What Is The 50/30/20 Rule Budget? (With Examples)

The most prevalent budgeting method in the world is the 50/30/20 rule budget, popularized by Senator Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan. When people talk about budgeting, most assume it is this method.

The 50/30/20 rule budget was the first budget I tried to use back when I was in college. But unfortunately, it wasn't easy to save 20% when I had to pay for college with a part-time job that paid minimum wage. I used most of the money from my wants to my needs and adjusted over time.

I failed several times until I figured out how to make this budgeting method work. This can be an efficient budget if you have many expenses, but you want to cut some to save money.

Before you start on the 50/30/20 budget, let’s explore what it consists of, if you should try it, and see examples to understand it better.

What Is The 50/30/20 Rule Budget?

Like any budget method, the 50/30/20 is based on percentages and focuses on three different categories:

50 30 20 rule budget
  • Needs – You will spend 50% on your basic needs like bills, groceries, rent, and transportation.
  • Wants – You will spend 30% of your budget to pay for things you want that are considered non-essential expenses, like Netflix or gym membership.
  • Savings – You will save 20% of your salary to build your savings, pay off debt or invest the money.

As you can see, 80% of your salary will be used for expenses, and the other 20% will go to paying off any debt you have, saving for something you want, or investing in it. This budgeting method is excellent for you if you have never budgeted before.

Who Is The 50/30/20 Rule Budget Ideal For?

The 50/30/20 rule budget is excellent if you have a good income and can allocate a substantial percentage of your earnings to the wants and savings categories. Keep in mind that everyone's situation is different, so never compare yours with anyone else.

This budgeting method is perfect for people that never budgeted before and want to start. However, if you desire to save more money than spending or to pay massive amounts of debt, the 60/30/10 rule budget will be a better fit.

The 50/30/20 rule budget is excellent for you if you:

  • Have a decent income
  • Never budgeted before
  • Want a simple budget method

If you don't want to overthink what you do with your money, this budget splits it into what you need to pay every month, what you want, and what you will do with the money you save. However, the more specific you are, the more successful you will be.

Now, in my opinion, if you have loads of expenses, the 70/20/10 rule budget may be a better fit for you than this one since most people with low income can't justify 50% of their salary or things they want to buy or to invest/save. Of course, you can always decide to adjust the percentages according to your needs and work your way out to correct those percentages over time.

How To Budget Your Money With The 50/30/20 Rule Budget?

Now that you have an idea of what the 50/30/20 budgeting method consists of and if it’s ideal for you or not, let me explain more in-depth all three categories.

50 30 20 Budgeting

Spend 50% Of Your Money On Needs

The most significant part of your salary, 50%, will be allocated to the needs category, which encapsulates all the expenses you can’t avoid or would be difficult to live without. It’s essential to be accurate because you can live without an entertainment subscription (that’s in the wants category). So focus on the basic needs in this section of your budget.

A few examples of what is considered to be part of the needs category:

  • Rent/Mortgage
  • Utility Bills (Water, Gas, Electricity)
  • Groceries
  • Insurances
  • Transportation
  • Any Loans
  • Household Products
  • Medications

If your salary is $2,000 after-tax, that means you would allocate $1,000 to your needs each month. In 12 months, you would have spent $12,000.

Spend 30% Of Your Money On Wants

30% of your income will be allocated to the wants category, which it’s everything that is not essential, but you have joy consuming.

A few examples of what is supposed to be part of the wants category:

  • Holidays
  • Travel
  • Shopping
  • Dates
  • Dining Out
  • Entertainment Subscriptions
  • Memberships (gyms, professional organizations)
  • Hobbies

If your salary is $2,000 after-tax, that means you would allocate $600 to your wants each month. In 12 months, you would have spent $7,200.

This budget is a great way to understand how much money you spend on things you want that are not basic needs. If you think you are spending too much on this category, you can make some cuts. Just ask the question, “can I live without this?”

Also, just because you have 30% to spend on this category doesn't mean you have to live your best life and spend it all. You can allocate some money from the wants category to the other two until you better handle your finances.

Spend 20% Of Your Money On Savings

Finally, the last 20% of your income will be allocated to the savings category. Saving 20% every month is a great way to achieve your financial goals, like paying some debt, saving money for a particular reason, or investing in something.

A few examples of what is considered to be part of the savings category:

  • Debt Payments
  • Buying a House
  • Emergency Fund
  • Real Estate Investments
  • Starting a Business
  • Stock Investments
  • College Savings For Kids
  • Retirement Contributions
  • Sinking Funds

If your salary is $2,000 after-tax, that means you would allocate $400 to savings each month. In 12 months, you would have saved $4,800.

It's up to you what you want to do with your savings. I would advise you to create an emergency fund (should have at least six months) and pay your smallest debt, but it really depends from person to person. First, you have to analyze your financial situation and decide what is best for you.

Also, when I speak about debt, I am not considering the minimum repayments (those are in the needs category) that you have to do monthly. This money is any extra repayments to reduce your existing debt and future interest. For example, imagine you have a $6,000 loan that you need to pay in one year. If you repay a bit more every month, you will pay it faster and less, saving money.

How Do You Set Up The 50/30/20 Rule Budget?

