The 50-30-20 budget explained – an easy budgeting method to follow


The 50-30-20 budgeting method is one of the easiest budgets to follow, but it may not be strict enough for some. Learn if the 50-30-20 budget is for you.

Have you ever felt like budgeting just wasn’t for you because every time you tried, it didn’t work out? You’re definitely not alone.

The problem is, there are too many complicated budgets that don’t take into account basic human error.

To make budgeting simpler, let’s look at what’s known as the “50-30-20” budgeting method – one of the most popular, easy-to-use budgets.

For a video explainer, take a look below:

What is the 50-30-20 budgeting method?

The 50-30-20 budgeting method, coined by Elizabeth Warren and Amelia Warren Tyagi, is a super-easy way to organize your money and budget.

Essentially, you’ll spend:

  • 50% of your income on living expenses (rent, mortgage, groceries, bills transportation, etc.).
  • 30% of your income on wants and lifestyle choices (fun and entertainment, dining out).
  • 20% of your income toward debt payments and saving.

The formula seems simple enough and this is a solid option for beginners who are new to budgeting. It’s important to get into the habit of knowing exactly where your money is going by dividing your finances up into these three distinct categories.

The best part about this budget system is that you’re still able to budget money for fun. The goal is to properly manage your money while living a comfortable life.

For example, let’s say you earn $2,500 per month. If you were using the 50-30-20 budgeting method, you’d have $1,250 to spend on your living expenses, $750 on wants and lifestyle choices, and $500 to save and pay up any debt you may have.

Who is this budget good for?

If you are just getting started with your personal finance journey, then the 50/30/20 budget could be a good way to ease into budgeting. When you first start budgeting, it can be overwhelming to fit your spending into an array of categories. One of the best parts about this budget is how easy it is to integrate into budgeting apps that you may already be using, like PocketSmith.

But the freedom and flexibility built into this budget should give you plenty of room to stay on track. Since there are only three big categories to keep track of, you shouldn’t have a problem staying within the boundaries of your categories. 

How to put this budget into practice

If you’ve decided that the 50/30/20 method is a good option for you, then here’s how to start implementing it. 

Calculate your budgeting categories

Start by calculating your monthly take-home pay. That means the part of your paycheck that isn’t whisked away to cover taxes. Next, use calculator to determine how much you have available to spend in each category. 

Once you have the breakdown, take a look at how your spending stacks up. You might notice that you are overspending on wants and undersaving. Or you might find out that your savings rate is already higher than the 20% recommended by this budget. Either way, it is a good starting point. 

As you move forward with this budgeting method, you’ll track your spending to ensure that you are staying within these budget parameters. 

How to adjust this budget to your life

Once you’ve started to implement this budget, you might find that there is too much flexibility. 30% of your budget is a lot to spend on things that you don’t necessarily need. Since there is quite a bit of this budget left up to your own discretion, it is up to you to build the right budget within the 50-30-20 budget framework. 

When you stack up your spending, consider your goals. You should consider how your goals stack up to this framework. If you have financial goals such as retiring early, paying off your debts quickly, or purchasing a home, then you will likely need to increase your savings beyond 20%. 

Don’t allow the openness of this budget to prevent you from making progress towards your financial goals. Instead, consider your goals and build them into your budget. That might mean that you need to increase your savings percentage. That’s okay! A budget is meant to help you meet your financial goals. Don’t worry if you need to make adjustments or add subcategories to remove some of the vagueness from this budgeting strategy.

Spending examples

Let’s take a closer look at how this budgeting strategy would break down your spending. 

Take home payNeeds (50%)Wants (30%)Savings and debt repayment (20%)

Now that you have a better feel for how this budget would breakdown your spending, consider how this strategy would help you meet your goals. You might find that you need to rearrange the spending pattern to meet savings goals. Consider this budget as a great starting point. But don’t be afraid to make adjustments that suit your needs. 

Who should look for a different budgeting strategy?

As you get more comfortable with the 50/30/20 budget, you might find that there is too much freedom. After all, spending 30% of your budget on non-essentials might not be the best option for your financial goals. If you notice that you aren’t making progress towards your financial goals, then you should consider other budgeting options. 

