• The 50/30/20 rule designates 50% of your income for needs, 30% for wants, and 20% for debt or savings.
• Careful tracking of your expenses is essential for this financial tool to work.
• This approach is best for people who get paid regularly and don’t have high-interest debt.

✓ 50/30/20 budget rule

Having a personal budget is an organized way to make sure you meet all your financial obligations. It makes it easier to plan ahead, spend responsibly, and avoid getting into debt. However, learning how to budget correctly isn’t always easy.

When it comes to saving, one of the methods that helps the most to get that “extra money” that is needed is the 50/30/20 Rule.¹

• Introduction to the 50/30/20 rule

• Overview of the 50/30/20 Rule

The 50/30/20 rule is a simple rule of thumb that involves dividing your spending into three distinct categories: needs, wants, and savings and debt repayment .

Calculated using after-tax income, each specific category is allocated a certain percentage of your income.

Following the rule, 50% should go to needs, 30% to wants, and 20% to savings and debt.

“The beauty of the system is that it’s simple,” says Jay Zigmont, PhD, CFP and founder of Childfree Wealth.

• Origin and popularity

Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi, who wrote about 50/30/20 in their 2005 book, All Your Worth: The Ultimate Lifetime Money Plan , are credited with popularizing this rule for personal budgeting.

Overall, the template keeps things simple, gives a general idea of where money might go, and serves as a framework for tracking spending.

“It’s easy, it’s well structured (because of the forced savings component) and that’s why it’s been popular,” says Frank McLaughlin, CFP and wealth advisor at Merriman, on why the 50/30/20 rule has become so popular over the past decade and a half.

• What is the 50/30/20 Budget Rule?

The 50/30/20 rule is simple: it consists of “using” the monthly income that arrives in the bank account , based on 3 categories of expenses (and some percentages):

• Primary needs (50%).
• Whims (30%)
• Saving for the future (20%).

The 50/30/20 rule is a commonly used method, increasingly widespread and accepted by all those who, in addition to saving for the future, want to have control of what they spend, monthly, without “accounting” becoming a torture.

Don’t spend more than 50% of your net monthly income on necessities . On things like:

• mortgage/rent
• public services
• sure
• groceries/food
• minimum debt payment

Spend about 30% on your wants . On things like:

• going out to dinner
• entertainment
• ride-sharing services
• purchase of luxury items

Allocate at least 20% to your savings . On things like:

• extra payments to your debts
• start or increase your emergency fund
• Additional payments to your retirement accounts or IRAs
• a down payment for the purchase of a home in the future

Here’s an example of a 50/30/20 budget for someone with a net income of $2,000 a month:

• 50% Needs = $1,000
• 30% Wants = $600
• 20% Savings = $400

• Important reminder: The 50/30/20 budget rule only considers your monthly take-home pay, so anything that is automatically deducted from your paycheck, such as your health insurance premium at work or your 401k retirement contribution , don’t count in the equation.

Remember that living in major cities like New York or San Francisco may require you to budget more than 50% for the needs category, mainly due to higher rent or housing costs.

• How to use the 50/30/20 budget rule

Balance your personal spending and savings with the 50/30/20 budget rule.

If you’ve ever wondered how much of your take-home pay (after taxes) you should spend on housing versus entertainment versus savings, a popular budgeting rule is the 50/30/20 financial plan.

While there is no ideal way to divide income that fits 100% of people, balancing your personal expenses and savings can bring comfort and confidence to your financial situation.

And the 50/30/20 rule is a very simple way to manage your personal finances.

• How to set a budget according to the 50/30/20 rule

× Take inventory of all your expenses. This monthly budget spreadsheet is a great resource to get you started.

× Categorise each expense in your spreadsheet as needs , wants , or savings

• Please note that these terms do not exactly correspond to the definitions of fixed, variable and non-monthly expenses . You may pay the same amount each month for a TV streaming service which means it is a fixed expense, but this is clearly a want and not a need.

× Add up your needs, your wants and your savings.

× Add up your expenses for the month.

× Divide your total needs by your total expenses. Multiply the decimal by 100 to see the percentage you spend on needs.

× Do the same for your wishes and your savings.

× Compare the percentages of your needs, wants, and savings to the 50/30/20 rule to see how balanced your budget is.

× Set small, realistic goals to reduce spending on needs and wants so you can increase your savings. Start with small changes and build up from there!

• What change in savings occurs with the 50/30/20 rule?

One of the basic principles of finance, especially when it comes to saving, is that by subtracting the expenses you have from the income you earn , the result is the money you save .

In other words: expenses – income = savings.If the 50/30/20 rule is applied, the order of the terms is changed , that is, savings are subtracted from income , leaving the following mathematical operation: income – savings = expenses.

