The 50-30-20 Rule: How It Works + A 50 30 20 Budget Template

Like many, you might shudder at the word budget, or perhaps it sounds too boring or challenging to figure out. But the 50-30-20 rule and the 50 30 20 budget template prove it doesn’t have to be difficult. If you’re looking to simplify your budgeting process or are new to budgeting, then this might be the perfect match!

50-30-20 Budget

Using budgeting best practices means planning out exactly how you’ll use your money, and this can be tailored to suit your specific lifestyle and situation with the 50-30-20 rule. This particular budget involves three easy steps that will help you prioritize your monthly financial commitments.

The 50-30-20 rule is comprehensive and covers all bases. And don’t worry if math isn’t your thing because we’ve included 50 30 20 budget spreadsheet ideas to help you stay on top of your budgeting strategies.

That said, let’s take a close look at this budgeting rule, including what it is and how it works.

In addition, we’ll include calculators so you can jump right in and get started immediately.

What is the 50-30-20 budget?

In its simplest form, the 50-30-20 budget rule divides your after-tax income into three distinct buckets, which are:

  • 50% to needs
  • 30% to wants
  • 20% to savings

A plan like this helps simplify finances and is also easy to follow.

Who invented the 50-30-20 budget?

U.S. Senator, Elizabeth Warren, came up with the 50-30-20 budget. In a book called All Your Worth: The Ultimate Lifetime Money Plan, Elizabeth Warren and Amelia Warren Tyagi described this simple way to budget.

And not surprisingly, it has stuck. People love how easy it is to understand and follow!

Why this rule works

You might be wondering why this budget works and how it will impact your life and financial plan. There are a few reasons it can be great for your finances.


Firstly, the budget is really simple. So if you’re not into details or if you’re just starting out, this budget is fail-safe and easy to implement.

You only focus on three buckets – needs, wants, and savings which are pretty easy to figure out.

Every dollar has a purpose

Secondly, it helps you account for every dollar.

You start off with your after-tax income, which represents 100% of what you have to work with, and then you work out the different spending groups from there.

Financial goals

Lastly, the 50-30-20 rule can help you stay focused on your financial goals and save up for large expenses such as a house or car.

Alternatively, it can also help you create a debt reduction strategy if that’s one of your initial goals.

Percentages for your budget

The 50-30-20 budget is divided into three parts. 50% for needs, 30% for wants, and also 20% for savings. And remember, you can always use a 50 30 20 calculator or even a 50 30 20 budget template to create yours.

Category 1: 50% needs

The 50% needs category is for all your monthly essentials. Essentials include things you simply cannot live without.

For instance, rent or mortgage payments, healthcare, groceries, car expenses and payments, utilities, and also debt payments.

So as you can see, when budgeting for needs, you only include the necessities you need to survive. It would not include entertainment, take-out, or fine dining.

How to save to stay within the 50% rule

You should be able to comfortably meet your needs with 50% of your monthly income after tax. If you’re spending more than this, you may want to re-evaluate.

Are you paying too much for rent? Are you spending more on transport than you can afford?

Do you spend a large chunk of money on weekday lunches? These are all good questions to ask yourself.

Whatever the case, you can make immediate changes to your spending and also improve your budget with the 50-30-20 rule.

For instance, consider moving to a more affordable home or using public transport to keep costs down. Additionally, you can use cold lunch ideas and make your food at home to bring to the office.

Category 2: 30% wants

Wants are all the “nice to haves” that you spend money on with the 50-30-20 budget. These are items you definitely don’t need, but perhaps they are fun, or they add to your life in a positive way. And that’s OK!

The aim is to keep a detailed budgeting plan so your spending habits and fun money don’t get out of control!

The list of wants is endless and also differs from person to person, depending on your lifestyle.

For example, your personal list might include going out to the movies, eating in restaurants, buying new electronic gadgets, buying a pre-owned designer handbag, or tickets to a big game.

Another person’s wants might include cable TV or a Netflix subscription, going to concerts, and paying for gym memberships.

Consider alternatives to large expenses

Remember: there are many good substitutes for wants that cost little to nothing.

For example, you might want to buy the latest iPhone but can’t afford it. Instead, buy an earlier version, and you’ll still get the same benefits.

Alternatively, fitness fanatics who can’t justify the cost of signing up for the gym could work out at home instead.

There is almost always a cheaper alternative available when you’re looking to purchase an item. But feel free to balance your needs vs wants so you still enjoy some of these activities from time to time.

Wants may sometimes include premium experiences that are beyond reach financially. Decide what you can afford using the 50-30-20 rule.

For example, someone may want a new BMW when they can easily have a nicely equipped Toyota that would cost much less.

Be mindful of your wants, as it can be easy to justify spending if you really want something. This idea is tricky to master.

Category 3: 20% savings

Arguably the most important category in the 50-30-20 budget is savings, as this can determine your future. Savings, in this case, refers to both savings and investments.

Savings can take many forms ranging from your emergency cash to your savings account. It can also include any money market investments you have.

Keep in mind that investments refer to any money you have set aside to generate income. It can include investing in the stock market, purchasing real estate, or setting up your retirement accounts.

Priorities for saving

Your top priority should be your emergency fund. It is important to have 3 to 6 months’ worth of living expenses saved in your emergency fund.

Beyond that, focus on your retirement savings. These can include putting money into your company-sponsored 401(K) plan or an IRA. You might ask yourself, “Do I need a financial advisor?” and you can consider hiring one to help you set this up.

How to use the 50-30-20 rule to create your budget

The 50-30-20 budget rule is very simple, and it only has a couple of steps to get started. Here are some tips to make sure the budget works well for you.

