What is the 50/30/20 rule with an example?

The 50/30/20 rule is when you divide your after-tax income between the categories of needs, wants and savings. Here is a look at how this works. This example uses a take-home pay of $4,000. 50% or $2,000 is allocated to needs. 30% or $1,200 is allocated to wants. 20% or $800 is allocated to savings.

What is the 75/15/10 rule?

The 75/15/10 rule uses the same methods as the 50/30/20 rule, however, it breaks down the percentages differently. In this case, 75% is allocated to needs, 15% to wants and 10% to savings.

Is the 50/30/20 rule a good idea?

The 50/30/20 rule is widely used and is a good idea for many seeking to keep finances simple. You use 50% of your money for needs, 30% for wants and save the last 20%. It's easy and helps you balance enjoying life and saving money.

What are examples of "wants" in the 50/30/20 rule?

Wants are things like eating out, movie subscriptions, new tech gadgets, hobbies and vacations. They're the extras that make life fun but aren't must-haves for living.

What is the 40/40/20 budget rule?

The 40/40/20 budget rule is a twist on the 50/30/20 rule, where you spend 40% on needs, 40% on wants and save 20%. It gives you more freedom for fun spending, while you still save a chunk of your income.

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What Is the 50/30/20 Budget Rule?

May 30, 2025

4 min Read

Written by Cynthia Measom

Edited by Emily Gadd

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The 50/30/20 rule is an easy way to handle your money by splitting it into three parts:

50% for things you need
30% for things you want
20% for saving

This method helps you cover your basics, enjoy life and save for the future, all based on what you earn after taxes.

How Does the 50/30/20 Budget Work?

Here’s a closer look at the categories:

Needs — 50%

These are the costs that cover your fundamental living requirements, which include:

Housing
Utility bills
Groceries
Health insurance
Car payments
Basic transportation

Wants — 30%

These are the pleasures and comforts that make life enjoyable but are not absolutely necessary for living, such as:

Dining out
Entertainment
Leisure travel
Gym memberships
Discretionary shopping for items like clothes or electronics

Savings — 20%

This category is about setting aside resources for long-term goals, unexpected expenses and overall financial health. It includes:

Savings account deposits
Investments
Emergency fund contributions
Retirement accounts like 401(k) plans or IRAs and
Paying off debts beyond the minimum payments

How to Get Started With the 50/30/20 Rule

Budgeting your money under the 50/30/20 rule is easy. Here’s how to get started:

Determine your net income: This is the amount you earn after taxes and deductions. Knowing your net income is key as it forms the basis of your 50/30/20 budget plan.
Categorize your spending: Break down your expenses into the three categories: needs, wants and savings. Budgeting apps can help you track these categories in real-time, making it easier to see where your money is going and stay on track.
Adjust as necessary: Not every month will look the same. Be prepared to adjust your budget as your financial situation changes, whether that means reallocating percentages or cutting back in certain areas.

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Example of the 50/30/20 Rule

Imagine you have a net income of $4,000 per month after taxes. Here’s how you’d apply the rule:

Needs: Allocate 50% of your income, which is $2,000, to cover essential expenses such as rent, utilities, groceries and transportation.
Wants: Assign 30% of your income, $1,200, for discretionary spending that includes leisure activities, hobbies and other non-essentials.
Savings: Dedicate 20% of your income, or $800, towards savings, investments and debt repayment.

Is the 50/30/20 Rule Right for You?

This budgeting rules isn’t for everyone. Here’s what to consider:

This Rule Is Best For

People who have enough income left over to budget elsewhere after paying for their basic needs like rent and utilities.

If you find yourself overspending on nonessentials like shopping trips, expensive dinners, the latest electronics and other luxury items, you might find that the 50/30/20 budget is a good solution.

This Rule Doesn’t Work For

People who can barely make ends meet with their current income or who are in between jobs won’t find that the 50/30/20 budget works very well.

You need to have enough money left over to put toward the savings and spending categories. To use this budget successfully, you would need to work on increasing your monthly income so you can create room in your budget for wants and savings. Read about other budgeting tips to find what works for you.

FAQ

Here are some answers to frequently asked questions about the 50/30/20 budgeting rule.

What is the 50/30/20 rule with an example?
- The 50/30/20 rule is when you divide your after-tax income between the categories of needs, wants and savings.
- Here is a look at how this works. This example uses a take-home pay of $4,000.
  - 50% or $2,000 is allocated to needs.
  - 30% or $1,200 is allocated to wants.
  - 20% or $800 is allocated to savings.
What is the 75/15/10 rule?
- The 75/15/10 rule uses the same methods as the 50/30/20 rule, however, it breaks down the percentages differently. In this case, 75% is allocated to needs, 15% to wants and 10% to savings.
Is the 50/30/20 rule a good idea?
- The 50/30/20 rule is widely used and is a good idea for many seeking to keep finances simple. You use 50% of your money for needs, 30% for wants and save the last 20%. It's easy and helps you balance enjoying life and saving money.
What are examples of "wants" in the 50/30/20 rule?
- Wants are things like eating out, movie subscriptions, new tech gadgets, hobbies and vacations. They're the extras that make life fun but aren't must-haves for living.
What is the 40/40/20 budget rule?
- The 40/40/20 budget rule is a twist on the 50/30/20 rule, where you spend 40% on needs, 40% on wants and save 20%. It gives you more freedom for fun spending, while you still save a chunk of your income.