What is the 50/30/20 Budget Rule?

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50 30 20 rule
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Balancing your money is the key to having enough.” — Elizabeth Warren and Amelia Warren Tyagi, All Your Worth: The Ultimate Lifetime Money Plan

The 50/30/20 budget rule is a condensed version of The Balanced Money Formula from the book, “All Your Worth: The Ultimate Lifetime Money Plan.”

The 50/30/20 rule is lauded for its simplicity but also criticized for its lack of goals and flexibility. This is a shame because The Balanced Money Formula is simple, flexible, and goal-oriented.

This is why we’ll be discussing the 50/30/20 rule in this article while referring to its origins, to give the most comprehensive budgeting guide.

What is the 50/30/20 Budget Rule?

The 50/30/20 budget rule requires you to balance your money into these three categories:

  1. 50% – Your Must-Haves (the things you need)
  2. 30% – Your Wants (the stuff that’s just for fun)
  3. 20% – Your Savings (the money you save)

Unfortunately, in most of the articles and videos that talk about this rule, they forget to mention one very important word, balance.

The main reason to follow this budgeting rule is to get your money in balance. The idea is that once you balance your Must-Haves and Wants, you’ll be able to save even without conscious effort

Must-haves (50%)

You’re probably wondering if your necessities can be funded with just 50% of your money. These are must-haves, right? So they should get as much money as they can.

Think of it this way, shelter is a necessity. But there’s a difference between a mansion and an apartment. Just because something is a must-have, doesn’t mean you can’t cut down on its costs.

So why 50%? It’s sustainable and it’s flexible. You can live just on 50% of your income for a long time without having to make too many sacrifices. Keeping the costs of your necessities to 50% also means that you can land on your feet if and when your income is suddenly reduced.

Examples of must-haves are:

  • Housing
  • Utilities
  • Groceries
  • Transportation

Related article: How Much Should I Spend On Groceries Per Month?

What Do I Do if Must-Haves Are Over 50%?

Must-haves comprise the biggest portion of your budget because they’re the heart of the 50/30/20 plan. And getting these necessities in balance is the most crucial step.

Here are some things you can do to get your necessities in balance:

  1. Lower Your Insurance Costs
  2. Get a Discount on Your Student Loans
  3. If You Are Renting, Negotiate a Better Deal
  4. Get a Roommate or a Tenant
  5. Stop Signing Long-Term Contracts
  6. Sell Your Expensive Car and Buy A Used One
  7. Return all your rentals

If your must-haves are still over 50% of your budget after following the steps above, don’t worry, there are still some things you can do. They’re a bit drastic but desperate times call for desperate measures.

1. Know When It’s Time for Another Job

If you still can’t get your necessities in balance then maybe the problem is your income. However, only you can know whether or not it’s time for another job.

2. Know When It’s Time to Move

The cost of living varies wildly from place to place. Maybe you just can’t afford to live in your current area just yet. If so, it’s time to relocate even if it’s only temporary.

3. Increase Your Worth

This isn’t some self-help metaphorical thing. Increase your worth by gaining new skills or just improving your productivity. You may not qualify for the jobs that pay well enough for your ideal lifestyle right now, but you can work towards that goal.

Wants (30%)

One of the biggest criticisms of the 50/30/20 rule is that it allocates too much money to wants. However, sustainability is the most important aspect of any budget. Allocating a small amount of money to wants only to stop following your budget after a month means that all your planning was wasted.

30% of your budget going to your wants can motivate you to follow through as long as you follow these steps:

  1. Set a Clear Limit
  2. Shift to Cash
  3. Watch out for emotional spending

Setting a Clear Limit

As mentioned above, 30% is pretty substantial but it’s planned this way so you can follow through. So you need to follow through and set a clear limit.

Unlike must-haves, your wants can be cut down without abandon. Make a list of your wants and organize them according to priority. Once you reach your limit, cut your list short and call it a month.

Shift to Cash

This is difficult to do in modern society. So if you’re paying off all of your credit card balance every month, consider this optional. Those who have a hard time keeping their wants in check though, consider this gospel.

The act of handing over cold hard cash when making a purchase is one of the most helpful experiences when budgeting. When your money is just a bunch of ones and zeroes, it’s a lot easier to overspend. So switch to cash if you can.

Watch Out for Emotional Spending

Just like the suggestion above, this doesn’t apply to everyone. But knowing is half the battle, so you must figure out if you’re an emotional spender.

Have you gone on a shopping frenzy due to a broken heart, a celebration, or just to feel something? If so, then you might be an emotional spender.

Unfortunately, there is no easy solution to this. You probably already know that the things you feel can’t be fixed with money. You can’t spend your way out of pain or guilt.

At the end of the day, the only way to counteract emotional spending is to remind yourself to keep money out of your emotional problems. It’s a bit harsh but you’ll thank yourself later.

Savings (20%)

Another criticism of the 50/30/20 plan is that it allocates way too little to debt payment. But that’s only valid if the 20% is equally shared between debt, savings, and investments.

The Balanced Money Formula is clear on its priorities though. And that is to pay off all your debt first.

Paying off your debts may be the most important investment you ever make in your future.” — All Your Worth: The Ultimate Lifetime Money Plan

Once you’ve paid off all your debt, then you can start your lifetime savings plan:

Step 1: Save $1000

Step 2: Create Your Security Fund

Step 3: Create a Retirement Fund

Step 4: Pay Off Your Home

Step 5: Save for Your Other Dreams

After you’ve gained some headway with your savings, it’s now time to cultivate your savings through investment.

  1. Invest in the stock market
  2. Diversify your investments
  3. Pay as little overhead costs as possible
  4. Or better yet, Just invest in an index fund just like Warren Buffett suggests
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Frequently Asked Questions

Does the 50 30 20 rule still work?

It works but only if you stick to it and you’re flexible in its application.

How do you budget with the 50 20 30 rule?

The 50/30/20 budget rule requires you to balance your money into must-haves, wants, and savings.

When might the 50 30 20 rule work?

The 50/30/20 budget works for anyone who can pay off their debts with just 20% of their income every month.

Why is the 50 30 20 rule good?

The 50/30/20 budget is popular because of its simplicity. A simple budget is easy to follow and easy to stick to. And at the end of the day, a budget is only good if you can stick to it.

Is the 50/30/20 budget rule suitable for everyone?

No, those with too much debt will need to allocate more of their income to repaying them.

Can I save more than 20% of my income?

Yes, the 50/30/20 budget rule is flexible to a degree. So you can allocate some of the budget of your wants to your savings category.

What should I do if my necessities exceed 50% of my income?

Despite being called necessities, it’s still possible to cut down on their costs, such as: lowering your insurance costs, getting a roommate, or getting a cheaper car.


The 50/30/20 budget rule is a condensed version of The Balanced Money Formula from the book, “All Your Worth: The Ultimate Lifetime Money Plan.”

This budget rule requires you to balance your money into must-haves, wants, and savings.

Must-haves comprise the biggest portion of this budget because getting your necessities in balance is the most crucial step.

Budgeting your wants requires you to set a clear limit. It’s also necessary to spend enough on your wants to keep you motivated in following the 50/30/20 budget.

Finally, you must pay off all of your debts before you can start saving in earnest. Once you have saved enough money, you should cultivate your savings preferably by investing in an index fund.

Last Updated on January 01, 2024
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Disclaimer: The information provided in this website is for educational purposes only and should not be considered as financial advice. Consult with a financial professional for personalized guidance regarding your specific situation.

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