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The 50/30/20 Budget: What Is It And Should You Use It?

by Davis Porter

What if I told you that you’re not the only one with a saving problem? That there are billions of people out there just like you, who’ve probably tried out all sorts of personal budgeting apps without success?  

In the US, for instance, the personal saving rate over the past couple of years has been ranging between 6.3% and 8.5%. It only went up to an all-time high of 33.7% in March 2020 because of the Covid-19 apocalyptic scare. But then again, and rather unsurprisingly, it didn’t hold up – by July, the numbers had gone down to 17.8%.

While there are many possible ways of tackling this problem, the 50/30/20 Budget Rule is particularly popular across all income levels. Personal finance experts praise it for its simplicity, practicability, and inclusivity. What’s more, it continues to attract applause for building personal savings

It’s not all sunshine and rainbows, though. The 50/30/20 Budget Rule also happens to have its fair share of weaknesses and controversy. Read along to unravel all the mystery surrounding it, and most importantly, find out how the 50/3/20 Budget would work for you. 

What Is The 50/30/20 Budget Rule? 

Turns out the 50/30/20 Budget Rule hasn’t been around for that long, The concept is now about a decade and a half old since it was derived from the 2005 book, All Your Worth: The Ultimate Lifetime Money Plan” – authored by Elizabeth Warren, a US senator, and Harvard bankruptcy pundit, along with her daughter, Amelia Warren Tyagi. 

Based on their research spanning over 20 years, the two experts argue that you don’t need a complicated budgeting system to get your personal finances in order. Balancing your monthly income between your needs, wants, and savings should do the trick – especially when you follow a basic 50-30-20 formula. 

Now, to sum it up, the 50/30/20 Budget Rule is a simplified percentage rule that divides your after-tax income into three expense categories;

  • You spend 50% on essential stuff (needs).
  • You spend 30% on stuff you desire (wants). 
  • You put 20% into your savings account. 

Let’s now get into the practical bit…

How Does The 50/30/20 Budget Rule Work?

Let’s imagine you’re making $5,000 per month after deducting your taxes. With the 50/30/20 Budget method, you’d be expected to direct $2,500 to your essential needs, $1,500 to all the stuff you consider as wants, and $1,000 to your savings accounts. 

Here’s how each of these expense categories is structured:

Needs (Essentials): 50% of Your Income

Your needs are basically the essential bills you can’t live without. In other words, you can think of them as the living expenses that you absolutely must pay to survive. 

They include:

  • Housing- rent, mortgage payments, etc. 
  • Food- groceries, basic meals, etc. 
  • Utility bills- power, water, phone, etc. 
  • Transportation- car payments, fuel costs, bus fare, etc. 
  • Health care- medical insurance, life insurance, hospital bills, etc. 

Combined, these expenses should take up, at most, half of your net income. 

Wants: 30% of Your Income

After paying for your basic living expenses, there are those little things you happen to desire, but are not absolutely necessary. The official term for this category is “Wants”, and it typically refers to the discretionary extras that you can afford to live without. 

In other words, you can think of them as luxuries that are principally intended to make your life comfortable. They include: 

  • Internet bills
  • Cable bills 
  • Holidays 
  • Gym membership fees
  • Entertainment costs 
  • Restaurant bills 

Interestingly, this is the category of expenses that arguably makes the biggest difference in your budget. The fewer the bills, the more the progress you stand to make towards paying your debts and achieving your financial goals. 

Overall, though, the Warrens advise you to limit such expenses to 30% of your net income. 

Savings: 20% of Your Income

Think of this as the “get-ahead” share of your income. It’s the one category that ultimately determines your finances in the future. 

According to the 50/30/20 Budget Rule, personal savings should take up about 20% of your net income. This refers to all the money that goes into: 

  • Debt repayment
  • Savings accounts
  • Retirement plans

But Then Again, The 50/30/20 Budget Rule Has Its Pitfalls

Admittedly, the 50/30/20 Budget Rule offers a well-structured finance framework. Even kids can comfortably use it without any specialized guidance. 

It’s worth noting, however, that while it’s simple and straightforward, the 50/30/20 Rule has its fair share of pitfalls. Finance critics have, in particular, blasted it for being: 

Too Vague

Let’s face it. Life isn’t as simple as the 50/30/20 Budget Rule seems to suggest. Not all potential expenses are defined by the three categories. 

Take emergency costs, for instance. After using 50% of your income on your standard living expenses, 30% on luxuries, and 20% on savings, you’re left with nothing for emergencies. 

Well, you could argue that personal savings can still be used as emergency funds. Ok, fair enough. But then again, remember that the same savings are also used for debt repayments. 


The 50/30/20 Budget Rule assumes that you’ll always follow a standard way of life. But, the fact is, your interests, wants, and needs might change disproportionally over time. 

In some months, for example, you might make enough to save 30%, while in others, circumstances may force you to spare only 10%. 

The Bottom Line

While the 50/30/20 Budget Rule isn’t ideal in every situation, it is, undeniably, a sound framework for budgeting and finance management. Plus, the simple structure saves you the trouble of digging deep into the intricate nitty-gritty associated with detailed budgeting. 

All in all, though, its overall impact depends on your specific circumstances – lifestyle, income setup, etc. So, for the best possible results, you might want to customize the structure based on your financial goals.

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