The 50/30/20 Budget | The Simple Way to Budget

If you are new to budgeting, it can feel overwhelming coming up with a plan and making decisions about where your money needs to go.

If this is not your first budgeting rodeo– perhaps you are still struggling with finding the right budgeting method that works for you!

Are you looking for a simpler approach to budgeting? Harvard bankruptcy expert and U.S. Senator from Massachusetts, Elizabeth Warren may be the answer you have been searching for– the 50/30/20 budget!


50/30/20 budget

How does the 50-30-20 Budget work?

What are the rules of 50/30/20 budgeting?  This budgeting method breaks up your after-tax income into 3 different categories. Each category is assigned a budget percentage of your income.

A Note on After-Tax Income

After-tax income is what is left of your paycheck after state tax, local tax, income tax, Social Security, and Medicare are taken out.

If you have health care, 401 K contributions or any other automatic deductions taken out of your paycheck, you’ll need to add those back into your after-tax income.

If you’re self-employed, your after-tax income is your gross income (the whole amount of money you earned) minus business expenses and self-employment taxes owed.

50/30/20 budget

Category 1: 50% for Needs

Half of your after-tax income goes to your basic needs. Needs are things you have to pay no matter where you live, work, etc. and need for your absolute existence.  

Budget categories for needs would look something like this:

  • Shelter (rent or mortgage)
  • Food (groceries)
  • Utilities
  • Debt Minimum Payments
  • Transportation to work (car, bus, taxi, train, fuel, maintenance, etc.)

Category 2: 30% for Wants

Thirty percent of your after-tax income goes to things you want. Budget categories for wants could look something like this:

  • Dining Out
  • Cell Phone
  • Cable + Internet
  • Clothing
  • Gym Membership
  • Starbucks
  • Entertainment (Movies, books, music)
  • Personal care (haircuts, pedicures, etc)
  • Art Classes


Looking for ways to stretch the “wants” in your budget? Check out these posts:

The Ultimate Guide to Practical Frugal Living Ideas

30 Days to Saving More Money

How to Stop Spending Money | Getting Control of Your Spending


Category 3: 20% for Savings and Debt

How much should you be saving per paycheck?? According to this method, twenty percent of your after-tax income goes toward savings or paying down debt. Budgeting categories for savings and debts could look something like this:

  • 401 K Contributions
  • Emergency Fund
  • Sinking Fund
  • Extra Debt Payments


If you are interested in a free 50/30/20 budget spreadsheet template, sign up below and get access to my free Resource Library– with budgeting templates, money saving printables, organization printables and more!



50/30/20 Budget Example

Assuming, for our example, an after-tax income of $3000 a month.

Needs Budget 

$3000/ 50% = $1500 a month. 

  • Shelter (rent or mortgage): $900
  • Food (groceries): $300
  • Utilities: $100
  • Debt (Minimum Payments): $50
  • Transportation to work (car, bus, taxi, train, fuel, maintenance, etc.): $150


Wants Budget

$3000/ 30% = $900 a month. 

  • Dining Out: $200
  • Cell Phone: $80
  • Cable + Internet: $80
  • Clothing: $50
  • Gym Membership: $80
  • Starbucks: $40
  • Entertainment (Movies, books, music) $150
  • Personal care (haircuts, pedicures, etc): $100
  • Art Classes: $120


Savings and Debt Category

$3000/ 20% = $600 a month.

  • 401 K Contributions: $300
  • Emergency Fund: $100
  • Sinking Fund: $50
  • Extra Debt Payments: $150


Pros and Cons of the 50/30/20 budget rule?

Pros to the 50/30/20 budgeting method.

  • Great for beginning budgeters. If you have no idea what a budget looks or acts like, this is a great starting point on your financial journey.
  • Easily adaptable. Whether you have a fixed income or a more fluid income source, both can be budgeted easily with this method.
  • Provides well-balanced budget parameters. Whether you’re making $40,000 or $400,000 the percentages still provides great guidelines to keep your money on track. Allowing for both saving and small splurges!

Cons to 50/30/20 budgeting method.

  • Doesn’t work well for extremely tight budgets. Perhaps your take-home pay doesn’t allow for 30% of “wants” or even 20% to savings or debts.


Related Posts:

The Cash Envelope System | Everything You Need to Know

Zero Based Budget | Putting Yourself in Control of Your Finances



I’d love to hear how this works for you! Please comment below.




Leave a Reply

Your email address will not be published. Required fields are marked *