The 50/30/20 rule is one of the simplest and most popular budgeting frameworks. Popularized by Senator Elizabeth Warren in her book All Your Worth, it provides a straightforward way to manage your money without tracking every penny.
What Is the 50/30/20 Rule?
The 50/30/20 rule divides your after-tax income into three categories:
Needs
Essential expenses you can't avoid
Wants
Non-essential spending for enjoyment
Savings
Future you: savings & debt payoff
This framework works because it's flexible. You don't need to track 50 spending categories or save every receipt—just keep your spending roughly within these three buckets.
Breaking Down Each Category
50% — Needs (Essential Expenses)
Needs are expenses you must pay to live and work. If you couldn't pay them, your health, safety, or ability to earn income would be at risk.
- Housing: Rent or mortgage payment, property taxes, basic home insurance
- Utilities: Electricity, water, gas, basic phone/internet
- Food: Groceries (not dining out)
- Transportation: Car payment, gas, insurance, public transit
- Healthcare: Insurance premiums, medications, required treatments
- Minimum debt payments: Credit cards, student loans (minimum only)
- Childcare: If required for you to work
💡 The Key Question
Ask yourself: "If I lost my job tomorrow, would I still need to pay this?" If yes, it's a need. If you could cut it to save money, it's probably a want.
30% — Wants (Lifestyle Spending)
Wants are everything you spend money on for enjoyment, convenience, or comfort—things that make life more enjoyable but aren't strictly necessary.
- Dining & drinks: Restaurants, coffee shops, takeout
- Entertainment: Streaming services, concerts, movies, games
- Shopping: Clothes beyond basics, electronics, home décor
- Travel: Vacations, weekend trips
- Hobbies: Gym memberships, sports, crafts
- Upgrades: Premium phone plans, nicer car, larger apartment
⚠️ Common Mistake
Many people underestimate their "wants" spending. That $6 daily latte? It adds up to $180/month. Track your spending for one month to see where your money really goes.
20% — Savings & Debt (Your Future)
This category builds your financial security. It includes money saved for the future and extra payments toward debt (beyond minimums).
- Emergency fund: 3-6 months of expenses in a savings account
- Retirement: 401(k), IRA, or other retirement accounts
- Investments: Brokerage accounts, index funds
- Extra debt payments: Paying more than the minimum on loans
- Sinking funds: Saving for future large purchases
✅ Priority Order
1) Build a $1,000 starter emergency fund → 2) Get any 401(k) employer match → 3) Pay off high-interest debt → 4) Build full emergency fund → 5) Invest for retirement
Example: $5,000/Month After Taxes
Here's how someone earning $5,000/month after taxes might apply the 50/30/20 rule:
| Category | Expense | Amount |
|---|---|---|
| Needs (50%) | Rent | $1,400 |
| Utilities | $150 | |
| Groceries | $400 | |
| Car payment + insurance | $350 | |
| Health insurance | $200 | |
| Needs Total | $2,500 | |
| Wants (30%) | Dining out | $300 |
| Entertainment/streaming | $100 | |
| Shopping | $200 | |
| Gym + hobbies | $150 | |
| Wants Total | $750 | |
| Savings (20%) | 401(k) contribution | $500 |
| Emergency fund | $300 | |
| Extra student loan payment | $200 | |
| Savings Total | $1,000 |
Notice this example has $250 left over in the "wants" category ($1,500 budget - $750 spent). That's a buffer for unexpected expenses or extra savings.
When to Adjust the Percentages
The 50/30/20 rule is a guideline, not a law. Here's when you might need to adjust:
If you live in a high-cost area
In cities like San Francisco, NYC, or Boston, housing alone might eat 40%+ of your income. Consider a 60/20/20 split temporarily, but work toward increasing income or finding ways to reduce housing costs.
If you have significant debt
High-interest debt is an emergency. Consider 50/20/30 (flipping wants and savings) until credit card debt is paid off. Every dollar of interest saved is a dollar earned.
If you're saving for a big goal
Saving for a house down payment or early retirement? You might temporarily go 50/20/30 or even 50/10/40 to accelerate savings.
If your income is very low
When money is tight, needs might consume 70-80% of income. Focus on covering essentials first, save what you can, and work on increasing income over time.
How to Start Using the 50/30/20 Rule
- Calculate your after-tax income — Your take-home pay after taxes and deductions (use your paycheck calculator if needed)
- List your current expenses — Go through bank/credit card statements for the past month
- Categorize each expense — Is it a need, want, or savings?
- Compare to the targets — See where you're over or under
- Make adjustments — Cut wants first, then look for ways to reduce needs
- Automate your savings — Set up automatic transfers on payday
🧮 Try Our Free Budget Calculator
Put the 50/30/20 rule into action. Enter your income and expenses to see exactly where you stand.
Open Budget PlannerCommon Questions
Should I use gross or net income?
Always use net income (after-tax). If your 401(k) contributions come out before taxes, add those back to your income first, then count them as "savings."
Where do minimum debt payments go?
Minimum payments are needs—you must pay them to avoid penalties. Extra payments beyond the minimum are savings because they're optional and build your net worth.
Is this rule too simple?
That's the point! Many people fail at budgeting because it's too complicated. The 50/30/20 rule is meant to be "good enough" to keep you on track without burnout. If you want more detail, try our full budget planner.
What if I can't save 20%?
Start where you are. Even 5% is better than 0%. Increase by 1% every few months until you reach 20%. The important thing is to start.