanced approach allows you to spend on the things that make you happy, which is vital to sustaining your budget in the long run. Wants include:

• Entertainment
• Restaurants
• New clothing
• Travel
• Gym memberships
• Media subscriptions
• And more

If your spending in this category exceeds 30%, you don’t have to give up everything, but you may need to prioritize the ones that mean the most to you. Looking at your spending in past months can help you rank which wants bring you the most joy, and then you can reduce the ones that aren’t as important. 

20% for savings

Saving for the future is not a luxury. It’s an absolute necessity, as 42% of Americans don’t have an emergency fund,¹ which means any unexpected cost can cause a critical breaking point that can snowball into severe financial issues. While unexpected major costs are fortunately not a monthly occurrence, they are a near certainty to happen at some point in the future, whether it’s a car breaking down, a health need, or being between jobs. If you don’t have some money set aside, it can be catastrophic. That’s why it’s important to dedicate 20% of your income to start a savings plan and build a safety net. Prioritize in this order:

1. Creating an emergency fund that can cover your needs for at least three months
2. Debt repayment more than your minimum due
3. Making contributions to retirement savings like an IRA
4. Saving to buy a home
5. Investing in stocks or mutual funds

Does a 401(k) count as savings?

Contributing to a 401(k) is a form of savings. If it is offered by your employer, you should absolutely take advantage of it, especially if you get an employer match on your contributions. However, it should not be included in your 50 | 30 | 20 plan. 401(k) withdrawal rules can be complicated, but for the most part, you cannot access the funds until retirement age. Instead, consider your 401(k) contributions as similar to taxes and Social Security; as part of the expenses that are subtracted before calculating your net income. Any additional income you put towards retirement savings like in an IRA or investing in stocks or mutual funds can count towards your 20% savings goal. 

Related: Investing for beginners

Benefits of the 50 | 30 | 20 rule

The biggest benefit of the 50 | 30 | 20 rule over other budgeting systems is its simplicity. It’s easy to understand and straightforward to use, making it accessible to everyone, even those who find traditional budgeting methods too complex or time-consuming. In addition, with 30% of your income allocated to wants, it allows for the enjoyment of some discretionary spending. This method works with the understanding that we all need to splurge occasionally on things that make us happy. This makes it more flexible and easier to maintain over time than some other budgets that attempt to restrict or eliminate unnecessary spending. It also helps you start saving money now, so you can protect yourself in the future. Following the 50 | 30 | 20 rule is a great way to start reducing financial stress and create a more positive relationship with money.  

Alternative: the 75 | 15 | 10 rule

If you find your needs often exceed 50% of your income, there are some other options. The 75 | 15 | 10 rule is a variation that allows for up to 75% of your income to go towards needs. However, it doesn’t allocate any money for wants. Instead, it suggests 15% go towards long-term savings like investing for retirement and 10% for short-term savings to build an emergency fund and save for a home. Because of these restrictions, this option can be more difficult to follow, but can help you save faster if you can forgo many of your wants for a while. 

50 | 30 | 20 rule FAQs

Is the 50 | 30 | 20 rule a good idea?

Not every budgeting method will work for everyone. Your situation is unique. However, the 50 | 30 | 20 rule is a good starting place for many people looking to create a budget because it’s pretty simple to calculate and follow, and it allows for discretionary spending. 

Are there disadvantages to the 50 | 30 | 20 rule?

By design, the 50 | 30 | 20 rule is simplified. That makes it easy to start but might not be detailed enough for some people. It also may not be suited for people with higher income, as it can encourage overspending. 

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¹“2025 Financial Wellness Survey,” U.S. News and PureSpectrum, 2025