It’s no secret that budgeting is the key to personal financial success. But budgeting doesn’t necessarily mean you have to track every single dollar and receipt. In fact, this kind of budgeting can be overwhelming if you’re just getting started.

The good news is that budgeting can be simple.

The 50/30/20 rule offers a straightforward way to manage your money, no micromanaging required.

The 50/30/20 Rule

This budgeting framework organizes your after-tax income into three categories:

• Needs: 50%
• Wants: 30%
• Savings/Extra Debt Repayment: 20%

Think of it as a flexible roadmap to your paycheck, which is easy to follow and adjust as needed.

Needs: 50%

This category includes any expenses necessary for daily living or for meeting your financial obligations, and they must be paid to keep your household functioning.

Examples:

• Rent or mortgage
• Groceries
• Utilities (water, gas, electricity)
• Transportation
• Health insurance

Aim to keep these costs at or below half of your take-home income. If minimum payments are required on your loans, they belong here. Any payments above those minimums will fall into the 20% “Savings” category.

Wants: 30%

These are the things that make life fun but aren’t essential for survival.

Examples:

• Eating out
• Vacations
• Non-essential clothing
• Latest technology
• Entertainment

Take the time to really think over your spending in this category. Nowadays, it’s more common to need a mobile phone, but do you need the latest version with all the bells and whistles?

If money is tight, this is the most flexible category to cut when reallocating funds.

Savings and Extra Debt Repayment: 20%

This category is where your future gets funded. You use this money to build future wealth and pay off existing loans. It fuels long-term financial health.

Examples:

• Savings toward goals
• Retirement accounts
• Emergency fund contributions
• Payments you make above the minimum debt balance

The savings and extra debt repayment category helps you build security, reduce stress and create financial freedom.

If possible, automate it. Set up transfers or “pay yourself first” so the money is saved before you can spend it.

Putting the 50/30/20 Rule into Action

We promise, it’s easier than it looks! Here’s how to get started:

Step 1: Find Your Net Income

This is your take-home pay, usually the amount deposited into your bank account after taxes and deductions, like your health insurance.

Step 2: Apply the Percentages

Multiply your net income by each percentage to find your spending targets. For example, if you bring home $3,500/month:

• Needs: 50%: $3,500 x .50 = $1,750
• Wants: 30%: $3,500 x .30 = $1,050
• Savings/Debt Payments: $3,500 x .20 = $700

Step 3: Compare Your Current Spending

See how your actual spending stacks up. You may find that your needs exceed the recommended 50% or that you’re spending more than 30% on wants.

This is where you’ll spot opportunities to adjust.

Step 4: Pay Yourself First

Set aside your 20% as soon as you are paid, before it gets spent elsewhere.

Get Started Today!

If you’re new to budgeting, start by tracking your current spending for one month. Check your bank statements, use a budgeting tool to track your spending or meet with one of our trusted certified financial counselors to make a plan that works for your goals.

Whether you’re saving for an emergency fund, trying to get out of debt or want to stop wondering where all your money goes, the 50/30/20 rule is a great place to start!