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What is a 50 30 20 budget and who wrote the book on it?

Updated: Sep 26, 2023

In today's complex financial landscape, finding a simple yet effective method to manage one's finances can feel like searching for a needle in a haystack. Enter the 50/30/20 budgeting rule, a straightforward guideline that's been gaining traction among both finance novices and seasoned pros. At its core, this rule advocates allocating one's income into three primary categories: needs, wants, and savings. For any beginners to budgeting, this is a simple and straightforward method that I'd suggest you explore.

But why is budgeting so crucial? A well-structured budget not only allows you to gain control over your financial life but also offers a clear roadmap to achieving your monetary goals. The sheer simplicity of the 50/30/20 rule makes it an appealing choice for those looking to navigate their finances with clarity and confidence.

50 30 20 Budget

What is the 50/30/20 budget?

The 50/30/20 budget rule is a simple and effective method for dividing your income into three categories: needs, wants, and savings. The rule suggests that you allocate:

  • 50% of your income to needs: This includes essential expenses like housing, utilities, groceries, transportation, and other bills.

  • 30% of your income to wants: This includes discretionary spending on non-essential items like dining out, entertainment, hobbies, vacations, and other luxuries.

  • 20% of your income to savings: This includes saving for retirement, emergencies, and other financial goals.

One of the best parts of this rule is the 20% savings. That is a solid savings rate for anyone looking to ensure they have plenty in the bank during retirement. At that savings rate, many of us should not have any issues retiring at 65 and living comfortably for 30 years.

50 30 20 Budget Calculator

Why use the 50 30 20 budget rule?

The 50/30/20 budget rule provides a simple framework for managing your finances. By allocating a specific percentage of your income to each category, you can ensure that you're not overspending on wants and neglecting your financial obligations or future savings goals.

Additionally, the 50/30/20 budget rule can help you avoid debt and build an emergency fund. By allocating 20% of your income towards savings, you'll have a financial cushion in case of unexpected expenses or job loss.

  • Helps create a clear financial picture: By segmenting your income into clear categories, you gain a comprehensive understanding of where your money is going and can identify areas for potential adjustment.

  • Simplifies the budgeting process: With just three primary categories to consider, setting up and maintaining a budget becomes a less daunting task. No need to track every single penny or get lost in countless sub-categories.

  • Builds a saving habit: By dedicating 20% of your income to savings and debt reduction right off the bat, you're fostering a habit of prioritizing your financial future. Over time, this can lead to significant wealth accumulation and financial security.

  • Allows for personal spending without guilt: Allowing 30% of your income for personal desires means you can indulge occasionally without feeling guilty or worrying about derailing your financial goals. It's a balanced approach that acknowledges the importance of enjoying life's pleasures while staying financially responsible.

Do you understand the 50/30/20 budget rule?

If you're new to budgeting, the 50/30/20 budget rule may seem overwhelming or confusing. However, it's important to remember that this is just a guideline, and you can adjust it to fit your personal financial situation.

To get started with the 50/30/20 budget rule, follow these steps:

  1. Track your income and expenses for a few months. This will give you a good idea of how much you're spending on needs and wants, and how much you can realistically allocate toward savings.

  2. Make a list of your financial goals, such as paying off debt, saving for a down payment on a house, or building an emergency fund. Use the 20% savings allocation to prioritize these goals and create a plan for achieving them.

  3. Be flexible with your budget. Life is unpredictable, and unexpected expenses can arise. If you need to adjust your budget to accommodate a one-time expense or change in income, don't be afraid to do so. The 50/30/20 budget rule is meant to be a guide, not a strict set of rules.

What are wants vs needs vs savings?

Determining how to categorize your spending so it fits within this model can be tricky for some expenditures. To help with that I've outlined some of the most common Wants vs. Needs vs. Savings items.

