What Is the 50-30-20 Budget Rule?

Budget Rule

You know that you should have a personal budget, but you’re not exactly sure how to get started. Every time you open up a new spreadsheet, you second-guess yourself. How can you get past this mental block and put together a simple budget?

Follow the 50-30-20 budget rule.

What Is the 50-30-20 Budget Rule?

The 50-30-20 budget rule is a simple budgeting guideline that anyone can follow. It asks that you divide up your budget into three basic categories: your needs, your wants and your financial goals. Your needs should be the biggest category, taking up 50% of your budget. Next up is your wants—these take up 30% of your budget. And then, it’s your financial goals — these take up the remaining 20% of your budget.

This budgeting rule was popularized by Elizabeth Warren, the United States Senator. Warren has previously held positions as a Harvard law professor and a Special Advisor for the Consumer Financial Protection Bureau. She discussed the rule in the book All Your Worth: The Ultimate Lifetime Money Plan, which she wrote with her daughter Amelia Warren Tyagi.


Your “needs” are essential expenses to maintain your livelihood. Your needs would encompass housing-related costs (rent/mortgage payments), utility bills, health insurance, car payments and groceries. 


Your “wants” are monthly expenses that you’d like to make but you could technically survive without. They tend to add fun and excitement to your life. Some of your wants could be streaming services, exercise classes, spa services and fast food.

Financial Goals

The financial goals are expenses that will go toward large, long-term financial objectives. A great example of a financial goal is putting together an emergency fund. A substantial emergency fund can help you cover urgent, unplanned expenses whenever they arise. As long as you have enough in your fund, you can withdraw your savings and pay to resolve the expense immediately.

If you don’t make a concentrated effort to fill up an emergency fund, you might not be able to handle any urgent, unplanned expenses. In this stressful scenario, you could use your credit card or apply for an online loan as a solution. Look for an online loan that’s specifically available in your home state. So, if you live in Oklahoma, you’ll want to look for Oklahoma loans online to manage your emergency. Skipping this step could force you to search through options that aren’t available to Oklahoma residents at all.

These are some other financial goals that you could use your 20% for:

  • Debt repayment
  • College savings for your kids
  • Retirement savings
  • Saving up for a wedding
  • Saving up for a house

How Do You Implement the 50-30-20 Rule?

Start by calculating your monthly income after taxes and deductions. Then calculate your income by 0.50, 0.30 and 0.20. These are the amounts that you can reserve for your needs, wants and financial goals in descending order. List your expenses under their related categories and see how they fit with the allotted amounts. You may need to trim some variable expenses to avoid overspending.

You can build your budget in a spreadsheet program like Microsoft Excel, Apple Numbers or Google Sheets. Or you could download a budgeting app onto your smartphone or computer and build your budget there. 

Making a budget doesn’t have to be complicated. Just follow the 50-30-20 rule. 


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