If you decide you want to move forward with a 50/30/20 rule budget, here’s how you can set one up.

How Do You Set Up The 50 30 20 Rule Budget

1 – Calculate Your After-tax Income

So, the first thing you want is to calculate your after-tax income and understand how much money you will receive every month. Some people receive the same payment every month, but for others, it can vary, which makes budgeting a lot more complicated (but not impossible). If you are a freelancer, calculate how much money you expect for the next month. Some people get paid weekly and some biweekly, so you must adjust your budget according to your situation.

You can use the free tool on the IRS website to help you determine how much income you can expect to receive and how much taxes you will pay. However, if you have any questions, it would be better to speak with a tax professional.

2 – Use The 50/30/20 Template/Spreadsheet

To keep you organized and have a more reasonable perspective of what you need to do, assure you use the 50/30/20 template. It can be a spreadsheet that you print and use/fill online or an Excel sheet. Whatever makes your life easier, it’s what you should use. Don't forget your partner's income and expenses, and check the best personal budget categories for you.

I love Excel sheets, but some people prefer to have a printed spreadsheet where you can quickly look at all your expenses and how much money you have allocated to each category. Learn how to make a budget in Excel.

3 – Categorize Your Spending From Last Month

Now you need to split all your income between the three categories of needs, wants, and savings. Again, try to be the most specific possible to have a clearer idea of your expenses. Check your bank statement from the last month, and you will be fine.

Start with your fixed expenses (50% of the budget), like rent, bills, insurance, etc. Then go for the things you want to buy (30% of your budget).

You should also know how much money you allocate to each category from your income. Again, you can find out by doing these maths (you can check the examples section to understand better how to do it).

50%= Income x 0.50 = amount for your needs
30%= Income x 0.30 = amount for your wants
20%= Income x 0.20 = amount you will save

4 – Set Up Your Financial Goals

Once you determine how much income you will receive, how much it’s allocated in each category, and all your expenses are categorized, you need to set financial goals.

In my opinion, no budget is worth doing if you don’t have the motivation to see it through. You need to set some financial goals for each month or even for an entire year or five years. I gave you some ideas above of what your objectives could be. Some examples are buying a house, paying an immense debt, or creating an emergency fund. You also need to know why you want to invest your money.

You didn’t set your financial goals at the beginning because you didn’t know your income and expenses. Now you can set realistic financial goals because you know your monetary situation.

5 – Evaluate And Adjust Your Spending

Finally, you will need to evaluate and adjust your personal budget or family budget at two different moments. First, you will check your spreadsheet and see if you need to make any adjustments to ensure you respect the percentages of each category and don’t overspend. The second time you need to evaluate it’s at the end of each month and see what went right and wrong and make more adjustments.

Every month you will need to evaluate and adjust your budget. Don’t get discouraged if you fail or it doesn’t go like you wanted because you will not get everything perfect on the first attempt. Even the more experienced budgeters like me still make mistakes after years of budgeting. You may need to try a different budgeting method.

50/30/20 Rule Budget Examples

The average American earns approximately $51,480 gross per year in the USA, equivalent to $4,290 gross per month. So that’s the value I will use in one of the examples.

Note: For your information, I have researched a lot about how much the average American pays for rent, bills, groceries, etc. However, it would help if you kept in mind that it varies significantly from each state. These examples are only for you to understand better how the 50/30/20 rule budget works.

The first example is for a single person who splits a house with someone that is not their partner and has no kids.

50 30 20 Rule Budget Example

As you can see in the example, all the money is allocated according to the 50/30/20 percentages for each category. So in the Needs category is not difficult to be specific, but in the Wants category, it can be. For example, I have NBA tickets on the budget, but you can be specific with what game you watch if you go to many games like “Lakers vs Celtics.”

In my opinion, you can (and should) be as specific as possible. You can start the 50/30/20 budget precisely as I did it above, and every month try to go into more detail in each subcategory. For example, many people are very detailed with the Groceries category (I don't bother specifying this one because I don't spend more than I stipulate), reporting everything they know they're going to buy because they're overspending every month.

50 30 20 rule budget example

If you’re budgeting your money and your partner’s salary as well, you can check the 50/30/20 rule budget example for two incomes. Remember that you merge the two salaries into one and use that amount to budget your money for the month.

Just because you have two incomes, that doesn't mean you have fewer expenses and can save more money since kids bring a lot more costs. Again, be precise with your subcategories. If you go out every Friday with friends, you can put on the budget “Drinking With Friends Weekend 1” and “Drinking With Friends Weekend 2” because the more specific you are, the better you can budget and control your money.

You can add anything to the budget, like credit card debt, life insurance, emergency fund, personal loans, debt repayments, student loans, health insurance, etc.

Is The 50/30/20 Rule Budget Good For You?

If you want a budget that is heavily focused on your expenses and splits your needs and wants, the 50/30/20 rule budget is a great option. 

Life should be enjoyable, and that's why you need to spend money on things you want, but you need a plan to do it the right way. That's why budgeting is excellent to ensure you have a precise balance in all categories of your life.

Whatever your mindset, until you try the 50/30/20 rule budget, you will not know if it will work or not. So why not start it right now?

Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.