The 50–20–30 Rule

Ben Le Fort
Jan 31 · 3 min read
Photo by Cathryn Lavery on Unsplash

You need a budget. If you have clicked on this story you already know that. It’s 2019 THIS is the year you need to create a simple budget that you know you can stick to. Enter the 50–20–30 Rule, a boilerplate budget that you can create today, like as soon as you are done reading this article.

One of the most difficult questions to answer when creating a budget is how much you “should” be spending on different expenses. How much “should” your rent be? How much “should” you spend on groceries? How much “should” you be saving every month?

The 50–20–30 rule helps quickly answer that question.

  • 50% of your money should be spent on “needs”
  • 30% of your money should be spent on “wants”
  • 20% of your money should go to saving and investing

Getting Started with the 50–20–30 Rule

You can put together a budget using the 50–20–30 rule in 4 easy steps.

Step 1: Calculate your monthly take-home pay

If you are a salaried employee who gets paid every two weeks your take-home pay is very easy to figure out.

  • Go grab your paystub and find your net pay (after taxes and deductions)
  • Multiply that number by 26
  • Divide that number by 12

If you clear $1,000 every two weeks, your monthly take-home pay would be $2,166.66 ($26,000 divided by 12 months).

Step 2: Budget 50% of your take-home pay to your “needs”

Your “needs” are your bills that you simply cannot escape;

  • Rent/mortgage payments
  • Utilities
  • Insurance
  • Car payment/gas
  • Cell phone/internet (if you NEED access to these for work)
  • Groceries
  • Childcare costs
  • Any other costs you simply cannot do without

Using the above example of monthly take-home pay of $2,166.66, you would budget $1,083.33 for your monthly “needs”.

Step 3: Budget 30% of your take-home pay to your “wants”

Wants are the things we do not have to spend money on but bring us some enjoyment. If you are paying for something you don’t “need” and is not bringing you any enjoyment, don’t buy it!

A list of “wants” might include;

  • Eating out
  • Going to the movies
  • Going to a concert/sporting event
  • Cable/Netflix
  • Going to the movies
  • Alcohol
  • Electronics/video games
  • Cellphone/internet (if you don’t NEED these for work)
  • Subscriptions
  • Furniture
  • Clothes (beyond the basics)

With a take-home pay of $2,166.66, you would budget $650 for your monthly “wants”.

Step 4: Budget 20% of your take-home pay to your “savings”

After all of your “needs” and “wants” are taken care of you can move onto the important business of “saving”. Saving could include several things such as;

  • Paying off debt
  • Building an emergency fund
  • Contributing to your 401(k) and retirement accounts
  • Saving for a home

With a take-home pay of $2,166.66, you would budget $433.33 for your monthly “savings”.

Is this the best budget for everybody in the world?

No.

Is it an effective and simple budget that you can create today?

Yes.

So, what are you waiting for? Go create your 50–30–20 budget right now!


Bonus video: How to save a “life-changing” amount of money


This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions

Making of a Millionaire

Stories about money, personal finance and the path to financial indepndence.

Ben Le Fort

Written by

Sharing my journey to financial independence. For freelance inquiries reach me at benlefort1988@gmail.com

Making of a Millionaire

Stories about money, personal finance and the path to financial indepndence.

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