Should you follow the 50/30/20 budget rule? Let’s find out!
Managing finances isn’t always easy, especially when your income isn’t huge, but you must take care of a plethora of things. If you’ve read any of my posts, you probably know that I preach about the 50/30/20 budget rule all the time, and I mean it. It’s the thing that helped me manage my money wisely, get whatever I need without compromising, and also save money at the same time.
Whether you want to stretch your income to the max, put some money aside, and splurge on the things that bring you joy, this method can be a great helper in achieving your goals. That’s because it breaks down your income into three major categories: needs, wants, and savings.
Once I mastered the 50/30/20 budget rule, it worked like magic for me, and I’m pretty sure it can be helpful for you too. Today, we’ll talk more in-depth about this method and how you can make it work for you. Let’s begin!
What exactly is the 50/30/20 budget rule?
This budgeting method is a simple guideline in which you split your after-tax income into three categories: 50% for needs, 30% for wants, and the rest of 20% goes to your savings account and debt payments. By following this tip, you feel like you have more freedom over your finances, so you can get the things you need and still save without feeling restricted.
What I love most about this budget rule is its simplicity. Instead of focusing on creating the perfect budget for all the expenses you need to take care of in a month, you only focus on the three categories. Of course, this doesn’t mean you should go on a shopping spree and blow the entire 30% on your wishlist, because that will only burn a hole in your budget.
However big or small your income is, this method works for everyone, providing a flexible framework for keeping track of your money effectively.
The “50%” – needs: essentials
The first part of the 50/30/20 budget rule is essentials. This means that half of your after-tax income goes strictly toward expenses that are mandatory for your survival and well-being. Think of all the things you can’t live without, which usually represent your fixed costs.
Here are a few examples of needs: utilities (water, electricity, gas, etc.), rent or mortgage payments, health insurance, groceries, car payments and gas, childcare or education costs, and minimum debt payments, such as student loans or credit card payments.
While the examples above are common for many people, it’s important to have a clear definition of what’s necessary for YOUR lifestyle. By taking a closer look at your spending habits, you might be able to reduce a couple of your “needs.”
For instance, if your utilities are eating up a big chunk of your budget, you could consider adjusting those costs. For other people, saying goodbye to unnecessary subscriptions is a fantastic way to stretch their incomes.
Here’s a good rule of thumb: focus on distinguishing between your actual essentials, like food, housing, and utilities, and don’t consider things like premium cable packages as essential—they’ll drain your wallet faster than you think.
The “30%” – wants: the fun stuff
The next part of this budget rule is the 30% set aside for wants. Think of them as those items or experiences that make your life better and more enjoyable, but aren’t necessary for basic survival. This includes non-essential spending, such as entertainment, subscriptions, dining out or takeout, vacations and travel experiences, hobbies and leisure activities, and shopping sprees.
The beauty of these “wants” is that they make things fun and exciting without feeling guilty or restricted. For example, you can be happy knowing that you have some money set aside each month for a vacation you’ve always wanted or for tickets to your favorite singer’s concert.
However, this category isn’t just about the fun part. Don’t forget to track your spending habits here, too. It’s easy to get distracted by all the things you wish you had, so be mindful of impulse purchases. When you see something you like or an experience you’d love to take part in, ask yourself whether the thing will genuinely add value to your life. If the answer is no, then let it go.
But that’s not all. If you also notice that you tend to spend more than 30% on things you want, it’s time to evaluate those habits and see where you can cut back. For example, you might be spending too much money on dining out.
Instead of cutting this out cold turkey, try replacing some of these experiences with dining at home. It will help you save more, relax, and redirect your money toward something more fulfilling.
The “20%” – savings and debt repayment
The last part of this budget rule is the 20% set aside for savings and debt repayment. This is the part that focuses on securing your future and freeing yourself from financial burdens. Think of it as a tiny help for building wealth, preparing for unexpected financial situations, and reducing debt. It will help you be prepared no matter what!
Here are a few examples of savings and debt repayment: emergency funds (it’s good to have 3-6 months’ worth of living expenses), investments (stock, real estate, gold, bonds, etc.—whatever works for you), retirement savings (401(k), IRA, etc.), and extra payments toward high-interest debt (credit cards, loans, etc.).
…Did this work for me?
When I first started my journey with the 50/30/20 budget rule, I found it pretty hard to stick to the savings part. There were times when I wanted to surprise my family with a vacation, so I would just take an extra 10% of this category and transfer it to “wants,” but once I put on paper all the money I was spending, I decided it was time to give this budget rule a fair chance and actually follow it as I should.
I noticed that the “savings and debt repayment” category required a long-term mindset, because it’s the part where you build true financial security. If you’re in debt, for instance, you should prioritize paying off high-interest loans first so you can reduce the financial burden and free up more money for your savings account.
A great tip I have for you here is to automate your savings. All you have to do is set up automatic transfers into an investment or savings account as soon as you get paid (after-tax income, of course). This way, your savings become a non-negotiable, not just something you’ll do if you have money left at the end of the month.
Make the 50/30/20 budget rule work for you!
This budget rule is a great starting point for anyone seeking financial clarity. Let’s not forget that everyone is different, so you can adjust this based on your needs and situation. Here’s a short breakdown of how to adapt this method to your unique needs:
Income differences
If you don’t have a big income or if it’s lower than the average, you can always adjust the percentages to fit your needs. If your “needs” require more than 50% of your income, for instance, you can reduce your “wants” for a while. On the other hand, if you’re blessed with a larger income, you can increase the percentage of “savings and debt repayment” to put more toward your long-term financial security and well-being.
High-debt situation
If you have significant debt to take care of, such as student loans or credit card balances, you might need to allocate a bigger percentage to debt repayment. While this might reduce your chances of getting the things or booking the experiences you want, it will help you get rid of debt sooner. If you struggle with this, remember that it is only temporary, and with patience, time, and the right financial strategy, you can get back on track.
What if you’re debt-free?
This is a great place to be, because it gives you the freedom to put more money toward investments, savings, and bigger purchases that support your future, and help fast-track your journey to financial independence.
How to make following the 50/30/20 rule easier?
This budgeting rule works wonders – but only if you’re honest with yourself, build some willpower, and stay on top of your expenses. After all, you’ll want to track your progress, right? It wasn’t easy for me at first, but I found a few apps, budgeting tools, and spreadsheets that made it a whole lot simpler. To make sure this method was really working, I took the time to review all my spending.
Some of my favorite apps were EveryDollar, YNAB (You Need a Budget), and Mint. These tools are lifesavers since they automatically categorize your expenses, making it easier to stick to the 50/30/20 rule. But, I’ll admit, I’m a bit old-school, so I also enjoyed jotting things down by hand. That’s when I picked up a budgeting journal – it helped me be more mindful of where my money was actually going. If you want more mental clarity, I highly recommend checking out this journal here!
Takeaway
The 50/30/20 budget rule is a friendly and easy way to take charge of your finances starting today! It helps you balance your needs, wants, and savings in a manageable way. By following this simple guideline, you can feel more in control of your spending, lower your financial stress, and start building a brighter financial future without feeling like you’re missing out. It’s all about achieving financial freedom while still enjoying life. Why not give it a shot today? You’ve got this!
And if you need extra help with this, we’re always here for you, so leave a comment below and ask away! We’d like to chat more about finances and easy ways to stretch our incomes to the fullest! Until next time, here’s another post from The Price Makers you won’t want to miss: Check These 15 Amazing Senior Discounts for The Year Ahead!