Know what your income is

To get started, you need to figure out your after-tax income.

After-tax income is simply the amount of money you have left over after taxes are paid. These taxes include federal and state, in addition to Medicare costs, and don’t forget about social security.

Note: Don’t be confused by your gross income, which is the salary you earn before tax deductions have come out. We’re looking purely at how much money you have left in your bank account to divide it into your three main categories.

If you want a quick and easy way to figure out your take-home pay, simply look at your paycheck stubs.

If you run your own business or are starting a side business, you’ll still calculate your after-tax income. All you have to do is take your gross income and subtract your business expenses and also any state and federal taxes.

Split your income into the three categories

Once you’ve figured out your after-tax income, the fun begins. It’s time to split your income into the three spending groups.

You can do this by creating your own budget or by using the 50 30 20 budget template.

And then you’re all set! All you have to do is keep track of your money and also make sure you stick to the budget.

A quick note on paying down debt

Do you have credit card debt, a personal loan balance, or perhaps student loans to pay back? Debt payments fall across both your needs and your savings categories with the 50-30-20 rule.

Why? The minimum payment you owe on your outstanding debt is a need in that you must pay it back and also pay it on time each month.

But only paying back the minimum amount is a slow and expensive way to tackle your debt.

Instead, we recommend contributing to your savings so you save money to pay off your debt faster and start living debt free.

The saved money can go towards the principal, effectively saving you money in paying future interest payments down the road.

Expert tip: Customize your percentages

While it’s important to stay close to the percentages of the 50-30-20 rule, it doesn’t have to be exact for it to work.

For example, if you actually spend 53% of what you make on necessities, this budget will still work relatively well for you.

On the other hand, if you find that your percentages are very different, you may want to consider another percentage budget that will work better for your income and lifestyle.

Examples include the 80/20 budget, the 60 20 20 rule, the 70-20-10 budget, and the 30-30-30-10 budget!

A 50 30 20 budget template you can use

If you haven’t already set up your budget, this 50 30 20 budget template is easy to use. Simply add your own budgeting amounts.

Below is an example with possible amounts included.

Total net income per month: $5000

Needs 50%: $2,500
Debt payoff$300
Phone Bill$100
Needs total$2500
Wants 30%: $1500
Subscriptions and TV streaming services$100
Miscellaneous spending$300
Wants total$1500
Savings 20%: $1000
Emergency fund$300
Retirement savings$500
Sinking fund$200
Savings total$1000
Total budgeted$5000

As you can see, you can add whatever amounts you want to this 50 30 20 budget template and then use the percentages listed to create your own version of this budget.

You can also add different budget categories if needed, but this works well as an example.

Additionally, here is an actual budget worksheet to download. You can lay it out based on the 50-30-20 split discussed. Just click the image below!

Clever Girl Finance budget worksheet
Click the image to download the budget template

DIY 50 30 20 budget spreadsheet

Another option is to set up your own 50 30 20 budget spreadsheet.

If you’re great with Excel or Google Sheets, you’ll enter your post-tax income into a single cell and set up calculations to convert this into corresponding 50%, 30%, and 20% categories.

50 30 20 calculators

Figuring out your budget doesn’t have to be difficult.

Here are some examples of a 50 30 20 calculator.

Banzai calculator

The Banzai calculator will ask you to enter your post-tax income, and it does the rest for you!

You’ll easily see how much to allocate to each of the three categories for the 50-30-20 budget.

Credit Karma’s budget calculator

This option from Credit Karma is also helpful. It doesn’t calculate percentages, but rather, offers an overall picture of your budget.

Simply enter your income, along with your living expenses, other costs, etc. You will be able to easily see how much you have leftover each month and your amounts for spending, investing, and more.

Money Fit calculator

The Money Fit 50/30/20 budget tool is also a great resource.

It includes category ideas to help you see what you spend money on, and you can change the percentages to suit your needs.

Does the 50-30-20 rule apply to every budget?

The 50-30-20 rule does not apply to every budget, rather, it is based on your income and expenses. It can work very well for people whose expenses are approximately half their income.

However, if you find that your expenses take a larger portion of your income, then you may want to try a different budget.

Is the 50-30-20 budget gross or net?

The 50-30-20 rule is based on net income, not gross. You make your budget with the money that you have after taxes.

Otherwise, your numbers won’t be accurate because money still has to come out of your income for taxes, so you are overestimating the amount you have to spend.

What are the flaws of the 50-30-20 rule?

The flaws of the 50-30-20 rule mostly have to do with preference and income.

Your preference may be to spend more on savings and less on fun money, in which case you might not like the 30% wants category.

Even though it does have flaws, you may find that it works well for your lifestyle.

Is the 50-30-20 rule weekly or monthly?

The 50-30-20 rule applies to your monthly income and monthly expenses list. So the entire budget is based on what you make in a month.

Doing this budget weekly would be time-consuming and confusing, so it’s best to do this once a month and calculate your entire monthly income at one time.

If you enjoyed reading about the 50-30-20 rule, learn more about budgeting by checking out these articles next!

Leverage the 50-30-20 budget today!

Budgeting doesn’t have to be difficult, and this option is a great way to start your money goals quickly and easily, especially if you decide to use the 50 30 20 budget template.

Remember to use your post-tax income as your base and divide your money from there. Now that you have all the steps in place go ahead and get started!

P.S. Here are other budgeting methods to explore. The 80/20 budget, the 60 20 20 rule, the 70-20-10 budget, and also the 30-30-30-10 budget!

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