Financial Planning
Creating a Budget That Works: The 50/30/20 Rule and Beyond
A budget is a plan for your money. Learn the popular 50/30/20 rule and other simple strategies to manage your spending and accelerate your savings.
A budget isn't about restricting yourself; it's about empowering yourself. It's a plan that gives you control over your money, allowing you to direct it toward what's most important to you. The most effective budgets are simple and sustainable. One of the most popular and effective frameworks is the 50/30/20 rule.
The 50/30/20 Rule Explained
How to Divide Your After-Tax Income
50%
Needs
Essentials like housing, utilities, groceries, and transportation.
30%
Wants
Lifestyle choices like dining out, hobbies, and entertainment.
20%
Savings & Debt
Investing, saving for goals, and extra debt payments.
How to Create Your Budget in 3 Simple Steps
- 1.
Calculate Your After-Tax Income
This is your take-home pay. If you have a regular salary, this is easy. If your income varies, use an average of the last few months. Our guide to understanding your paycheck can help.
- 2.
Track Your Spending
For one month, track where your money goes. Use a budgeting app or just a simple notebook. At the end of the month, categorize your spending into Needs, Wants, and Savings/Debt to see how it aligns with the 50/30/20 guideline.
- 3.
Automate and Adjust
The most important step is to "pay yourself first." Set up automatic transfers to your savings and investment accounts for the 20% portion. If your spending doesn't align with the 50/30/20 rule, find areas in the "Wants" category to cut back. Use our Savings Goal Calculator to see how these contributions add up.