This, as trivial as it may seem, means that, from the outset, the percentage of savings that must be met each month is taken into account.

In this way, that amount of money will be deducted from the beginning, spending less month by month and accumulating more money for the future.

• 50/30/20 Rule: 50% to cover basic needs

When it comes to controlling expenses and saving, it is essential to never spend more than 50% of your monthly income on covering a person’s basic needs.

Despite being the largest budget item in this 50/30/20 rule, some people may not think it is enough to live day to day.

But this happens especially when you are not clear about what is a basic necessity and what is dispensable.

So, if the 50/30/20 rule is to be applied, 50% of what is earned should be spent on:

• Payment of mortgage or rent.
• The usual expenses of a home, such as electricity, water, community fees, garbage collection, etc.
• The meal of the month.
• Payment of tuition if you are studying or have children who are studying.
• Footwear and clothing.
• Transportation to work.

All of these expenses have one thing in common: they are vital to a person’s daily life.

• 50/30/20 Rule: 30% for non-essential expenses

Of the three categories into which the 50/20/30 rule is divided, this is the one that is going to be the most difficult to follow (to the letter).

It consists of allocating 30% of the income you receive , and no more, to those daily or occasional expenses that are dispensable (and that are carried out, in most cases, to improve the quality of life).

Included in this category are, for example, leisure activities (such as going to the cinema, going out to dinner a few days away from home or taking a vacation trip).

• 50/30/20 Rule: 20% for savings

Finally, the 50/30/20 savings rule is the most painful category to apply, since after doing so, it generates a 20% reduction in the money to spend .

To alleviate the feeling of losing purchasing power, it is important to do two things (every month) . The first thing is to deduct the savings percentage as soon as you receive your monthly paycheck.

In this way, from the first day of the month, you will have the real amount, in order to organize yourself, and not the total.

The second thing is to deposit that 20% of the money in an account that is not your usual one .

For example, in a savings account (such as BBVA’s Goal Account ), with good interest.

This way you will see how, month after month, the amount in that account grows with the money deposited plus the interest, which will make it easier to set aside at the beginning of the month the 20% needed for future expenses that this 50/30/20 rule implies.

• Before using the 50/30/20 rule, what should be done?

If it is clear that, after reviewing the different methods available, the 50/30/20 rule is the most appropriate to start saving, you must first:

• Calculate your monthly income (this is the amount you receive in your bank account (every month), if you are employed, and what you earn, also monthly and after deducting expenses arising from your professional activity and taxes, if you are self-employed).

• Review your monthly expenses (by taking a bank statement or, alternatively, with the help of the tools offered by BBVA’s online banking ). Once you have them, you will have to include them in one of the 3 categories of the 50/30/20 rule.

• Adjusts expenses that have been obtained , and classified, as indicated in the 50/30/20 rule.

• How the 50/30/20 rule works

• Allocate 50% to needs

Under this system, necessities are often the bare minimum to survive: food, shelter, medical care, basic clothing and other items of this nature.

” I really consider it the primary cost of living,” McLaughlin says. “It’s those things you couldn’t live without.”

It often takes a critical and honest attitude toward spending to figure out what really belongs in this category and what should be left out.

Following the 50/30/20 rule, no more than 50% of your after-tax income should go into this category.

If your“necessary” expenses make up more than half of your income, the idea of the system is that you reduce or adjust your lifestyle until you are below that threshold.

• Allocate 30% to wishes

Wants are things you don’t need, but make you happy. Eating out, concerts, events, leisurely shopping, home improvements, or vacations could all fall into this category.

They’re things you can live without, but would rather not. Following the 50/30/20 rule, these purchases shouldn’t cost more than 30% of your after-tax pay.

× Quick tip :

Some experts recommend keeping two checking accounts , one for bills (or needs) and one for all other expenses or wants. This can be a simple way to keep track of how much you spend in each category.

• Allocate 20% to savings and debt repayment

The last, and smallest, category of the 50/30/20 rule is one for managing debt and savings . This could mean paying off student loans, funding retirement accounts, paying off credit card debt , working toward long-term savings goals, or building an emergency fund.

“Either way, increase your net worth either by saving more or by putting money toward your obligations or areas where you owe money,” McLaughlin says.

You can also use this 20% for safe investments , especially if you don’t have any debt to pay.

• Benefits of using the 50/30/20 rule

• Simplify financial planning

One of the biggest benefits of the 50/30/20 rule in personal finance is that it’s one of the least complicated budgeting strategies to use .

While strategies like Dave Ramsey’s envelope system or zero-balance budgets require you to track virtually every dollar, the 50/30/20 rule allows you to work on a larger scale.

