What Is the 50/30/20 rule?

Creating a household budget is one of the best ways to take control of your financial future. With a set budget, you can ease the stress of determining how much to spend on any one thing and remind yourself to save for the future. But if you’re just starting out, it may be intimidating to figure out how to allocate your money. How much should you be spending on your essentials vs. putting into savings?

One popular budgeting strategy for beginners is known as the 50/30/20 rule. This divides your after-tax income into three categories: your needs, your wants and your savings. Keep reading to learn how you can start budgeting with the 50/30/20 rule.

How do I use the 50/30/20 rule?

The first step to developing a budget that follows the 50/30/20 rule is to take stock of your total take-home income. This means all the money you bring in after taxes. Next, break down that number into three categories:

50% for needs

50% of your income goes toward the essential needs that you can’t live without. This is the biggest budget category when you use 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

30% of your income goes to your wants, the fun 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 

20% for savings

20% of your income goes to saving for the future. This can also include paying off debt or investing. 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 

Putting together your 50/30/20 budget

Let’s look at a model of a budget that follows the 50/30/20 rule.

Let’s say you earn $3,000 a month after taxes. Following the 50/30/20 rule, you’d earmark around $1,500 a month for needs, $900 for wants and $600 for savings and debts.

This is just an example. Your financial needs may be different depending on your unique situation. Don’t be afraid to adjust your spending goals as needed. For example, in your savings category, once you’ve set aside a certain amount of money in your emergency fund, you might stop contributing to it and start saving for a down payment on a home.

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

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

Pros of the 50/30/20 rule

• Convenient to start: The 50/30/20 rule can be simple to implement and use. Especially if you’re new to budgeting, it can be a great way to help organize your finances.
• Clear priorities: This budget helps to prioritize your most essential needs and helps ensure you’re always setting aside money for savings.
• Adaptable: If your income changes, you can adjust the exact amounts you spend while maintaining the percentage in each category.

Cons of the 50/30/20 rule

• Difficulties with non-standard income: 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, you may not have the same income every month.
• Variable costs of needs: If you live in a high-cost-of-living area, it may not be realistic to spend only 50% of your income on essentials. Rent, groceries or transit may eat into your available income.

Helpful tips for using the 50/30/20 rule

Once you’ve developed your budget with the 50/30/20 rule, there are many ways you can maintain and improve your finances to help meet your goals.

Check your automatic payments

You may have set up automatic payments for recurring costs like credit card bills, rent or utilities. Autopay can help ensure you make payments on time, but it can also mean you’re not as aware of your spending. It’s important to stay on top of automatic payments, such as streaming subscriptions or gym memberships, that may drain your budget if you forget to cancel them.

Track your spending

Tracking your spending may help you stick to your budget. This can be as simple as keeping a log of your payments in a note or a spreadsheet, but you may want to look into a dedicated budgeting app that can automatically divide your expenses into your 50/30/20 categories. Citi customers can also use the Citi Mobile® App to check their account balance and recent transactions on the go.

Find alternatives for big-ticket items

If you find yourself spending more than 30% of your budget on wants, there are several ways to cut costs. 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. Prioritize the purchases that have the most significant impact on your quality of life. Some people prefer to have a big event, such as a vacation, to look forward to, while others prefer smaller luxuries in their day-to-day lives.

Stay flexible

Budgeting needs can change, so it's a good idea to revisit and adjust your expenses as needed. You may decide to spend more on your wants during the holidays or put more into your savings in the run-up to a big event. The 50/30/20 rule is a guideline. Find the version that works best for you.

Budget with confidence with the 50/30/20 rule

The 50/30/20 rule is a way to start budgeting your monthly expenses. Once you get started, you may find yourself feeling less stressed about your spending. Keep track of how you spend and stay on top of your needs, wants and savings to help build a stronger financial future.

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.