The 50-30-20 Rule

BUDGET 101: THE 50-30-20 RULE

To manage your finances better, creating a budget will be helpful. Sticking to a budget will help you ensure that your money is allotted to essential expenses and give room for some amount to add up to your savings.

Budgeting can be overwhelming at first. The budgeting techniques below will give you ideas on how to manage your budget.

Key Takeaways
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    What is 50-30-20 rule?

    The 50-20-30 rule is a simple approach where you split up your income into three categories: 50% for essential expenses, 30% for discretionary spending, and 20 % for Savings and paying off debt.

    Senator Elizabeth Warren initiated the 50-30-20 rule in her book, All Your Worth: The Ultimate Lifetime Money Plan. The rule is to divide your after-tax income and allot them by 50% on needs, 30% on wants, and 20% on savings or paying off debt.

    50 % ESSENTIALS 

    Essential expenses or “needs” must take most of the percentage of your after-tax income. These are expenses that are necessities and bills that absolutely must be paid. 

    • mortgage payments
    • car payments
    • insurance 
    • healthcare
    • utilities
    • groceries

    30 % Wants (discretionary spending)

    This allotment is for your spending that is not essential. This category may include spending for “upgrades” on services, subscriptions, etc. These are extras that you spend for entertainment and leisure 


    • Clothing
    • Dining outs/ take-outs
    • Gym memberships
    • Streaming subscriptions
    • Vacations
    • High -end gadgets and toys
    • High-speed internet
    • Personal care(nails, salons) 


    Allot 20% for Savings, paying off debt, or investing from your net income. This may include setting aside an amount for your emergency fund that is usually worth 3- 6 months’ worth of your expenses. You may opt to deposit it to a savings bank account, contribute to a mutual fund or invest it in the stock market and other investing tools.

    Remember, this rule may be helpful for some, but it’s not a fit for everyone. Expenses may vary, depending on location, job, life situation. If the 50-30-20 technique doesn’t fit your financial situation, you may want to try these other options: 

    The envelope system

    This budgeting technique works mainly for categories in your budget list that you mostly go overboard with. This can be done by putting in an amount of cash per envelope/category ( groceries, restaurants, gas, medicine, car maintenance, gifts, etc.). This way, you’ll only be using a certain amount for those expenses to avoid overspending. Any change should be put back in the envelope. This strategy helps you to keep track of your spending, teaches you to be disciplined, and lets you avoid overspending. Sounds good, right? The purpose of these cash envelopes is to control your spending to stick within your budget.

    The 80-20 plan

    If the 50-30-20 is a bit complicated, you may want to try a simple 80-20 plan, where you take 20% of your paycheck and deposit it directly into your savings account, and the remaining is up to you on how you will spend. The trick for this plan is to set up automatic withdrawals that take 20% of each income as soon as it’s deposited into your bank account. The money is immediately placed into separate savings account for you not to touch it or use it for spending. Better yet, set up a direct deposit. This means your employer will deposit 20% of your paycheck directly into a separate savings account and the rest into your checking account.

    DIY Budgeting

    Budgeting needs vary from person to person. That is why it’s good to create your own based on your income, expenses, and other factors. Start by calculating your monthly expenses. Check your bank statements to make sure you’re listing everything down.


    1. Calculate your expenses
    2. Determine your income after Tax
    3. Set up your saving goal and pay off
    4. Keep track of your expenses

    There are also budgeting tools and apps trackers that you can use to simplify your budgeting and expenses tracking. It’s essential to keep track of your expenses by saving cash payment receipts and keeping them with your card statements at the end of the month. Check if you’re overspending in certain areas or if you have a few extra dollars to save. Make some adjustments to fit your budget plan. 

    Lastly, set the amount of money you want to direct to savings and any payoff (could be debt or installments) goals. Once you have all these values, you can decide where your money will go each month and what income you can use.


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