Budgeting basics: The 50-30-20 rule (2024)

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For one easy way to plan your spending, try this method.

2-minute read

In brief

Understanding your spending can help you better plan for the future.
The 50-30-20 rule organizes spending into needs, wants, and goals.

Creating a budget can help you make confident decisions and enjoy peace of mind. A detailed budget, though, can be complex to manage.

Getting started

Start by taking a look at your paycheck. If taxes are withheld, subtract that amount from your total earnings. Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let’s take a closer look at each category.

Needs: 50%

About half of your budget should go toward needs. These are expenses that must be met no matter what, such as:

Utility bills
Rent or mortgage payments
Health care
Groceries

If you can honestly say “I can’t live without it,” you have identified a need. Minimum required payments on a credit card or a loan also belong in this category.

Wants: 30%

You subscribe to a streaming service to watch your favorite show, not because you need the subscription to live. Wants are things you enjoy that you spend money on by choice, such as:

Subscriptions
Supplies for hobbies
Restaurant meals
Vacations

Savings: 20%

The remaining 20% of your budget should go toward the future. You may put money in an emergency fund, contribute to a retirement account, or save toward a down payment on a home. Paying down debt beyond the minimum payment amount belongs in this category, too.

In summary

Options to save for the future at UNFCU include savings accounts and share certificates.

The 50-30-20 rule is just one way to consider organizing your budget. To find the perfect fit for your situation, consult a professional financial planner.

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FAQs

Budgeting basics: The 50-30-20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

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How does the 50 30 20 rule work for budgeting? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

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Is the 50 30 20 rule still valid? ›

If the 50/30/20 budget was once considered the golden standard of budgeting, it's not anymore. But there are budgeting methods out there that can help you reach your financial goals. Here are some expert-recommended alternatives to the 50/30/20.

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What is the 50 30 20 tool for budgeting? ›

A 50 30 20 budget divides your monthly income after tax into three clear areas. 50% of your income is used for needs. 30% is spent on any wants. 20% goes towards your savings.

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What is the 40 40 20 budget rule? ›

The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.

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Is $1,000 a month enough to live on after bills? ›

Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.

Does the 50 30 20 rule include 401k? ›

Important reminder: The 50/30/20 budget rule only considers your take-home pay for the month, so anything automatically deducted from your paycheck — like your work health insurance premium or 401k retirement contribution — doesn't count in the equation.

What is the 70 20 10 budget rule? ›

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.

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What is the 80 20 rule in financial planning? ›

The rule requires that you divide after-tax income into two categories: savings and everything else. So long as 20% of your income is used to pay yourself first, you're free to spend the remaining 80% on needs and wants. That's it. No expense categories.

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What is the 80 20 spend rule? ›

Key Takeaways

With the 80/20 rule of thumb for budgeting, you put 20% of your take-home pay into savings. The remaining 80% is for spending. It's a simplified version of the 50/30/20 rule of thumb, which allocates 50% of your take-home pay to needs, 30% to wants, and 20% to saving.

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When might the 50 30 20 rule not be best saving strategy? ›

But the exact breakdown between “needs,” “wants” and savings may not be ideal for everyone. If you're behind on your retirement savings or have a lot of credit card debt to pay down, you might want to allocate more than 20% of your take-home pay to that category.

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What is the 50 30 20 rule financial experts recommend monthly savings of? ›

At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items.