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How to Budget Your Money Using the 50/20/30 Rule

By SDCCU , 03.01.2020 Financial Education
couple smiling while on laptop How to Budget Your Money Using the 50/20/30 Rule

What is the 50/20/30 Rule?

The 50/20/30 rule is a common budgeting tactic that helps you lay out your budget in the simplest form. Popularized by Senator Elizabeth Warren, this rule splits your after-tax income into three brackets. Here’s the breakdown; 50% needs, 20% savings and 30% wants. Reducing the amount of time spent detailing multiple categories and allowing you to focus on the big picture.


How to Budget using the 50/20/30 Rule

There are a few variations on what is meant to go into each category so it is up to you to decide what fits best to your life and spending habits. Learn more about the specific items that fall within each category.

  • 50% Needs. Monthly charges that you can expect every month to live a normal life. This refers to mortgage or rent, car payments, groceries, insurance, utilities and more. Any payment that you can forgo with only minor inconveniences are not included. Only things that would severely impact your quality of life should be included. This could also mean debt payments minimums as it would impact your credit score if you did not pay these.

  • 20% Savings. Financial goals are your savings, 401k and anything that is helping you invest in the future. This is a great place to build up your emergency fund. 20% may be too high for you but provided that you are putting something into your savings and not using it to cover overspending, you are making progress. Additionally, any extra debt payments other than the minimum is lumped into this category.

  • 30% Wants. Anything that is not a necessity or savings. These are things like your “fun” money, entertainment, subscriptions, restaurants and shopping.
This budgeting tactic is a great jumping off point, but it is not an exact science. If your budget doesn’t fall exactly on these percentages, that doesn’t mean you are doing anything wrong. Some people have bigger homes but spend less on shopping. As long as you are spending within your means and not going over what you make, you are on the right track.  

Visit our Financial Knowledge Blog to learn more tips on setting up a solid financial future or join us for Financial Wellness Wednesdays.
 

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