All About the Budgeting 50 20 30 Rule
Budgeting does not have to be difficult, nor should it eat up hours of your time. In reality, the simplest budgeting methods are frequently the most effective. Take the 50/30/20 rule, for example. The budgeting 50 30 20 rule is a simple monthly budgeting approach that helps you organize and shows you how much money to put toward savings and living expenses each month.
We’ve discussed before how to budget for a baby on the way, now we’ll discuss overall bring-home paycheck budgeting for your household. Let’s get to it!!

You can confidently prevent overpaying and build up your savings over time with a clear big-picture snapshot of your monthly budget—all without meticulously logging every single transaction.
If you’ve ever downloaded a budgeting tool only to ditch it by the third day, the 50/30/20 strategy might be worth a shot. Here’s how it works: It’s one of the best budgeting strategies we’ve ever across.
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What is the Budgeting 50 30 20 Rule?
The 50/30/20 budgeting rule is a non-complicated approach to household budgeting that can help you be more successful in managing your incoming funds. The general idea is to divide your take-home money you into three spending categories:
- 50% for Necessities,
- 30% for wants or Non-Necessities
- 20% for Savings or debt repayment.
To put this into perspective, funnel 50% of your funds into Necessities like rent/mortgage payments, household groceries, utilities such as the power bill and the water bill, and health and car insurance payments.
Funnel 30% of your funds into Non-Necessities, which are just wants. Some examples of these are eating out at restaurants, hobbies, vacations, and streaming channels like Netflix and Disney+.
Dont forget to earmark 20% of your funds for paying off debt or setting aside for savings. Some examples of these are all savings, including 401(k) contributions, home savings, and money put aside in a college savings plan and payments on debt like credit card debt.
You may put your money to work more efficiently if you maintain your expenses balanced throughout these primary spending categories on a regular basis. With only three primary categories to keep track of, you may save time and effort by not having to dig into the details every time you spend.

When it comes to budgeting, one of the most often questions we get is, “How can I save more money for the family?” Well, the 50/30/20 guideline is a terrific method to tackle the age-old problem and give your spending habits more structure. It can help you achieve your overall financial goals, whether you’re saving for a rainy day or paying off debt.
However, The 50/30/20 rule does not specify how much money you should spend on each paycheck. The 20% percent financial goal category heavily influences how much of your paycheck you spend or save.
If paying off debt is your main financial aim, you’ll be devoting more of your income to it. If your primary financial goal is to build up an emergency fund, you’ll be setting aside a larger portion of your paycheck.
Here is a link to a calculator that uses this method
Where did the Budgeting 50 20 30 Rule Come From?
Believe it or not, this 50/30/20 budgeting rule of thumb came from a United States Senator! Well, she is a senator right NOW, but at the time the rule was created, Current U.S. Senator Elizabeth Warren was a Harvard law professor at the time she invented the term along with her daughter, Amelia Warren Tyagi.
Together, they popularized the 50/30/20 rule in their book All Your Worth: The Ultimate Lifetime Money Plan. It was created as a rough guideline for working-class families to budget in order to plan for the future and unanticipated occurrences.
The general jist, as Warren and Tyagi conclude, was based on 20 years of research. The idea was that you don’t need a sophisticated budget to get your finances in order. The 50/30/20 guideline will help you manage your money between your needs, wants, and savings goals.
Steps to Apply the Budgeting 50/30/20 Rule of Thumb
Many people save too little and sometimes foolishly spend too much. The budgting 50/30/20 rule of thumb is a simple method to become more mindful of your spending and saving patterns. Simply save more for the things that matter to you by spending less on the ones that don’t.
Consider applying these important steps:
- Calculate your monthly earnings as follows: Add up how much money you get each month in your bank account. Find out how much of your take-home pay is withheld from your company retirement plan and add it back in. If you pay estimated taxes, deduct that amount from your monthly income.
- Determine a budget limit for each category: To figure out how much you should spend in each category, multiply your take-home income by 0.50 (50% for needs), 0.30 (30% for wants), and 0.20 (20% for financial objectives).
- Plan your budget around these figures: Consider these three areas as “buckets” to which you can add monthly spending. List and total your monthly expenses by category to evaluate if you’re spending less than the monthly goals you set in the previous stage.
- Stick to your budget: Track your expenses each month and make adjustments as needed to stay inside your spending limits in the future.
Some words of caution regarding this rule of thumb
It’s difficult to know where to begin when it comes to figuring out your money. One of the reasons the 50/30/20 rule of thumb works so well is because it’s a simple method to get control over something that can be scary otherwise. Even if you don’t measure how well you stick to these goals, it’s still an excellent approach to get a sense of your financial health. Don’t feel bad if you cannot folllow this rule to the letter. After all there may be extenuating circumstances:
This can be hard for persons in financial crisis
Even if you live frugally, save 20% of your money no matter how you live, especially if you support a family, you may struggle to save that much due to costs. Survival usually trumps financial planning.
Savings sometimes is not Enough!
If you want to retire early or buy a property in a decent, non-crime area, 20% of your funds may not be enough. Think about this: you’d need to save $200,000 to acquire a 20% down payment on a median-priced home in California, which costs way more than an average-priced home elsewhere in the United States.
You Still Need to Track how much you’re spending
The budgeting 50/30/20 budget rule is only one of the many pieces of the budgeting puzzle. These percentages are a good goal to shoot for, but you’ll never know whether you’re hitting them if you don’t track your spending. There are even valid reasons to not use this system…
Some Alternatives to the Budgeting 50 30 20 Rule
The Envelope Money System
Visualizing your money might assist you in being more conscious of your spending habits. The envelope system works in this manner. Take three to five envelopes and write on the outside what each one is for. The money you deposit in these envelopes will have to cover both offline and online purchases.
Assume you label each one “Groceries & Dining,” “Monthly Bills,” and “Clothing & Miscellaneous Shopping.” Every month, you can only spend what’s in the envelope for each of those categories.

To avoid your envelopes becoming cluttered change pockets, round up each transaction to the nearest dollar. Rather, put the money in a separate savings account every month.
However, the method’s simplicity can also be a disadvantage. Keeping significant sums of cash on hand at home or on the go may not be the most secure approach to safeguard your money. It’s also simple to cheat by withdrawing money from one envelope and putting it in another.
The 80/20 Rule
The 80-20 plan is easy where the 50-20-30 rule and the envelope method are complicated. Rather than having to sort through each and every expense to determine what is necessary and what isn’t, you just set aside 20% of your paycheck in your savings account. The rest is yours to do with as you like.
The goal of this strategy is to set up automatic withdrawals of 20% of each paycheck as soon as it arrives in your account. It’s as if you never had the money to spend in the first place because it’s immediately transferred to a separate savings account. Set up a direct deposit if possible. This means that your employer will direct deposit 20% of your paycheck into a savings account and the balance into your checking account.
Conclusion
The budgeting 50/30/20 rule of thumb is a budgeting guideline that allocates 50% of your budget to “needs,” 30% to “wants,” and 20% to your financial objectives. Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi, promoted the rule. Depending on your unique circumstances, you may need to change your percentages. It’s only a guide to help you plan your budget; it doesn’t keep track of your spending for you.