The 50/30/20 budget rule is one of the most well-worn pieces of budgeting advice out there, and for good reason: It works … or at least, it did.
Budgeting money is a lot like budgeting time. You spend roughly a third of your day sleeping, a third of your day working, and the rest balancing responsibilities and recreational time. But no matter what, you have a fixed amount of time to work with—thus, if you spend more time doing any one of these things, you have to take time away from something else.
The 50/30/20 budget rule works on a similar principle. You generally should allocate certain percentages of your money to certain types of expenditures, and if you pull money from one bucket, it has to come out of another.
If you’re a budgeting newbie, this strategy might help you get on track. But you should also be aware of why some people claim the rule is getting long in the tooth.
Read on as I explain how the 50/30/20 rule works, how you can apply it, and whether it still makes sense to adopt it.
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What Is the 50/30/20 Rule?
The 50/30/20 budget rule outlines how you should divide your income in a way that ensures your needs are met, you’re planning for the future, and still not forsaking the present.
It also dictates that as your income fluctuates, so too should the nominal dollar amount you spend on different categories. But the percentage should always stay the same.
One important detail before getting started: This rule should be applied to your net earnings (income after benefit deductions and taxes), not your gross earnings (income before anything is taken out).
50%
The “50” in the rule indicates that 50% of your money should go toward your needs.
Some examples of “needs” include:
- Mortgage or rent payments
- Food
- Health insurance premiums + other medical costs
- Minimum debt payments
- Utilities
- Car payments
30%
The “30” in the rule suggests you can spend up to 30% of your after-tax money on things you want, but don’t necessarily need.
Wants are largely what they sound like: things that aren’t essential to staying alive, but that make your life more enjoyable.
The following are a small sample of the common “wants” people have:
- Vacations
- Hobby gear
- Designer clothes, handbags, or watches
- Concert or movie tickets
- The newest technologies
For any of you who frequently battle a clever devil on your shoulder, upgraded necessities should still be considered wants. For instance, you might need a car to get to work … but you want a Mercedes.
20%
The “20” in the rule recommends setting aside at least 20% for your savings. And this encapsulates savings of all time horizons: short-, medium-, and long-term.
Some savings examples include:
- Contributing to an IRA or HSA
- Making deposits into a high-yield savings account or money market account
- Paying off debt beyond minimum payments, such as paying ahead on a mortgage
- Investing in individual stocks, index funds, or other assets
This popular breakdown is meant to help people manage their money in a balanced way.
How Do I Try the 50/30/20 Rule?
Want to use the 50/30/20 rule? Let’s go step by step:
- Determine your after-tax income. If you’re salaried or have pretty fixed hours, the math will be minimal; just look at your paystub, which will list your net earnings. Paid monthly? You’re all set. Paid twice a month? Multiply by two. Paid biweekly? That can get a little hairier because you end up having a couple three-paycheck months. However, if your job is more irregular (say, waiting tables), you’ll need to review some prior months’ earnings and make an educated guess based on the averages and seasonal trends.
- Calculate needs (50%). Ideally, your needs should be 50% of your income. That should be your goal. I’m stressing these thoughts because reality is often much different; if your needs figure is larger than 50%, there’s only so much you can do about that. Some, such as rent, are fixed costs you have little control over immediately; you’d have to negotiate or move to lower that number. Some, like utilities, are more variable, but you also have a little more control. Groceries arguably provide the most wiggle room. (You still have to eat, but you have more ways to bring your grocery bills down—such as couponing or switching stores—than you do ways of reducing other essential costs.)
- Factor in savings (20%). I know it’s the 50/30/20 rule, not the 50/20/30 rule, and for most of this article, I’ll stick to the needs-wants-saving order. But savings should come before wants. That’s because, more often than not, your savings will eventually address needs, whether that’s a sudden doctor bill (short-term), vehicle purchase (medium-term), or financing your retirement (long-term). Anyways, you can lock in this number more easily by automating your savings with an app or financial account. For instance, you could set up recurring deposits from your checking account to a high-yield savings account and/or investment account. It’s a good way to avoid the temptation to cut into your savings to purchase wants.
- Factor in wants (30%). The point of having a wants bucket isn’t to coerce you into spending a full 30% of your money on wants—you should consider 30% the maximum. Instead, the point is to keep you from overspending while also not feeling guilty about giving yourself an occasional treat. Because these are nonessential expenditures, they must be the most flexible—if additional needs arise, they should come out of this bucket. The flip side? If you have additional money left over from this bucket that you didn’t spend one month, you can either move it into savings … or push it into a future month’s wants allocation.
