The Simplest Budget That Works
The 50/30/20 rule, popularized by Senator Elizabeth Warren, divides your after-tax income into three buckets:
- 50% — Needs: Things you must pay for
- 30% — Wants: Things you enjoy but could live without
- 20% — Savings & Debt Repayment: Building your future
What Goes in Each Category
50% — Needs
- Rent / Mortgage
- Utilities (electricity, water, internet)
- Groceries (not dining out)
- Health insurance / Medical
- Car payment / Transportation
- Minimum debt payments
- Basic phone plan
30% — Wants
- Dining out / Takeout
- Streaming services
- Shopping (clothes, electronics, hobbies)
- Vacations / Travel
- Gym membership
- Upgraded phone plan
- Entertainment
20% — Savings & Debt
- Emergency fund
- Retirement contributions (401k, IRA)
- Extra debt payments (above minimums)
- Investing
- Down payment savings
Examples by Income
$40,000/year ($3,333/month after tax ~$2,800)
| Category | Amount |
|---|---|
| Needs (50%) | $1,400 |
| Wants (30%) | $840 |
| Savings (20%) | $560 |
$60,000/year ($5,000/month after tax ~$4,000)
| Category | Amount |
|---|---|
| Needs (50%) | $2,000 |
| Wants (30%) | $1,200 |
| Savings (20%) | $800 |
$80,000/year ($6,667/month after tax ~$5,200)
| Category | Amount |
|---|---|
| Needs (50%) | $2,600 |
| Wants (30%) | $1,560 |
| Savings (20%) | $1,040 |
$100,000/year ($8,333/month after tax ~$6,400)
| Category | Amount |
|---|---|
| Needs (50%) | $3,200 |
| Wants (30%) | $1,920 |
| Savings (20%) | $1,280 |
What If Your Needs Exceed 50%?
This is common in high cost-of-living areas. Options:
- Adjust the ratio — Try 60/20/20 temporarily
- Reduce housing costs — Roommate, smaller place, different neighborhood
- Increase income — Side hustle, negotiate raise, switch jobs
- Cut other needs — Cheaper phone plan, shop at discount grocers
The key is to always keep the 20% savings. That's non-negotiable for building wealth.
When 50/30/20 Doesn't Work
- High debt: Switch to 50/20/30 (30% to debt repayment) until debt is gone
- Very high income: You don't need 30% for wants — save more
- Very low income: Focus on needs first, save what you can
Getting Started
- Calculate your after-tax monthly income
- Track spending for one month
- Categorize each expense as Need, Want, or Savings
- Adjust spending to hit the 50/30/20 targets
- Automate savings so it happens before you spend
See Your Savings Grow
Even 20% adds up fast. Use our [savings calculator](/savings-calculator) to see how your monthly savings will compound over years, or our [investment calculator](/investment-calculator) to project long-term investment growth.