50/30/20 Budgeting Rule: What Is It [Complete Guide]

If you’re not tried budgeting yet, I would recommend you start tracking where your money goes. There are several reasons you want to start a budget, staying on top of your money is one of them.

When you have a budget, the next step is comparing how your budget compares to the ‘ideal’ saving and spending. That’s exactly what the 50/30/20 rule is for.

Simply said: you spend 50% of your budget on needs, 30% on wants, and 20% on savings and debt payoff.

What Is The 50/30/20 Rule?

– 50% on needs, like groceries, utilities, and housing costs – 30% on wants, which includes all luxuries – 20% towards debt and savings.

How To Use The 50/30/20 Rule?

First, you need to calculate your after-tax income. Then you lower your expenses in such a way that you spend 50% on needs, 30% on wants, and have 20% left to save and pay off debt.

Need Or Want?

Anything that is a primary need, you want to have that covered. Things like health care and water are for sure primary needs. The quality of your life would drastically decrease would you not have that.

Will The 50/30/20 Rule Work For You?

The 50/30/20 rule works for many people. As with anything in personal finance, it is personal whether or not this will work for your specific situation.