The 50/30/20 Budget Rule Explained

The 50/30/20 rule is one of the simplest budgeting frameworks. Created by Senator Elizabeth Warren, it divides after-tax income into three categories.

50% for Needs

Half your income goes to essentials: housing, utilities, groceries, insurance, minimum loan payments, and transportation. If needs exceed 50%, look for ways to reduce your largest expenses.

30% for Wants

Thirty percent goes to discretionary spending: dining out, entertainment, hobbies, shopping, and vacations. This category gives you flexibility while maintaining discipline.

20% for Savings and Debt

Twenty percent goes to financial goals: emergency fund, retirement contributions, extra debt payments, and investments. This is the category that builds long-term wealth.

Making It Work

Use our Salary Calculator to determine your after-tax income. Then multiply by 0.5, 0.3, and 0.2 to set your category limits. Track spending for a month to see where you currently stand.

When to Adjust

In high-cost areas, you may need 60% for needs. If you have significant debt, consider 50/20/30 instead, putting more toward debt repayment. The framework is a starting point, not a rigid rule.