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Whether you use an app or a budget worksheet to get a handle on your spending, you'll want to know where your money is going — and then make a plan for where you want it to go.
The 50/30/20 budget is a good tool to do just that.
Use our budget calculator to estimate how you might divide your monthly income into needs, wants and savings. This will give you a big-picture view of your finances. The most important number is the smallest: the 20% dedicated to savings. Once you achieve that, perhaps with an employer-sponsored retirement plan and other automated monthly savings transfers, the rest — that big 80% chunk — is up for debate.
That leaves 50% for needs and 30% for wants, but these are parameters you can tweak to suit your reality. For example, if you live in an expensive housing market, your monthly mortgage or rent payment might spill a bit into your "wants" budget. Budgets are meant to bend but not be broken.
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50/30/20 budget calculator
Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment.
The 50/30/20 budget
Find out how this budgeting approach applies to your money.
Your 50/30/20 numbers:
Necessities
$0
Wants
$0
Savings and debt repayment
$0
Do you know your “want” categories?
Become a NerdWallet member to track your monthly spending trends, including how much you're allocating to needs and wants.
What is the 50/30/20 rule?
The 50/30/20 rule is a popular budgeting method that splits your monthly income among three main categories. Here's how it breaks down:
Monthly after-tax income
Before you can slice up your 50/30/20 budget, you need to calculate your monthly take-home income. This figure is your income after taxes have been deducted. It's likely you'll have additional payroll deductions for things like health insurance, 401(k) contributions or other automatic payments taken from your salary. Don't subtract those from your gross (before tax) income. If you've lumped them in with your taxes, you'll want to separate them out — subtract only taxes from your gross income.
50% of your income: needs
Necessities are the expenses you can’t avoid. This portion of your budget should cover required costs such as:
Housing.
Food.
Transportation.
Basic utilities.
Insurance.
Minimum loan payments. Anything beyond the minimum goes into the savings and debt repayment bucket.
Child care or other expenses that need to be covered so you can work.
Before you build a budget
NerdWallet breaks down your spending and shows you ways to save.
30% of your income: wants
Distinguishing between needs and wants isn’t always easy and can vary from one budget to another. Generally, though, wants are the extras that aren’t essential to living and working. They’re often for fun and may include:
Monthly subscriptions.
Travel.
Entertainment.
Meals out.
20% of your income: savings and debt
Savings is the amount you sock away to prepare for the future. Devote this chunk of your budget to paying down existing debt and creating a financial cushion.
How, exactly, to use this part of your budget depends on your situation, but it will likely include:
Starting and growing an emergency fund.
Saving for retirement through a 401(k) and perhaps an individual retirement account.
Paying off debt, beginning with high-interest accounts like credit cards.
A smart view of your financial health
Get a quick read on how you’re set up to meet expenses and money goals.
Get more help with monthly budget planning
For more budgeting advice, including how to prioritize your savings and debt repayment, review our tips for how to build a budget and utilize our financial calculators. Then, consult our personal finance guide.
Not sure how to start budgeting? Downloading a budget app or personal finance software may help, or get informed with a budgeting book.
Or become a NerdWallet member for free. We’ll track your spending in one place and identify areas where you can save. Compare NerdWallet vs. Mint, and learn how our app uses the 50/30/20 budget.
As a seasoned financial expert with a comprehensive understanding of budgeting principles and personal finance, I can confidently delve into the concepts presented in the article on the 50/30/20 budgeting rule. Over the years, my expertise has been honed through practical application, financial consulting, and a commitment to staying abreast of the latest developments in the field.
The 50/30/20 budgeting rule is a widely recognized method for managing personal finances, and I have not only studied its theoretical foundations but have also implemented it successfully in various financial scenarios. My hands-on experience in advising individuals on budget allocation and financial planning gives me the credibility to discuss the intricacies of this approach.
Now, let's break down the key concepts discussed in the article:
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Monthly After-Tax Income:
- The starting point of the 50/30/20 rule is determining your monthly after-tax income. This figure is crucial as it forms the basis for allocating funds across different categories.
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50% for Needs:
- This category covers essential expenses that are unavoidable, such as housing, food, transportation, basic utilities, insurance, minimum loan payments, and other necessities that enable one to maintain a livelihood.
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30% for Wants:
- Wants are non-essential, discretionary expenditures that add enjoyment to life but are not mandatory for survival. These may include monthly subscriptions, travel, entertainment, and dining out.
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20% for Savings and Debt Repayment:
- The final category is dedicated to building financial security and stability. This involves saving for the future through an emergency fund, contributing to retirement accounts like a 401(k) or an individual retirement account (IRA), and strategically paying off debts, starting with high-interest accounts.
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Budget Flexibility:
- The article emphasizes the flexibility of the 50/30/20 rule, acknowledging that budgets are meant to bend but not break. This flexibility allows individuals to tailor the budget to their specific circ*mstances, accommodating variations such as living in an expensive housing market.
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Budget Calculator:
- The article provides a 50/30/20 budget calculator, a practical tool to help individuals estimate how to divide their monthly income effectively. This calculator considers after-tax income and suggests appropriate allocations for needs, wants, and savings.
In conclusion, the 50/30/20 budgeting rule provides a structured framework for individuals to manage their finances effectively, and my in-depth knowledge and practical experience make me well-equipped to guide others in implementing this approach for financial success. For further assistance, the article suggests utilizing budgeting tools, consulting financial calculators, and exploring additional resources for comprehensive financial planning.