Needs Examples: When I think of needs I focus on Maslow's hierarchy and the basic needs section (partly because I studied psychology and partly because he does a good job of identifying actual needs)

  • Rent/Mortgage - you need a roof over your head

  • Food - you gotta eat

  • Car/Transport - getting around to your job or ballet is a critical part of earning a living

  • Utilities - in reality, you could wrap this into rent/mortgage as it is 100% a part of running a household

  • Insurance - typically health insurance, everyone should have it and everyone really needs it to ensure they stay healthy enough to earn a living

  • Child care - if you have children and have a job, someone is going to have to take care of them while you work and you most likely are going to have to pay that person

Wants Examples: basically, anything that isn't savings and isn't a basic need falls in here

  • The movies

  • Travel - nonwork-related travel

  • Netflix/Prime/Hulu/Disney +/etc.

  • Meals not cooked at home

  • General entertainment

  • Clothing - both a want and a need, but anything not purchased at Costco/Walmart/Target could be considered a Want here

Savings Examples: this includes anything that you don't plan to spend for a while

  • 401k

  • 529 - college savings plan

  • Roth

  • Stocks

  • Bonds

  • CDs

  • Savings account

50/30/20 Example

I don't know about the rest of my readers, but I personally understand concepts best when I have a real-world example so I'm going to write one out here that I'm hoping most of you can follow along with. As always, if you have questions about anything within the article please leave a comment, find us on Facebook and message us there, or send an email to

For our example, I'll use the median household income published by the Census Bureau. They state the median household income in America is $68,703. When you take out taxes (6.2% for social security and 1.45% for Medicare) and insurance, the typical gross pay comes out to about 90% of net pay. I'm excluding any 401k contributions because those will be accounted for in the 20% savings section.

$68,703 ÷ 24 paychecks a year = $2,862.63

$2,862.62 * .90 = $2,576.36 gross pay (the amount of your paycheck) per pay period

$2,576.36 * 2 = $5,152.73 take home pay every month

$5,152.73 * 50% = $2,576.36 should go toward your Needs

$5,152.73 * 30% = $1,545.82 should go toward your Wants

$5,152.73 * 20% = $1,030.55 should go toward your Savings

50/30/20 Calculator

I've included a downloadable calculator below if you want to try out the 50/30/20 method with your own income.

There are two sheets in this document, one for a single individual, and another for a dual-income household. There are a variety of needs, wants, and savings items listed where you can really break down your budget and get a great sense of where your money should be going.

In addition, there is a calculation for any unaccounted-for funds that you can do what you want with.

50 30 20 Budget Template
Download XLSX • 106KB

Implement 50/30/20 Step-by-Step

Step 1: Determine your after-tax income

The first step is to determine your after-tax income, which is the money you have left over after taxes have been deducted from your paycheck. This is the amount you'll use to create your budget.

Step 2: Allocate 50% to your needs

Next, allocate 50% of your after-tax income to your needs. These are essential expenses that you can't do without, such as rent or mortgage payments, utilities, groceries, transportation, and healthcare.

Step 3: Allocate 30% to your wants

Allocate 30% of your after-tax income to your wants. These are non-essential expenses that make life more enjoyable, such as dining out, entertainment, travel, and hobbies.

Step 4: Allocate 20% to your financial goals

Finally, allocate 20% of your after-tax income to your financial goals. These could include saving for retirement, paying off debt, building an emergency fund, or investing in stocks or real estate.

Step 5: Review and adjust your budget

Once you've allocated your income to your needs, wants, and financial goals, review your budget to make sure it aligns with your priorities and lifestyle. If necessary, adjust your spending to ensure that you're living within your means and making progress toward your financial goals.

Step 6: Track your spending

To ensure that you're sticking to your budget, track your spending regularly. You can use a spreadsheet, a budgeting app, or even pen and paper to track your expenses and make sure you're not overspending in any category.

Step 7: Evaluate and adjust as necessary

Finally, evaluate your budget regularly to see if it's working for you. If you find that you're consistently overspending in a particular category, you may need to adjust your budget to better reflect your needs and priorities.


Budgeting can be such a valuable tool and finding the right approach for you makes all the difference. This is just one approach that doesn't take a long time to test out.

If you are looking for your own approach to budgeting I suggest you download the template, insert your numbers and test it out for a few months. If it helps you zero in on a budget that works for you, great! If not, then you only lost a little bit of time and can redirect your attention to some other budgeting method that fits YOU!

Good luck! I know you can do it.

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