Wondering what the 50 30 20 budget rule is all about?

Knowing and following some personal finance rule can do wonders to your financial well being.

We know, at times when you have a sizeable expense, it keeps you wondering, whether you have over spent on the item or was it ok, or when you take a loan, you wonder whether you have over borrowed or no.

With this article, you would know a simple and a really handy rule to track your budget, which we call the 50/30/20 rule.

If you’re looking for a little more simplicity in your life, or are brand new to the idea of living on a budget, you may want to consider the 50/30/20 budget.

It will help you control your spending and work toward your financial goals, but it allows for a little more freedom than what you may be used to when it comes to budgeting.



What is the 50/30/20 budget rule?

The 50/30/20 budget rule helps you establish the right spending proportions.

Specifically, it uses percentages to determine what percentage of your after-tax income will be allocated to each group.

One group will get 50% of the money, a second group will get 30% of the money, and the last group will get 20% of the money.

The specific breakdown is as follows:

  • 50% of your after-tax income goes to your needs and essentials category
  • 30% of your after-tax income goes to your wants and desires category
  • 20% of your after-tax income goes to your financial goal’s and saving category


Why Is The 50/30/20 Budget Method Effective?

One reason for the 50/30/20 budget method’s success is how applicable it is.

By focusing on percentages (rather than exact spending amounts), this method can be applied to the lives of many people.

Poor college students and wealthy business owners alike can use it to generate budgeting estimates. Furthermore, the 50/30/20 budget method is friendly to people who may have less predictable streams of income.

Another reason why many people can find success with the 50/30/20 budget method is because it’s healthy.


The proportions may prevent people from overburdening themselves with the cost of things that don’t bring happiness, joy, and fun into their lives.

However, in a similar vein, it may also prevent people from not spending enough “fun money” on the things that spice up our lives and make them interesting.

Finally, the 50/30/20 method is safe.

If you’re inexperienced with budgeting, it can be easy to screw things up as a beginner. That usually happens when you take on challenges that are too ambitious for you or fail to incorporate the things that make you happy into your budget.

But with the 50/30/20 rule, you’ll be able to start safe and adjust later when you gain a better understanding of things.


How do I know if the 50/30/20 budget is for me?

That’s the thing. There isn’t always a one-size-fits-all budgeting plan that is going to be perfect for everyone to follow.

If you know that your goal is to save money, you’ve got to start somewhere to make it happen.

What people love about this method is that it’s simple, effective and easy to follow.

Right from the start, you know exactly what you should be doing with what portion of your money so there leaves little room for manipulation or movement.

And honestly, this is what some people need.

Creating a budget and following it can be really hard and stressful, but this is where these types of budgeting techniques can really come in quite handy.


50 30 20 Budget Rule – Explained!

If you’re on the fence about whether or not this is a good route for you to take to try to fix your finances, let’s break it down even more so you can have an even more clear picture in your mind on how you can make it work for you.


50% for your needs

Needs are things that you can’t do without or mean that without them your lifestyle would be completely compromised.

Things that fall under needs would be items such as rent or mortgage, healthcare, groceries, debt repayments, and transportation.

In this section, your debts can be kept to the minimum payment amount. It’s really important that you understand what your needs are.

You don’t need to have cable or even the internet for that matter (unless of course, your work life depends on it).

Make sure you are being truthful about what your actual needs are and don’t confuse them with your wants.


30% for your wants

I guess you could say that wants are almost the fun part of it.

Whilst this is true you still need to reserve a certain amount of restraint here.

The idea is not that you think, oh great I’ve got 30% of my income to buy whatever I want.

Oh no, that is far away from the truth.

Your 30% could be spent on things like unlimited internet data, cable, clothes or getting your hair done.

This does not mean that you should blow your money in one sitting. You should think of it more along the lines of I have 30% of my income to do something constructive with.


You can use that 30% to pay a little extra on some of your debts.

By paying a little over the minimum on a credit card bill you can save yourself hundreds of dollars in the long run.

Managing your money is about being smart with it, not simply just finding ways to be able to spend as much as you want on what you want.

Believe me, there are no debt free people out there who walk around spending money frivolously.

Every single dollar/pound has a plan and a purpose.

If you truly want to be able to better manage your money then it would be a good idea to hold back on unnecessary spending and focus on trying to clear debts and put good money principals into place instead, like a savings fund or an emergency cash fund.

To help you decide what should go in this section, just remember that you wants are not needs so technically you could do without them.



20% for savings

Never underestimate the power of your savings. Your savings have the capability of keeping you out of debt.

You could even say that they are your safety net. When you look at it this way you realize how important it is to put money away for the future.

You should work towards saving for things like an emergency fund, retirement, and extra debt payments.


Even though your debts are technically listed as part of your needs they can actually be covered in all 3 sections.

The more you can put towards paying off debt the more money you will be able to save in the future.

There are obviously things that are wrong with the 50 30 20 budget and it wouldn’t be right if we didn’t look at the pros and cons of it.

Let’s take a look at some of these now.



The pros of the 50 30 20 budget

Now lets look at the pros of 50 30 20

It’s easy to use

Literally, anyone can follow the budget rules and it doesn’t take a whole lot of planning to make it work.

Great starting point

It’s a great place to start if you have no idea how to create a budget or perhaps are not ready to take the time to create one.


It gives you some structure to spending your money without being overbearing.


The cons of the 50 30 20 budget

It’s easy to see the positives but it’s equally important to look at the negatives too which are just as important.

There are some things that the 50 30 20 budget don’t take care of and it’s important to address those, so here we go.

No real structure 

How do you know how much of your needs to put aside for your bills? There would be no way of checking to make sure that your 50% can fit in all of your needs.

Unable to track spending

There’s no way to keep track of what you have already spent.

It’s not a great way to help you get out of debt because some of the sections may have too much money allocated to them and others not enough.

No clarity

Setting aside 30% for wants can be easily misconstrued especially if you don’t have great discipline over money.

There is no clarity within each section so therefore everything is open to interpretation which leaves room for technical error.



50 30 20 Budget Rule – Final thought

Overall, I would say that the 50/30/20 rule is a good place to start as its better than nothing at all.

If on the other hand, you want to get more serious about living a debt-free life, even if you live on one income then a more conventional budget would be better suited to you.

A regular budget will help you to see exactly where your money is going and will give you the foresight to see any potential pitfalls before they actually happen.

If you don’t have a budget yet, take a look here at how to start budgeting. It’s great for beginners!

If you found this post useful, you might want to save THIS PIN below to your Pinterest Budgeting board for later!