Want to save money? Follow this 50/30/20 rule - Follow this simple money rule (2024)

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Want to save money? Follow this 50/30/20 rule - Follow this simple money rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.

To best use the 50/30/20 rule, balance your current income and expenses with your short- and long-term goals. Let's say you earn $2,500 per month after taxes. You'll aim to spend no more than $1,250 on necessities and $750 on wants, leaving $500 for savings and debt payments.

The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.

The basic idea of the 50/30/20 rule is simple. You allocate 50% of your post-tax income to “needs” and another 30% to “wants.” That leaves you with at least 20% of your net income that you're able to save or use to pay down existing debt.

Key Takeaways. The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.

Why is the 50-20-30 rule easy for people to follow, especially those who are new to budgeting and saving? Because 50% of monthly after-tax income should be used for housing, fixed, essential, needs expenses. 20% of monthly after-tax income should be used for savings.

A popular savings rule of thumb in which 50% of your income goes towards necessities (groceries, rent, utilities), 20% goes towards savings, debt, and investments, and 30% goes towards flexible spending.

Designate 50% of your income to needs (mortgage/rent, utilities, car payments), 30% to wants (travel, concerts, fashion splurges) and 20% goes directly to your savings account(s) and debts.

What is one negative thing about the 50 30 20 rule of budgeting? ›

Some Experts Say the 50/30/20 Is Not a Good Rule at All. “This budget is restrictive and does not take into consideration your values, lifestyle and money goals. For example, 50% for needs is not enough for those in high-cost-of-living areas.

The 60/30/10 budgeting method says you should put 60% of your monthly income toward your needs, 30% towards your wants and 10% towards your savings. It's trending as an alternative to the longer-standing 50/30/20 method.

Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment. Find out how this budgeting approach applies to your money.

Balance Your Budget

50% for needs like housing, food, and transportation. In this case, the monthly car payment and other related auto expenses fit into this category. 30% for wants like entertainment, travel, and other nonessential items. 20% for savings, paying off credit cards, and meeting long-term financial goals.

But it is possible to live well even on a small amount of money. Surviving on $1,000 a month requires careful budgeting, prioritizing essential expenses, and finding ways to save money. Cutting down on housing costs by sharing living spaces or finding affordable options is crucial.