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What Is the 50-30-20 Rule?

Last Updated: November 20, 2024

3 min read

Table of contents

Key Points:

The 50-30-20 budgeting method divides your monthly income into three categories: necessities, savings, and personal spending.
Half of your budget should go to basic needs (rent, groceries). The other half can pay off debt, create savings, and spend how you wish.
A 50-30-20 budget gives you predictable goals that are easy to reach.

If you’re like most people, the idea of making a budget stirs feelings of dread. Feelings of budget reluctance are normal. After all, creating a budget can feel like a chore. Even learning about how to make a budget can feel like yet another “to-do” taunting you from a never-ending task list.

But budgeting doesn’t have to be stressful or suck the fun out of your lifestyle. In fact, learning how to make a budget with the 50-30-20 rule could be your ticket to getting a handle on your financial situation while still doing the things you enjoy.

If you stick to it, you’ll be able to cover all of your necessities and still have money left over to add to a savings account, retirement account, or pay down any balances you may owe (like credit card or student loan debt). The best part? Using the 50-30-20 rule to make a budget is easy and you don’t have to be financially savvy to understand it.

Budgeting with the 50-30-20 rule

All you need to do to make a monthly budget with the 50-30-20 rule is split your take-home pay (that is, your net pay after taxes and deductions) into three categories:

50% goes towards necessary expenses
30% goes towards things you want
20% goes towards savings or paying off debt

50% of your budget for necessities

The 50-30-20 budget rule assigns each dollar of your after-tax earnings a specific purpose. It splits your budget up into three categories that allow you to spend some of your money how you would like, while also prioritizing saving and making sure you have enough to cover your regular needs. The idea is that you’re able to find a sustainable balance.

According to the 50-30-20 rule, half of your take-home pay should go towards paying for “must-haves” (sorry, daily coffees and streaming services don’t count). For instance, if your monthly take-home pay is $2,000, according to the 50-30-20 rule, you should allocate $1,000 to pay for the monthly expenses that you need.

You might need to make some lifestyle changes to make the essential needs fit. This could mean keeping a closer eye on your utility usage, clipping coupons for groceries, or even finding more affordable housing.

The largest part of your budget includes living expenses that you must pay, and that are necessary for your survival. Basic needs include your rent or mortgage, groceries, car payment or other transportation, and utility bills.

30% of your budget for wants

After you’ve spent 50% of your earnings on necessities, it’s time to shift your focus to discretionary spending. You can allot 30% of your take-home pay to things you want—vacations, shopping, restaurants, takeout, and monthly subscriptions. These are the “fun” expenses or items that make life enjoyable.

Now, 30% may not sound like much, but again, if your monthly take-home income is $2,000, then based on the 50-30-20 rule, $600 could go towards expenses that bring you joy.

20% of your budget for savings

The final 50-30-20 budget rule category is savings or debt repayment, and 20% of your net income belongs here. The idea is that you’ll use this 20% to increase your financial net worth—either by lowering debt or increasing savings. This category might include pre-or post-tax retirement savings, student loan or credit card debt payments, investments, or contributions to an emergency fund.

Did you know?

If you have a credit card with a high interest rate, a balance transfer to a credit card with a low introductory Annual Percentage Rate (APR) may help you reduce your debt faster. Discover balance transfer credit cards offer a 0% introductory rate and the chance to earn rewards.

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The bottom line

Creating a budget is deeply personal. Depending on your specific financial situation and savings goals, the 50-30-20 rule may or may not work for you. But the 50-30-20 budget rule may provide a useful framework for saving for your financial goals while planning for the future and still enjoying the present.

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