What is the 50-30-20 rule and is it the best way to budget?

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The 50-30-20 rule is a pretty well known budgeting framework developed by Elizabeth Warren (yeah, the former presidential candidate and Kate McKinnon muse!) in her 2006 bestseller, All Your Worth. This rule of thumb has stuck around for more than a decade because it’s simple.

To use it, you take the amount of money you make each month after tax and divide it into three buckets:

50% ‘Needs’ (the bills you have to pay every month): think rent, utilities, groceries, healthcare, and transportation.

30% ‘Wants’ (some fun cash for right now): things like travel, Netflix, Postmates, buying new clothes, and upgrading your phone would all fall into this category. Basically anything you could live without.

20% ‘Savings’ (to build a better tomorrow): here’s where you’re paying off debt (from student loans to credit cards) and building up your long term savings (like an emergency fund, buying a house, and retirement).

Does this method work for everyone? Nope. There’s no one size fits all solution when it comes to money. If you’re just getting by, putting 20% towards savings might not be doable. Can start with 10%? On the other hand, if you just got a big raise but are trying to live more simply, you might not need to keep your ‘wants’ at 30%. Maybe you’ll be just as happy at 25% now. The main goal here is to get started. Know how much money you’re bringing in after taxes, be honest about how much money you need to spend now, know that it’s okay to spend money on things you really enjoy, and make sure you’re carving out enough room to pay Future You.

Still have questions?

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