Unfortunately, this budget makes it easy to hide swollen categories. For example, you might have a very large grocery budget hidden in your essential expenses. You might be able to easily slash this expense. But you might never consider this option if you leave your “essential” expenses unexamined. 

Using the 50-30-20 budget doesn’t give you a free pass to ignore your expenses. You should still review your spending to seek out ways to save that won’t dramatically affect your lifestyle. After all, your budget should be realistic and work for you, not against you! 

Finally, this budget is not for you if you have a heavy debt burden. You might find that your 20% allocated to savings and debt repayment is simply not enough to cover your debt payments. With that, you’ll need to adjust accordingly.

Why the 50/30/20 budgeting method works

When you are learning how to budget your money, the 50/30/20 method is a great option. You’ll have three basic categories to allocate your spending to. You’ll learn how to track your spending and keep it within the realm of a budget. 

If you are like most Americans, then your savings rate is likely under 10%. This budgeting method could help you start finding ways to save more. You’ll need to change your thinking to boost your savings rate to 20%. 

A great starting point

With just three categories to keep track of, that helps you to keep things simple as you start your budgeting journey. As you dive into your personal finances, you might find that you really need to save more to reach certain financial goals on your timeline. 

For example, let’s say that you want to save $20,000 for a down payment on a house. If you make $2,000 per month, then you’d be saving up to $400 per month towards this goal. At that pace, it could take 4 years to save for your down payment without factoring in any of your other saving goals. 

But you don’t have to limit yourself to saving just 20% each month. In some months, you might squirrel away more of your income to hit big financial milestones like a down payment to buy your first home. 

Forces intentionality about needs vs. wants

The budget breaks down your spending into needs vs. wants. Being intentional about where your money goes can be hard. When you aren’t crystal clear on your wants and needs, you typically end up spending more than you need to. 

With this budgeting method, you’ll be forced to think about what is truly a want vs. a need. Although it can take some time to get comfortable, understanding the difference between wants and needs can transform your financial life.

Yes, you can, and should, treat yourself. But it is important to understand what purchases are essential to your wellbeing and happiness. When you can make that distinction, you may notice that it is easier to curb impulse spending. 

Flaws to be aware of

While this is a very simplified and almost “fool-proof” way to budget, it’s not going to work for everyone—here’s why.

It’s quite vague

While the 50-30-20 budgeting method is easy to use, you may find that it’s all too easy to hide bad spending habits and make unnecessary purchases just because you can.

If you’re a high earner, spending 30% of your income on wants and lifestyle choices can actually add up to a lot of money that could be better spent elsewhere. This isn’t to say that you shouldn’t spend money on fun and entertainment, but it’s probably better to choose the expenses you value spending money on.

If you bring home $4,000 a month you can technically spend half of that on basic living expenses and still live a good life according to this budgeting method. What if you want to rent an apartment with your friend and only pay $400 monthly?

That leaves a lot of disposable income for you to blow through because it doesn’t really have a specific purpose.

It doesn’t favor debt payoff

The next drawback of using the 50-30-20 budgeting method is that it doesn’t leave much room for debt payoff. Let’s go back to the example of taking home $2,500/month, which only leaves about $250 for debt payoff if you split debt payments with savings so they each require a contribution of 10%.

Even if you decided to put the whole 20% of your income toward debt, it can still seem limiting, especially if your minimum debt payments are higher than 20% of your income.

If your minimum student loan payment is $500 and you have a $300 monthly car payment, you might need much more than 10-20% of your income to make any financial progress.

Plus, you really should be saving some money for emergency expenses.

It’s not a forever budgeting method

Finally, the 50-30-20 budgeting method isn’t a long-term way to manage your money. I say this because it puts savings on the back burner and you can only do this for so long.

If you want to retire someday, handle an unexpected expense, or take your family on a nice vacation, you’ll need to boost your savings rate.

Your needs, wants, and interests will change over time. There may be a few months where you decide to put 30% towards saving, or periods in your life where you’ll need to spend more than 50% on living expenses.