Enter your monthly after-tax income. The 50/30/20 rule splits it into needs, wants, and savings — the easiest way to start budgeting.
Example breakdown
The 50/30/20 rule was popularized by Senator Elizabeth Warren. It's a starting point — adjust the percentages to fit your situation. If you have high debt, consider 50/20/30 (more to savings/debt).
The 50/30/20 rule divides your after-tax income into three categories. Needs (50%) covers everything you must pay: housing, groceries, utilities, insurance, minimum debt payments, and transportation. Wants (30%) is everything else you choose to spend on: dining out, streaming services, hobbies, vacations. Savings (20%) goes to building your financial future: emergency fund, retirement contributions, extra debt payments, and investments.
The beauty of this approach is its simplicity. You don't need to track every coffee purchase — you just need to ensure each category stays within its budget.
In high cost-of-living cities, housing alone can eat 40–50% of income. If your needs exceed 50%, consider a modified split like 60/20/20 or 70/20/10. The key is that some percentage always goes to savings — even 10% is infinitely better than 0%.
Long-term, look for ways to reduce needs: refinancing debt at lower rates, moving to a less expensive area, reducing car costs, or shopping for better insurance rates. Every dollar shifted from needs to savings compounds over time.
Use net (after-tax) income — the amount that actually hits your bank account. If your employer deducts 401k contributions before taxes, add those back since they count as "savings" in the 20% bucket.
Minimum debt payments are "needs" (you must pay them). Any extra payments above the minimum are "savings" since you're reducing liabilities and building net worth. If you have high-interest debt, consider allocating more than 20% to the savings/debt bucket.
High earners can often save more than 20% since needs don't scale proportionally with income. A 40/20/40 or even 30/20/50 split is common among people pursuing early retirement (FIRE movement). The 50/30/20 rule is a floor, not a ceiling for savings.
Needs are things you'd still pay for if you lost your job: rent, basic groceries, utilities, minimum insurance, car payment. Wants are things you could cut if necessary: restaurant meals, Netflix, gym membership, new clothes. The line isn't always clear — basic phone service is a need, the latest iPhone upgrade is a want.