What is the 50/30/20 rule?
The 50/30/20 rule is a simple way to split your after-tax income. It was popularized by Elizabeth Warren and Amelia Warren Tyagi in their book All Your Worth. The idea is to avoid tracking every dollar: as long as the three big buckets stay roughly in balance, the details take care of themselves.
- 50% needs. Costs you cannot easily avoid: housing, utilities, groceries, transportation to work, insurance and the minimum payments on debts.
- 30% wants. Everything that makes life nicer but is optional: dining out, streaming, hobbies, travel, upgrades.
- 20% savings and debt payoff. Emergency fund, retirement and other savings, plus any debt payments above the minimums.
How to use it
- Enter your monthly take-home pay.
- Add up last month’s spending in each bucket and type it into the optional boxes to see where you are above or below the target.
- If needs run over, look at the biggest fixed costs first (housing, car, insurance). If wants run over, trim the categories you enjoy least.
It is a starting point, not a law
In expensive cities, needs can take 60% or more of take-home pay, and that is fine. You can change the percentages above: a 60/20/20 or 70/20/10 split is a realistic plan for many households. When you are attacking high-interest debt or saving for a big goal, you might temporarily lower wants to raise savings. What matters is that the plan adds up to 100% and that you can stick to it.
Frequently asked questions
Should I use gross or net income?
Net income: the money that actually reaches your account after taxes and payroll deductions. If your employer withholds retirement contributions, add them back and count them as savings.
Where do debt payments go?
Required minimum payments are usually counted as needs. Extra payments above the minimum belong in the savings and debt payoff bucket.
What if my income changes every month?
Base the plan on a low-end typical month, or on your average over the last six to twelve months, and save the extra in good months.
Is 20% savings realistic?
For many people it is a stretch. Start with what you can, even 5%, and raise it whenever your income or expenses change.