The 50/30/20 Budget Rule Explained

The 50/30/20 rule is one of the most popular budgeting methods because it's dead simple: split your after-tax income into three buckets—50% for needs, 30% for wants, and 20% for savings.

How It Works

A Real Example

Let's say you take home $5,000/month after taxes:

Needs vs Wants: The Tricky Part

The hardest part is being honest about what's a need vs a want:

50/30/20 vs Zero-Based Budgeting

The 50/30/20 rule gives you guardrails, but zero-based budgeting gives you precision. With zero-based, you assign every single dollar to a category until you hit $0.

Many people start with 50/30/20 to get the basics down, then graduate to zero-based budgeting for more control.

When 50/30/20 Doesn't Work

This rule isn't perfect for everyone:

• High cost-of-living areas: If rent alone is 40%+ of your income, you may need to adjust to 60/20/20.
• High debt: You might flip it to 50/20/30 with 30% going to debt payoff.
• Irregular income: Freelancers may need a more flexible approach.

How to Get Started

1. 1. Calculate your after-tax income — What actually hits your bank account.
2. 2. List your fixed expenses — Rent, utilities, subscriptions.
3. 3. Categorize as needs or wants — Be ruthless here.
4. 4. Set up automatic transfers — Move 20% to savings on payday.
5. 5. Track for a month — See where you actually land.