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Related: Budgeting in Retirement: Our Step-by-Step Guide
50/30/20 Budget Rule Example Calculations
Sally has a salary of $100,000. She determines that her after-tax income is $78,000. Her monthly after-tax income is $6,500. Using the 50/30/20 rule for budgeting, her monthly spending should be approximately as follows:
- Needs (50%): $3,250
- Wants (30%): $1,950
- Savings (20%): $1,300
Midway through the year, Sally earns a modest raise. Her monthly after-tax income is $6,750. With the 50/30/20 rule, she reconfigures her budget. The percentages remain the same, but the dollar amounts change:
- Needs (50%): $3,375
- Wants (30%): $2,025
- Savings (20%): $1,350
Throughout her life, she makes similar adjustments whenever her income changes.
Related: Budgeting Priorities If You’re Laid Off
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What If I Have a Variable Income?
You can still use the 50/30/20 rule if you have a variable income. To do so, calculate your average monthly income. Then, use that number to set your budget according to the percentage recommendations.
Let’s look at Claire’s after-tax income for the first six months of the year:
- January: $7,500
- February: $6,500
- March: $7,000
- April: $6,000
- May: $7,000
- June: $8,000
Those six months of after-tax earnings add up to $42,000. Her average monthly take-home income would be $7,000 ($42,000 / 6 = $7,000). Applying the 50/30/20 rule, her budget would look like this:
- Needs (50%): $3,500
- Wants (30%): $2,100
- Savings (20%): $1,400
In practice, Claire would take any extra money earned during higher-income months into a savings account separate from her normal savings/investment accounts. This money would be used to cover the difference during lower-income months.
For example, in January, when Claire made $7,500, she would still only work with $7,000 for the month. The unaccounted-for $500 would be set aside to supplement slower-earnings periods, like in February, when her take-home pay was $500 less than the $7,000 average.
But Claire’s variable income would make it all the more important to fund her needs first, then savings, then finally wants. During low-earning periods where previous overages don’t make up the full difference, she might need to reduce nonessential spending.
Related: How to Reverse Budget With ‘Pay Yourself First’ Budgeting
Advantages of the 50/30/20 Rule
There’s really a lot to like about the 50/30/20 budget rule:
- It’s conceptually easy to understand.
- The math isn’t difficult, so the barrier for implementation is low.
- It easily adapts to changing incomes—if you get a raise or switch jobs, just apply the percentages against your new salary.
- It helps prioritize essential costs and savings.
- It still allows for recreational spending.
- It considers everything: the present, near future, and far-off time frames.
Related: 13 Best Budgeting Apps
So, Why Do Some People Think the 50/30/20 Rule Is Dead?
Skyrocketing costs over the past few years have made people question whether the 50/30/20 rule is still realistic.
For instance, according to a 2024 release from the U.S. Census Bureau, almost half of renter households spent more than 30% of their income on housing costs alone in 2023. If you live in a high-cost-of-living city, that percentage may be even higher. Health care premiums, groceries, utilities, and other needs have risen sharply as well.
Inflation in these necessary expenditures has been so bad, people are increasingly suggesting revised rules. These rules frequently revolve around 70% for needs—so, 70/20/10 (which is still 20% savings and just 10% for wants) or 70/15/15.
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Should I Use the 50/30/20 Rule?
Without more information on your income, expenses, and other relevant factors, I can’t definitively tell you whether the 50/30/20 rule makes sense for you. If you reside in a low-cost-of-living area, have low rent, and are still on your parents’ health care plan, it’s possible your needs fall around 50% or less of your after-tax income, making it a feasible strategy.
But if you live somewhere with high housing costs, have a medical condition that requires a high-premium health care plan, or otherwise have lofty essential expenses, you might need to allocate much more to needs and less to wants and/or savings.
Do you want to retire early? The earlier you plan to retire, the higher percentage of your income you should invest for retirement. Even if you plan to retire within the common age range, you might want to save more to give your nest egg a bigger buffer.
Consider talking to a financial advisor about what budget breakdown makes the most sense for your financial goals and desired lifestyle.
Related: 8 Best Wealth + Net Worth Tracker Apps [View All Your Assets]
