What is the 50/30/20 budget rule?

If you’re new to budgeting, figuring out how to manage your money can feel overwhelming. A good way to keep it simple is a percentage-based budget; it divides up your monthly income to go toward your expenses, savings, debt, and whatever categories you choose. One of the most common percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings.

Budget 50% for necessities

Needs are those bills that you absolutely must pay and are the things necessary for survival. These expenses can include rent or mortgage payments, car payments, groceries, insurance, health care, and utilities.

Budget 30% for wants

Optional expenses or “wants” should account for 30% of your income. Anything from dining out, clothes shopping, Starbucks, your cable or cell phone plan, travel, gifts, or a gym membership qualifies as a want. In the grand scheme of things, these purchases may be important to you, but they are optional costs.

Budget 20% for savings

The remaining 20% of your income should go toward saving money. Saving can include opening a deposit account to save for an emergency fund, a down payment, vacation or any other larger goal. It could also mean contributing to an investment account or a retirement plan, like a 401(k) or IRA. You can also allocate part of this section to paying down any debt.

Consider taking an extra savings step by using automatic transfers options and our Swipe2Save “round up” program that take your debit card transactions, round them to the nearest dollar, and automatically transfer the “change” to your savings. You can also set up direct deposit, so that a portion of your paycheck goes right into your savings account.

Is the 50/30/20 budget rule right for you?

The 50/30/20 rule can be a good budgeting method for some, but whether the system is right for you will be determined by your unique circumstances. The 50/30/20 budget is an example of a percentage-based budget. If it doesn’t work for you. Take a look at your financial situation and goals, and come up with a formula that works for you. Whatever budgeting method you choose, it will only work if you stick to it. No matter what budgeting method you choose, Money Manager in our online banking suit will help you set, track and stay on budget.

Good Luck and happy budgeting!