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50/30/20 budgeting rule

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Photo of a young man unpacking a box in his new home which he budgeted for

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Budgeting can help you take control of your finances and reach your goals. But if you’ve never created a budget before, you may not know where to start. Luckily, tracking your spending is simple today, thanks to apps and budget templates that are freely available on your smartphone or online. Additionally, there are a variety of budgeting methods at your disposal, such as the 50/30/20 rule. This budgeting method is an excellent way for first-time budgeters to start thinking about how to manage their personal finances.

Here’s what we’re going to cover:

  • What is the 50/30/20 rule?
  • How to use the 50/30/20 rule
  • Benefits of the 50/30/20 budgeting rule
  • Is the 50/30/20 rule right for you?
  • Oportun: Affordable lending options designed with you in mind

Key takeaways:

  • The 50/30/20 rule is a budgeting guideline that dedicates 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment.
  • This simple and accessible budget framework is perfect for people of all ages and financial literacy levels.
  • You can use the concept of needs, wants and savings, but modify the proportions to fit your personal income and lifestyle and build responsible spending and saving habits on your financial journey.

What is the 50/30/20 rule?

The 50/30/20 rule is a budgeting method that allocates your after-tax income into three categories: 50% to needs, 30% to wants, and 20% to savings and debt repayment. This budgeting style enables people to maintain financial stability by ensuring most of their income is directed toward essential expenses, a reasonable amount is dedicated to discretionary spending, and a portion is saved or used for debt reduction to build financial security over time.

The 50/30/20 rule is less complicated than some other methods, and it provides a useful framework for individuals who want to be more mindful of their spending habits without necessarily tracking and monitoring every expense.

Keep in mind that even though people call it a rule, it’s more of a guideline that can help you think about your own income and expenses. If the proportions of 50/30/20 aren’t realistic for you, you can modify them.

Here’s a breakdown of how the 50/30/20 rule works:

50% toward needs

Put 50% of your income toward essential expenses and basic needs. This includes your rent or mortgage, utilities, groceries, transportation, insurance, and minimum debt payments. Essential expenses may vary based on your situation. Some budgeters may deal with childcare costs, child support or alimony payments, and other financial obligations.

30% toward wants

With the 50/30/20 rule, you can reserve 30% of your income for discretionary spending on non-essential items or services. This category encompasses expenses like multiple streaming services, dining out, entertainment, and other wants. You can save your allocated funds for longer-term goals such as vacations or use them for immediate purchases like a trip to the movie theater. Your wants can also include gifts you purchase for loved ones, non-essential clothing, and accessories.

20% toward savings and debt

Dedicate 20% of your income to building financial security. This can be used for savings, investments, emergency fund contributions, and accelerated debt repayment beyond the minimum required payments.

If you carry credit card debt, pay off the full balance each month rather than just the minimum to keep credit card debt under control. Classify credit card payments under “needs” if you’re using the card to pay for those items.

How to use the 50/30/20 rule

If you’ve decided that the 50/30/20 rule is right for you, here’s how to use it:

1. Calculate your monthly income

Start by listing all your sources of income. This includes not just your primary salary but any additional sources of income such as from side hustles, interest or dividends, and child support or alimony payments. Having a precise figure enables you to allocate funds more effectively.

2. Categorize your expenses

Once you’ve determined your monthly income, begin categorizing your expenses. Distinguish between your needs, wants, and savings or debt repayment. As mentioned, needs encompass essential expenditures, while wants include optional spending on non-essential items. For the third category, focus on your short-term and long-term savings and debt repayment goals.

3. Adjust your spending to the 50/30/20 rule

With a clear understanding of your income and categorized expenses, you can align your spending with the 50/30/20 rule. Maintain a log of your expenses to ensure that the spending patterns you have match your budget. In the beginning, you may need to make some adjustments, but you’ll build better money management habits over time.

4. Stick to your new budget

Implementing the 50/30/20 rule is a commitment to financial discipline. Once you’ve established your budget, make a conscious effort to stick to it. Regularly review your spending patterns, track your expenses, and make changes as necessary. Consistency is key to reaping the benefits of this method over the long term.

Benefits of the 50/30/20 budgeting rule

The 50/30/20 rule offers several benefits, including:

  • Simplicity: This method provides young adults and anyone new to budgeting with a straightforward and easy-to-understand framework for budgeting. Its simplicity encourages people to engage with their finances proactively.
  • Builds financial discipline: Budgeting techniques like the 50/30/20 rule can help you build financial discipline. This can be essential for sticking to a budget and creating a financial cushion for unexpected expenses.
  • Helps increase savings and reduce debt: The 50/30/20 rule allocates a significant portion of income to long-term saving and debt resolution. This helps individuals build an emergency fund, invest in the future, and reduce high-interest debts, fostering long-term financial health.
  • Adaptability: The rule can be adapted to different income levels. Whether you have a modest or substantial income, the 50/30/20 framework remains applicable. This adaptability makes it a versatile tool for individuals at various stages of their financial journey.

Is the 50/30/20 rule right for you?

The 50/30/20 rule is a useful starting point into the world of budgeting and can be helpful to people at different levels of financial literacy. However, consider your financial situation and adapt the structure to your lifestyle. For instance, if you live in a city where the cost of living is high, you may need more than 50% of your salary to account for essential expenses. Similarly, if you have significant debt, you may want to increase your contribution to debt resolution and reduce discretionary spending. No matter your lifestyle and income, you can adapt this framework to suit your needs.

Oportun: Affordable lending options designed with you in mind

Now that you understand how the 50/30/20 budgeting rule works, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

  • Personal loans
  • Credit cards
  • Secured personal loans
  • And more!



Investopedia. The 50/30/20 Budget Rule Explained With Examples La regla 50/30/20 explicada con ejemplos

Nerdwallet. Monthly 50/30/20 Budget Calculator Calculadora de presupuesto mensual 50/30/20

Forbes. What is the 50/30/20 Rule? ¿Cuál es la regla 50/30/20?

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