The 50/30/20 rule divides after-tax income into needs, wants, and savings or debt payments. It is a flexible framework, not a requirement to match exact percentages.
How it works
- 50% for needs such as housing, utilities, food, and transport.
- 30% for wants such as hobbies, dining out, and entertainment.
- 20% for savings and extra debt payments.
Real-life example
With $3,000 of monthly take-home pay, the guideline suggests $1,500 for needs, $900 for wants, and $600 for savings or debt. Adjust the shares when housing costs or debt obligations are higher.
FAQ
What if my numbers do not fit?
Use the categories to understand your trade-offs and create a version that reflects your situation.