The 50/30/20 rule is a simple budgeting framework popularized by Senator Elizabeth Warren. It organizes your spending into three clear buckets to help you manage your money effectively without complex tracking.
1. 50% for Needs
Half of your after-tax income should go towards the things you absolutely need to survive and function. This includes:
- Rent or mortgage payments
- Utilities (electricity, water, internet)
- Groceries (not dining out!)
- Transportation to work
- Insurance premiums
- Minimum loan payments
⚠️ Warning
If your needs exceed 50% of your income, it can be difficult to make progress on other goals. Consider if major changes like downsizing or finding a cheaper commute are necessary.
2. 30% for Wants
This is the fun part! 30% of your income can be spent on discretionary items. Currently, you might be spending more here than you realize. Wants include:
- Dining out and ordering takeout
- Entertainment (movies, concerts, streaming services)
- Hobbies and gym memberships
- Vacations and travel
3. 20% for Savings & Debt
The final 20% is for your future. This is the most critical category for building financial freedom. Use this money for:
- Building an emergency fund (aim for 3-6 months of expenses)
- Investing for retirement (pension, ISA, etc.)
- Paying off high-interest debt faster (above minimum payments)
Try Our Free 50/30/20 Calculator
See exactly how your income splits according to this rule in seconds.
How to Get Started
First, calculate your after-tax income. Then, look at last month's bank statement to categorize your spending. Finally, make adjustments to fit the percentages.
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