50/30/20 Rule
BeginnerThe 50/30/20 rule is a simple budgeting guideline that suggests dividing take-home pay into three parts: about 50% for needs, 30% for wants and 20% for savings and extra debt repayment.
The rule offers an easy starting point for people who find detailed budgets hard to maintain. Needs include essential costs such as housing, utilities, groceries, transport, insurance and minimum debt payments. Wants include non-essential spending such as eating out, entertainment, holidays and hobbies. Savings include building an emergency fund, saving for retirement and paying off debt faster.
For example, someone with take-home pay of 3,000 a month would aim to spend about 1,500 on needs, 900 on wants and put 600 towards savings and debt repayment.
The rule was popularised in the book All Your Worth by Elizabeth Warren and Amelia Warren Tyagi.
It is a guideline, not a fixed rule. In areas with high housing costs, needs may take far more than half of income, making the split unrealistic. People with high-interest debt or ambitious savings goals may want to save more than 20%. The main value of the rule is encouraging people to separate essential and optional spending and to make saving a regular habit.
For worked examples and full lessons, visit notesbysara.org.