What Is the 50/30/20 Rule?
The 50/30/20 rule is a simple budgeting framework popularized by Senator Elizabeth Warren. It divides your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings.
The beauty of this method is its simplicity - no need to track every single expense into 20 different categories.
Breaking Down the Categories
50% - Needs (Non-Negotiables)
- Rent or mortgage payments
- Utilities (electricity, water, internet)
- Groceries (not dining out)
- Health insurance and medical costs
- Minimum debt payments
- Transportation to work
30% - Wants (Nice-to-Haves)
- Dining out and takeout
- Entertainment and streaming services
- Shopping and hobbies
- Vacations and travel
- Gym memberships
20% - Savings (Future You)
- Emergency fund
- Retirement accounts (401k, IRA)
- Extra debt payments
- Investments
Example: $5,000/Month Income
Needs (50%)$2,500
Wants (30%)$1,500
Savings (20%)$1,000
Are You Following the Rule?
Most people think they are, but the reality is often different. Those small "wants" purchases add up fast, and the "needs" category gets bloated with things that aren't really essential.
The first step is seeing where your money actually goes. Upload your bank statement and find out if you're hitting the 50/30/20 targets.