Budgeting basics: The 50-30-20 rule (2024)

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For one easy way to plan your spending, try this method.

2-minute read

In brief

  • Understanding your spending can help you better plan for the future.
  • The 50-30-20 rule organizes spending into needs, wants, and goals.

Creating a budget can help you make confident decisions and enjoy peace of mind. A detailed budget, though, can be complex to manage.

The 50-30-20 rule splits expenses into just three categories. It also offers recommendations on how much money to use for each. With some basic information, you can get on the road to financial well-being.

Getting started

Start by taking a look at your paycheck. If taxes are withheld, subtract that amount from your total earnings. Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let’s take a closer look at each category.

Budgeting basics: The 50-30-20 rule (1)

Needs: 50%

About half of your budget should go toward needs. These are expenses that must be met no matter what, such as:

  • Utility bills
  • Rent or mortgage payments
  • Health care
  • Groceries

If you can honestly say “I can’t live without it,” you have identified a need. Minimum required payments on a credit card or a loan also belong in this category.

Wants: 30%

You subscribe to a streaming service to watch your favorite show, not because you need the subscription to live. Wants are things you enjoy that you spend money on by choice, such as:

  • Subscriptions
  • Supplies for hobbies
  • Restaurant meals
  • Vacations

Savings: 20%

The remaining 20% of your budget should go toward the future. You may put money in an emergency fund, contribute to a retirement account, or save toward a down payment on a home. Paying down debt beyond the minimum payment amount belongs in this category, too.

In summary

Options to save for the future at UNFCU include savings accounts and share certificates.

The 50-30-20 rule is just one way to consider organizing your budget. To find the perfect fit for your situation, consult a professional financial planner.

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Budgeting basics: The 50-30-20 rule (2024)

FAQs

Budgeting basics: The 50-30-20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

How does the 50 30 20 rule work for budgeting? ›

One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.

What is the 50 30 20 tool for budgeting? ›

50% goes into necessities (essential expenses such as rent and bills) 30% goes towards wants (such as food, activities, subscriptions and petrol) 20% goes towards savings or debt repayments.

What is the 40 40 20 budget rule? ›

The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.

What is the 75 15 10 rule? ›

The 75/15/10 rule is a simple way to budget: Use 75% of your income for everyday expenses, 15% for investing and 10% for saving. It's all about creating a balanced and practical plan for your money.

Is the 30 rule outdated? ›

The 30% Rule Is Outdated

To start, averages, by definition, do not take into account the huge variations in what individuals do. Second, the financial obligations of today are vastly different than they were when the 30% rule was created.

How much money should I have in my savings account at 30? ›

Fidelity Investments recommends saving 1x your salary by 30. At the end of 2021, the average annual salary was $49,920 for 25 to 34-year-olds and $58,604 for 35 to 44-year-olds. So the average 30-year-old should have $50,000 to $60,000 saved by Fidelity's standards.

Is the 50 30 20 rule realistic? ›

For many people, the 50/30/20 rule works extremely well—it provides significant room in your budget for discretionary spending while setting aside income to pay down debt and save. But the exact breakdown between “needs,” “wants” and savings may not be ideal for everyone.

How do you budget for beginners? ›

Start budgeting
  1. Make a list of your values. Write down what matters to you and then put your values in order.
  2. Set your goals.
  3. Determine your income. ...
  4. Determine your expenses. ...
  5. Create your budget. ...
  6. Pay yourself first! ...
  7. Be careful with credit cards. ...
  8. Check back periodically.

What is the best way to budget monthly? ›

50/30/20 rule: One popular rule of thumb for building a budget is the 50/30/20 budget rule, which states that you should allocate 50 percent of your income toward needs, 30 percent toward wants and 20 percent for savings. How you allocate spending within these categories is up to you.

What is the 70 20 10 rule in finance? ›

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.

What is the 80 10 10 budget? ›

When following the 10-10-80 rule, you take your income and divide it into three parts: 10% goes into your savings, and the other 10% is given away, either as charitable donations or to help others. The remaining 80% is yours to live on, and you can spend it on bills, groceries, Netflix subscriptions, etc.

What is the 70 20 10 rule? ›

Based on the principle that:

70 percent of learning comes from experience, experiment and reflection. 20 percent derives from working with others. 10 percent comes from formal interventions and planned learning solutions.

What is Rule 72 in accounting? ›

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double.

Why does Rule 72 work? ›

The value 72 is a convenient choice of numerator, since it has many small divisors: 1, 2, 3, 4, 6, 8, 9, and 12. It provides a good approximation for annual compounding, and for compounding at typical rates (from 6% to 10%); the approximations are less accurate at higher interest rates.

What is the rule of 7 and 10 investing? ›

Definition and explanation of the 7/10 rule

In other words, the 7/10 rule is a time and interest-based investment rule. For example, you invest ₹100 at 10%, it will take 7 years for it to touch ₹200. Here, 7 is the time and 10% is the interest rate.

What is an example of the 50 20 30 rule? ›

Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000. 30% for wants and discretionary spending = $1,500.

When might the 50 30 20 rule not be best saving strategy? ›

But the exact breakdown between “needs,” “wants” and savings may not be ideal for everyone. If you're behind on your retirement savings or have a lot of credit card debt to pay down, you might want to allocate more than 20% of your take-home pay to that category.

How do you distribute your money when using the 50 20 30 rule group of answer choices? ›

Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment.

What is the 50 20 rule for money? ›

According to this rule, you must categorise your after-tax income into three broad categories: 50% for your needs, 30% for your wants and 20% for your savings. This way, you set aside a fixed amount from your income for each of the categories. This reduces your urge to withdraw amounts from one category for another.

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