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? ›

Key Takeaways. The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

What is the 50 30 20 rule of budgeting? ›

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.

What is your guide to the 50 30 20 budgeting rule? ›

Try a simple budgeting plan. We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, including debt minimum payments. No more than 30% goes to wants, and at least 20% goes to savings and additional debt payments beyond minimums.

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.

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.

Is $1,000 a month enough to live on after bills? ›

Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.

What is the 40 40 20 budget? ›

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%.

How do you budget for beginners? ›

Follow the steps below as you set up your own, personalized budget:
  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.

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.

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.

When should you not use the 50 30 20 rule? ›

The 50/30/20 has worked for some people — especially in past years when the cost of living was lower — but it's especially unfeasible for low-income Americans and people who live in expensive cities like San Francisco or New York. There, it's next to impossible to find a rent or mortgage at half your take-home salary.

Which budget rule is best? ›

Budget 20% for savings

In the 50/30/20 rule, the remaining 20% of your after-tax income should go toward your savings, which is used for heftier long-term goals. You can save for things you want or need, and you might use more than one savings account.

Does the 50 30 20 rule still apply? ›

Yes, the 50/30/20 rule can be used to save for long-term goals. Allocate a portion of the 20% to savings specifically for your long-term goals, such as a down payment on a house, education funds, or investments. The rule is intentionally meant to bring focus to savings.

How to budget on $4,000 a month? ›

How To Budget Using the 50/30/20 Rule
  1. 50% for mandatory expenses = $2,000 (0.50 X 4,000 = $2,000)
  2. 30% for wants and discretionary spending = $1,200 (0.30 X 4,000 = $1,200)
  3. 20% for savings and debt repayment = $800 (0.20 X 4,000 = $800)
Oct 26, 2023

How much should rent be of income? ›

It is recommended that you spend 30% of your monthly income on rent at maximum, and to consider all the factors involved in your budget, including additional rental costs like renters insurance or your initial security deposit.

How to budget $3 000 a month? ›

Calculating your target budget

If you make $3000 a month after taxes, then 50% ($1500) would go toward needs, the next 30% ($900) goes toward your wants or discretionary spending, and the remaining 20% ($600) goes toward your savings.

What is the first to look at when starting the 50 20 30 budget? ›

Before you can slice up your 50/30/20 budget, you need to calculate your monthly take-home income. This figure is your income after taxes have been deducted. It's likely you'll have additional payroll deductions for things like health insurance, 401(k) contributions or other automatic payments taken from your salary.

What is the 50 30 20 rule financial experts recommend monthly savings of? ›

At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items.

What is the pay yourself first strategy? ›

What is a 'pay yourself first' budget? The "pay yourself first" method has you put a portion of your paycheck into your savings, retirement, emergency or other goal-based savings accounts before you do anything else with it. After a month or two, you likely won't even notice this sum is "gone" from your budget.

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