Personal Finance

I Thought Budgeting Was Complicated—Then I Discovered the Simple Genius of the 50/30/20 Rule

Dana George

Published: February 8, 2025 1:28 pm

I’m all about a great budget, and I think I have a pretty good reason for feeling this way. Money can feel overwhelming, but for me, laying a plan out in black and white removes the emotion. It’s just a matter of ensuring I bring in enough money each month to meet my financial obligations and goals. It’s all about the numbers. I believe I’ve tried just about every budget out there, some with budgeting rules so complicated that I gave up within days of setting them up. I needed something simple that wouldn’t consume much of my time — and that’s what I found in the 50/30/20 rule.

What is the 50/30/20 budget rule?

The 50/30/20 rule is a budgeting technique that divides your income into three categories: 50% for essentials, 20% for savings and debt repayment, and 30% for everything else. Let’s say you bring home $5,000 per month. Here’s how a 50/30/20 budget spreadsheet would break down your budget:

• $2,500 (50%) for essentials: From this category, you’ll pay rent, groceries, gasoline, daycare, and other essential expenses
• $1,000 (20%) for savings: This includes contributions to your retirement account, savings accounts, loans, and credit card payments
• $1,500 (30%) for everything else: This category includes the money you spend on things you could live without, like eating out, monthly streaming subscriptions, and a gym membership

The 50/30/20 rule accomplishes several things. It simplifies how you manage your budget and helps you keep your eye on other important goals, like saving for the future. As a bonus, it reminds you each month of what you need and what you can live without. If you lose your job or get sick and can’t work, you immediately know what can be temporarily trimmed from your budget.

Is the 50/30/20 rule realistic?

No, the 50/30/20 rule is not realistic for everyone. It may be the worst possible set of budget rules for you and your specific situation. For example, if you live in a high-cost area or have a child in daycare, 50% may not be nearly enough of your monthly budget to cover the cost of essentials. But that’s the beauty of this budget. You can customize it to fit your needs. You may have to change the name to the 70/20/10 or 60/20/20 rule, but the idea is the same. It’s a simple way to help you set goals and stay on track.

Again, imagine that you bring home $5,000 each month and your house payment is $2,000. By the time you pay for other essentials, like groceries and gasoline, you’ve spent more than 50% of your take-home pay. Seriously. That’s okay. It doesn’t mean this budget won’t work for you. It just means you’ll need to tweak it a bit. Here’s how that’s done:

• Total your essential expenses. For example, if the total amount you spend on essentials each month is $3,000, you know to change 50% to 60%.
• Make a decision. You have 40% left to spend, so decide how much you want to earmark for savings and paying off debt. If you determine that the most you can do right now is 20%, that gives you $1,000 to spend in that category.
• Plan for the money that remains. The third number is the amount you have left over. In this scenario, it would be 20%. That’s $1,000 to spend on non-essentials, like attending concerts, buying birthday gifts, and dinners with friends.

What’s the point of this budgeting rule?

The point of the 50/30/20 rule (or whatever the numbers end up being for you) is to create a balanced spending plan that considers both your needs and wants. It addresses your future by budgeting money to save each month and acknowledges how much easier it is to stick with a realistic budget. After all, you could decide that you’re going to save every dollar that’s not spent on essentials, but that would be a tough plan to stick with.

Grows with you

One of the best things about this type of budget is that once you’ve gotten into the habit of using it, you can change it to fit your changing circumstances. For example, if you get a new job and find yourself bringing home $7,500 instead of $5,000 monthly, you can revisit how much you want to fund each category. Or, if you’re retiring and expect your monthly income to be reduced, you can readjust your budget to fit your new circumstances.

It’s all about simplifying your life. Rather than worry about where the money will come from to pay for something, you can look at your budget and know whether the money is there.

Why the 50/30/20 rule matters

Budgeting is an important part of planning for your future. Whether you use a 50/30/20 rule, 70/20/10 rule, or some other variation, it’s a good way to categorize and control your spending.