It also doesn’t require you to separate your spending into many smaller categories, instead opting to focus on three larger ones. This could be helpful for people who have a hard time keeping track of daily purchases.

• Promote financial discipline

At the same time, the 50/30/20 rule encourages you to limit the amount of money you spend on unnecessary purchases.

By knowing how much money you have to spend on leisure or indulgence, you’ll be able to better understand how each purchase fits into a larger budget and make more informed decisions about which purchases are important enough to make.

It will also help you start saving for the future , whether in the form of a retirement plan , a high-yield savings account, or simply paying off outstanding debts.

• How to implement the 50/30/20 rule

• Tracking expenses

To track expenses, you first need to know how much you’re earning . Review your pay stubs carefully to determine how much money you have left each month after taxes.

Make careful note of any contributions that go into a retirement plan or other savings account.

“That would be considered part of the 20% savings, so you don’t want to shortchange yourself or discredit all the work you’re doing,” McLaughlin explains.

Next, you’ll need to track your monthly expenses. According to McLaughlin, this is often one of the most difficult parts of personal budgeting and can be discouraging for many people because it can be tedious.

You can use a budgeting app to simplify the process , but grabbing a pen and paper or personal spreadsheets can also help you track your expenses.

You can also review your bank statements at the end of the month and categorize each purchase to see how much you are spending on what.

• Adjusting your budget categories

Next, you’ll need to calculate 50%, 30%, and 20% of your take-home pay to determine how much to spend in each category.

To do this, multiply your after-tax pay by 0.5, 0.3, and 0.2, respectively. “These will give you the numbers that you can try to fit things into those different buckets,” McLaughlin says.

If those numbers don’t work for you — for example, if you want to pay off your credit card debt quickly and therefore need more than 20% of your income to pay off the debt — you can modify the percentages to make them work for you.

× Quick tip :

The first month of budgeting is often the hardest. Don’t be discouraged if your spending doesn’t fit neatly into the 50/30/20 parameters the first time you try this financial method.

• Challenges and solutions

• Addressing common obstacles

While the 50/30/20 rule can be a helpful starting point, it’s not always the best option for everyone. For example, retirees may not save 20%, or any money, once they stop working.

It could also be difficult to implement for those who experience irregular wages month to month or year to year, such as contract workers or people who work primarily on commission.

“Not everyone is going to fit neatly into these blocks,” McLaughlin says.

In some circumstances, the 50/30/20 rule may simply not be possible. If you make less money, housing alone could account for half of your salary .

Some people have personal loans that already add up to more than 20% before they think about saving.

The rule also doesn’t take into account interest, inflation , or any other factors outside of spending categories.

If you have credit card debt with a high interest rate, most of the time it makes more sense to pay it off as quickly as possible before spending 30% of your income on necessities.

× Tips for a successful implementation

“It will work best for people who have enough money and low enough debt,” Zigmont notes.

For people who have no debt at all or “good” low-interest debt, the rule might make sense.

It could also be helpful for anyone who is new to budgeting and looking for a simple template.

“The rule is good for getting you to actually work with a budget,” Zigmont says.

“If it happens to be 60/20/20, that’s fine, at least you’re using a guideline. That’s the important thing.”

× Alternatives to the 50/30/20 rule

There are some alternatives to the 50/30/20² budgeting method.

If you want an equally flexible rule, but you want it to be more focused on debt, the 70/20/10 rule might be better for you.

In the 70/20/10 rule, 70% of your budget goes toward both wants and needs, 20% goes toward savings, and 10% goes toward paying off debt or giving.

This rule also doesn’t focus as much on defining what’s considered a “want” and what’s considered a “need.

“If you prefer to focus your budget on your financial goals , the Pay Yourself First system might work best for you.

Start by figuring out how much money you want to save or pay off debt each month.

Then, subtract that from your income for that month and use the resulting number to determine how much you have for other expenses or purchases.

If you want a more granular budgeting strategy, a traditional budget or something like the envelope system might be the way to go.

A traditional budget, or a zero-balance budget, requires that your income equal your expenses.

The envelope system requires you to divide up different expenses like food, clothing, or rent into envelopes.

• Conclusion:

The 50/30/20 budget rule is more than just numbers; it’s a game-changing roadmap to financial freedom.

By dividing your income into essentials, wants, and savings, you gain control over your money instead of letting it control you.

It’s simple, flexible, and works for everyone—whether you’re starting your first job or managing a family budget.

Think of it as a guide that balances enjoying life today while securing your future.

Start small, stay consistent, and watch how a little planning transforms your finances—and your peace of mind.

Ready to take charge? The 50/30/20 rule is your first step toward a stress-free financial life!