50/30/20 Rule
A budgeting guideline allocating 50% to needs, 30% to wants, and 20% to savings and debt repayment.
What is 50/30/20 Rule?
The 50/30/20 rule is a simplified budgeting framework popularized by Senator Elizabeth Warren in her book "All Your Worth." It suggests allocating after-tax income as follows: 50% to needs (rent, utilities, groceries, minimum debt payments), 30% to wants (dining, entertainment, subscriptions, hobbies), and 20% to savings and debt repayment beyond minimums. The rule provides a simple starting point but requires adjustment for high cost-of-living areas where housing alone may consume 40–50% of income, leaving little for wants or savings at the prescribed ratios.
Example
A person taking home $5,000/month targets: $2,500 needs (rent $1,500, utilities $150, groceries $350, insurance $500), $1,500 wants (dining $300, streaming $50, gym $50, clothing $200, fun $900), $1,000 savings/extra debt payment.