The 50/30/20 Budget: A Simple Guide for Beginners

The 50/30/20 rule is a simple way to divide your after-tax income into three categories. It is popular because it is easy to remember and does not require tracking every purchase.

The three categories

• 50% needs: rent or mortgage, utilities, groceries, transportation, insurance and minimum debt payments
• 30% wants: dining out, entertainment, hobbies, subscriptions and shopping
• 20% savings and debt repayment: emergency fund, retirement, and extra payments on debt

An example

If your monthly take-home pay is $3,000, that would suggest about $1,500 for needs, $900 for wants and $600 for savings and debt repayment.

How to set it up

• Calculate your monthly income after taxes
• List your fixed expenses and sort them into needs and wants
• Compare your totals with the 50/30/20 targets
• Adjust spending in the category that is furthest off

When it does not fit

In high-cost areas, needs may take more than half of your income. That is common. You can adjust the percentages, for example 60/20/20, and still keep the habit of saving something every month.

Tips for success

• Automate your savings so it happens first
• Review the budget every month
• Give yourself a small amount of flexibility so you can stick with it

Bottom line

Treat 50/30/20 as a starting point, not a strict rule. The best budget is the one you will actually follow.

This article is for general information only and is not financial, legal or tax advice. See our Disclaimer.