The 50/30/20 Rule: 6 Tips for Successful Budgeting


Budgeting is a must if you want to master your finances, especially in the current economic climate with rising inflation and a volatile global economy. A simple approach to managing your money is to implement the 50/30/20 rule. This rule, which originated from Senator Elizabeth Warren’s book “All Your Worth: The Ultimate Lifetime Money Plan,” provides a straightforward framework for managing your income and expenses.

What is the 50/30/20 Rule?

The 50/30/20 rule budget is a perfect choice if you’re trying to pay-down debt, or trying to budget on a low income. It’s a budgeting technique that divides your income after taxes into three categories: needs, wants, and savings or potential future investments. Here’s how it works:

  • 50% of your monthly income should go towards your needs.
  • 30% should be allocated for your wants.
  • The remaining 20% should be used to pay-down debt, saved, or invested for the future.

Sounds simple, right? However, the biggest mistake you can make when implementing the 50/30/20 budget rule is not understanding the difference between needs and wants, and not realising the control you have over both discretionary and non-discretionary spending.

Defining Needs and Wants

Your needs, also known as non-discretionary spending, are the things you can’t live without. These include mortgage or rent, food, public transportation or car expenses, and other essential expenses such as credit card minimum payments and health insurance. However, it’s important to understand that you have some control over these expenses. For example, there’s a difference between renting a $1,000 per month apartment and a $2,000 per month apartment. Both are needs, but one is significantly more costly than the other.

On the other hand your wants, or discretionary spending, are things you’d like to have but can live without. These include entertainment, hobbies, vacations, and non-essential goods and services, like that pair of designer shoes you’ve been eyeing, gym membership, or dinner at a fancy restaurant. You have a high degree of control over this type of spending.

Practical Tips for Managing Your Needs and Wants

One common mistake to watch out for is buying necessary items at the corner store instead of the supermarket. For example, buying toilet paper in bulk from Sam’s club a few times a year for 50c a roll is much more cost-effective than buying it weekly at your local store where you’re likely paying $1 – $2 per roll. Understanding things like unit cost at the supermarket and comparing that to the convenience of buying it closer to where you’re looking to use it can help control your non-discretionary spending.

There are plenty of other ways to save money. Another area to consider is bundled services, like internet and phone plans. You might end up paying extra for add-ons that seemed like a good deal at the time but aren’t actually necessary. Review your bundled services and make sure you’re not paying for anything you’re unaware of or not utilising.

Implementing the 50/30/20 Rule

50-30-20 Rule

Let’s look at an example of how to implement the 50/30/20 rule budget. Suppose you take home $3,000 a month after taxes. Here’s what your monthly budget would look like, and how you would allocate your income:

  • $1,500 (50%) would go towards your needs. This could include $750 for mortgage or rent, $150 for utilities, $100 for insurance, $300 for groceries, and $100 for gas.
  • $900 (30%) would go towards your wants. You could divide this into a weekly allotment of $225 for entertainment such as streaming services, hobbies, and other non-essential expenses.
  • The remaining $600 (20%) would go towards your emergency fund, and extra debt payments over and above minimum required payments. After your debts are paid off you can then start contributing towards savings and potential future investments.

The goal is to build up an emergency fund that can cover between three and six months of your normal monthly expenses. Once you’ve achieved this, you can start investing any additional savings, or depositing your savings to a high APY savings account.

The Importance of Savings and Investments

The 20% of your income that goes towards savings and potential future investments is the most crucial part of the 50/30/20 rule. This money is your safety net and your ticket to financial freedom. It includes your emergency fund, retirement accounts, property investments, and other investments such as stocks and crypto.

Not to labour the point, but building up an emergency fund that can cover six months of your normal expenses is your first savings goal. This fund should be kept in a high APY savings account where it’s easily accessible in case of emergency. Once you’ve built up your emergency fund and paid off any high-interest debt, you can start investing.

6 tips to make the 50/30/20 rule easier to implement



Adjust the 50/30/20 Rule to Fit Your Situation

The 50/30/20 rule is a guideline, not a strict budgeting rule. It can be adjusted for your personal circumstances. Depending on your income level, cost of living, and financial goals, you might need to adjust the percentages. For example, if you live in a high-cost area of San Francisco, you might need to allocate more than 50% of your income to needs. Or, if you’re aggressively saving for a goal, you might choose to cancel your streaming services and save more than 20% of your income.


Track Your Spending

To implement the 50/30/20 rule effectively, you need to know where your money is going. Consider using the free tools that come with your credit card, a budgeting app, or a spreadsheet to create a spending plan and track your spending. This will help you see if you’re staying within the 50/30/20 guidelines and where you might need to make adjustments.


Automating Your Savings

One of the easiest ways to ensure you’re saving 20% of your income is to automate your savings. Set up automatic direct deposit transfers to your savings or investment accounts each time you get paid. This way, you’re “paying yourself first” and not tempted to spend the money elsewhere.


Reduce High-Cost Debt

High-cost debt, like credit card debt, can eat into your ability to save and invest. If you have high-cost debt, consider a debt repayment plan like the debt avalanche method to pay it off as quickly as possible. Once it’s paid off, you can redirect that money towards your savings or investments.


Revisit Your 50/30/20 Rule Budget Regularly

Your income and expenses can change over time, so it’s important to revisit your budget regularly, perhaps start with a monthly review and then every three months. This will help you stay on track with the 50/30/20 rule and adjust your spending as needed.


Set Your Financial Goals

The 50/30/20 rule is a tool to help you reach your financial goals. Whether you’re saving for a deposit on a house, planning for retirement, or building an emergency fund, having clear financial goals can motivate you to stick to your budget.

The 50/30/20 rule is a simple yet effective method for managing your finances. By understanding the difference between your needs and wants and learning how to control your spending in both areas, you can live within your means and prepare for the future. Remember, the goal is not just to survive, but to build wealth and achieve financial freedom. With the 50/30/20 rule, you’re already armed with more information than most people have about how to reach that goal.


  • Amber Aldridge

    Amber Aldridge is a Lead Writer at MoneyMaver covering personal finance, budgeting, and debt management. Amber passionately champions the cause of individuals who feel excluded or overlooked in the present-day economy. She is deeply committed to supporting and empowering those who face challenges in today’s economic landscape. With her background as a teacher, she adeptly shares practical advice that truly benefits families striving to manage their finances. “Learning about and making the most of budgeting and debt management has profoundly transformed my life. Being a single mom of 2 kids, I draw from my real-life experiences, and love passing that knowledge onto my readers”.

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