The 50/30/20 rule is one of the simplest, most effective budgeting frameworks ever created. By dividing your income into just three categories, you create a balanced budget without complex tracking of every expense.
How This Calculator Works
This calculator divides your after-tax income into three categories:
- 50% Needs: Essential expenses you can't avoid
- 30% Wants: Discretionary spending for lifestyle and fun
- 20% Savings: Building wealth and paying off debt
Enter your take-home pay and see exactly how much to allocate to each category.
The Formula Explained
Needs Allocation = Take-Home Pay Ă— 0.50
Wants Allocation = Take-Home Pay Ă— 0.30
Savings Allocation = Take-Home Pay Ă— 0.20
These percentages come from Senator Elizabeth Warren's book "All Your Worth" and represent a balanced, sustainable approach to money management.
Step-by-Step Example
$5,000 Monthly Take-Home Pay
| Category | Amount | Examples |
| Needs (50%) | $2,500 | Rent, utilities, groceries, insurance, minimum debt payments, transportation |
| Wants (30%) | $1,500 | Dining out, entertainment, hobbies, travel, subscriptions, shopping |
| Savings (20%) | $1,000 | Emergency fund, retirement, debt payoff, down payment savings |
Frequently Asked Questions
What counts as a "need" versus a "want"?
Needs are expenses required for basic survival and work: housing, utilities, basic groceries, health insurance, transportation to work, minimum debt payments, and childcare. Wants are everything else—dining out, Netflix, gym memberships, vacations, and upgrades (premium cable vs basic, new car vs used). Be honest: a smartphone is a need; the latest iPhone is a want.
What if my needs exceed 50%?
In high-cost areas, housing alone can approach 50%. Options: (1) Find cheaper housing or roommates, (2) Reduce other needs (cheaper car, less expensive groceries), (3) Increase income, (4) Temporarily adjust to 60/20/20 while working toward the ideal. If needs consistently exceed 50%, you may be living beyond your means.
Should I save 20% even if I have debt?
The 20% goes to savings AND extra debt payments. With high-interest debt: keep a small emergency fund ($1,000-2,000), then direct most of the 20% toward debt. Once high-interest debt is gone, shift toward retirement savings and building a full emergency fund.
How is the 50/30/20 rule different from other budgets?
Unlike detailed budgets that track 30+ categories, 50/30/20 uses just three buckets. This simplicity makes it easier to follow. You don't need to know if coffee is "dining" or "groceries"—just whether it's a need or want. Less friction means higher adherence.
Should I use gross or net income?
Use net (after-tax) income—your actual take-home pay. If paid bi-weekly, multiply by 26 and divide by 12 for monthly. Include regular deductions like health insurance (a need) but calculate based on what actually hits your bank account.
What if I can't afford to save 20%?
Start where you can—even 5% is better than nothing. Focus on reducing needs first (biggest category, most opportunity). As debts get paid or income increases, raise savings rate gradually. The goal is progress toward 20%, not perfection immediately.
How do I handle irregular expenses like car insurance?
Divide annual expenses by 12 and budget monthly. $1,200 annual car insurance = $100/month set aside (in needs). Same for holiday spending, car maintenance, annual subscriptions. These "sinking funds" prevent budget shocks.
Is the 50/30/20 rule right for everyone?
It's an excellent starting framework for most people, but adjust for your situation. High earners might save 30%+. Those in expensive cities might need 55% for needs temporarily. Retirees have different ratios. Use it as a guiding principle, not an inflexible rule.
Key Points to Remember
- Simplicity wins: Three categories beat thirty for consistency
- Be honest: Correctly categorizing needs vs wants is crucial
- Pay yourself first: Automate the 20% savings before spending
- Adjust as needed: The percentages are guidelines, not laws
- Review monthly: Ensure you're hitting your targets