What is the 50/30/20 rule?

If you’re looking to start a budget, consider the 50/30/20 rule. It’s a simple budget that can be great for beginners and adaptable to many financial situations.  

This popular budgeting strategy buckets after-tax income into needs, wants and savings. For example, if you earn $5,000 a month after taxes, under the 50/30/20 you’d allot around $2,500 a month for needs, $1,500 for wants and $1,000 for savings and debts.  

50% for needs

Needs are essentials you can't live without. This is the biggest budget category in the 50/30/20 rule. Needs might include: 

• Housing; including mortgage or rent payments 
• Groceries
• Utilities
• Transportation, such as car payments or public transit fare
• Childcare
• Medical costs
• Minimum debt payments

30% for wants 

Wants are typically discretionary purchases that may not be completely necessary for your daily survival. Wants might include: 

• Dining out 
• Movie or theater tickets
• Hobbies
• Vacations
• Sporting events
• Designer clothes, jewelry or accessories 

If you find yourself spending more than 30% on wants, there are many ways to cut costs and prioritize discretionary expenses. Think about whether there are places where you can cut expenses and still enjoy yourself. For example, you could go to a less expensive restaurant, wait for a new movie to come out on streaming instead of seeing it in the theater or take a trip closer to home. Consider what purchases most improve your quality of life. Some people prefer to have a big event, like a vacation, to look forward to, while others prefer smaller luxuries in their day to day. 

20% for savings and debt repayment 

20% of your income is to save for the future and repay your debts. You might put this money toward:

• Emergency funds
• Retirement savings
• Paying debt, such as student loan or credit card debt
• Saving for a big spending goal like a home purchase 

This category can evolve as your financial status changes. Once you've set aside a certain amount of money in your emergency fund, for example, you might stop contributing to it and start saving for a down payment on a home. Or, if you pay off your student loans, you might begin saving for a dream vacation.  

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

The 50/30/20 rule can be a great starter budget, but it doesn’t always work for everyone. Here are some of the pros and cons. 

Benefits of the 50/30/20 rule

The 50/30/20 rule is easy to implement and use. Especially if you're new to budgeting, it can be a great way to help get your finances organized. 

This budget gives top priority to your most essential needs and helps ensure you're always setting aside some money for savings. It's also adaptable: if your income changes, you can shift the exact amounts you spend while retaining the proportions.  

Drawbacks of the 50/30/20 rule

The 50/30/20 rule can be hard to adopt if you don’t have a fixed monthly income – for instance, if you’re an hourly employee with a variable schedule or a freelancer who charges per project. If you live in a high cost-of-living area, it may not be realistic to spend only 50% of your income on essentials. Or, if you have a lot of debt, you may need to put more than 20% of your income toward repaying it. 

Putting together your 50/30/20 budget

Start by calculating your take-home pay each month. Divide this number into three categories: 50% for essentials, 30% for wants and 20% for savings – that’s your budget. 

When you follow a budget, it’s important to monitor your spending. Automating payments for credit cards, rent, subscription services and other monthly costs can help ensure you make payments on time, but it is also easy to forget about a recurring withdrawal. Especially when you're first starting to budget, it's important to pay attention to all your spending. 

Logging into your bank account and credit card online or via your bank’s app can make it easy to see all your transactions in one place. Record each transaction and make note of which bucket it falls under. You can do this by hand in a notebook, on the computer using a spreadsheet, or on your phone using an app. Some apps will even categorize your expenses automatically. 

Budgeting needs can change, so it may be a good idea to revisit and readjust your expenses as needed. Check in regularly and track your expenses. Remember, consistency can help ensure you’re meeting your savings goals and staying on budget.

Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.