How to Budget Using the 50/30/20 Rule

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The 50/30/20 rule is a budgeting approach that distributes your finances toward different goals in a simple and practical way. Popularized by U.S. Sen. Elizabeth Warren, 50/30/20 budgeting helps you figure out how much money to set aside for your monthly needs, wants and savings goals.

If you’re struggling with managing your finances, here’s what you need to know about the 50/30/20 rule:

What is the 50/30/20 rule?

The 50/30/20 rule helps you organize your budget with the big picture in mind. If other budgeting methods — like tracking every expense — discourage you, this can be a good option.

To start, calculate your after-tax income. Employers generally withhold federal income, Social Security and Medicare taxes from employee paychecks. (State income taxes may also be withheld depending on where you live.) With the 50/30/20 budgeting rule, it’s important to note: Other paycheck deductions — whether retirement, medical, dental, vision or something similar — should be added back to your after-tax income calculation.

Now that you have your after-tax income handy, you’ll further break down your expenses using the 50/30/20 budget:

  • 50% on needs
  • 30% on wants
  • 20% on savings

50%: Needs

Needs are your main fixed monthly expenses, such as:

  • Rent or mortgage
  • Groceries
  • Utilities
  • Insurance
  • Minimum debt payments (student loans, car loans, etc.)
  • Child care

These recurring costs are essential to keeping a roof over your head and having a functioning household.

The reason these must-haves occupy 50% of your income is twofold. It ensures that you can sustain your essentials. For example, if an apartment with rent that’s $2,200 pushes your monthly needs budget beyond 50% of your after-tax income, it’s an indication that you may need to settle on a cheaper place to live.

A 50% budget for must-haves also protects you in moments of financial uncertainty. Although your income may be stable now, an unexpected layoff or disability could suddenly cut your pay dramatically. By maintaining a modest needs budget, you’re in a safer financial position.

30%: Wants

Dedicating funds for nonessentials that you want gives you just enough to enjoy the money you’ve earned. Purchases that can be classified as wants include:

  • Luxury pairs of shoes
  • Fitness memberships
  • Netflix subscriptions
  • Vacations
  • Weekly happy hours with friends

However you want to use this “fun” budget is up to you, as long as you stay disciplined in capping your spending in this category to 30% of your monthly after-tax funds.

20%: Savings

In the savings category, you’re working toward allocating 20% of your monthly income toward long-term planning and goals. This often includes:

  • Saving toward an emergency fund so you have a cushion in the event of unforeseen financial hardship
  • Putting aside money in a retirement account
  • Directing funds toward investments

After building a rainy-day fund, you might also consider using the remaining 20% of this category toward paying down your debt. For example, in addition to setting aside minimum payments in your needs budget, you can get rid of debt faster by making extra payments toward debts.

50/30/20 budget example

Let’s say your monthly after-tax income is $4,500, including deductions that were removed. Based on this amount:

  • 50% for your needs is $2,250
  • 30% for your wants is $1,350
  • 20% for your saving is $900

In this 50/20/30 budget example, your expenses are as follows:

  • Rent: $1,300
  • Utilities: $200
  • Groceries: $400
  • Gas: $100
  • Car insurance: $80
  • Car payment: $375
  • Premium fitness membership: $175
  • Concerts (including food and beverages): $250
  • Dining out: $650
  • Clothing: $100
  • Credit card minimum payment: $75
  • Salon services: $100
  • 401(k) contribution: $200
  • Emergency fund: $50
  • Health care: $150
  • Dog care expenses: $50

In this scenario:

  • Your needs — rent, utilities, groceries, car payment, gas, car insurance, health care, credit card payment and dog care — total $2,730
  • Your wants — fitness membership, concerts, dining out, clothing and salon services — total $1,275
  • Your savings — retirement and emergency fund — total $250

You’re spending $480 more on needs than the 50/30/20 budget allows. On the other hand, you have $75 left in your wants budget and are severely lacking in savings, with the potential to save $650 more a month.

The 50/30/20 rule makes it clear that you may need to temper your expenses under your needs category and funnel those resources into your savings.

4 budgeting alternatives

  • Traditional budget: This tracks your budget monthly or year over year, typically via a spreadsheet. Starting with your gross income, you’ll track taxes, payroll deductions, spending and borrowing to observe when you’re under or over your net income.
  • Zero-based budget: This involves making the dollar amount of your expenses match the dollar amount of your income. The result is having $0 unaccounted for at the end of the month. Every dollar, therefore, serves a purpose or strategy.
  • Pay-yourself-first budget: This targets your retirement and savings goals first, often with the help of automation. Any monthly income that’s remaining can be used how you wish.
  • 80/20 budget: This allocates 20% of your after-tax funds toward savings. You can spend the remaining 80% in any way you see fit, whether it’s toward bills or entertainment subscriptions. It’s a similar principle to the 50/30/20 budget — but a little simpler.

FAQ: 50/30/20 rule

Who popularized the 50/30/20/rule? The 50/30/20 rule was made popular by U.S. Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi, in their co-authored book, “All Your Worth: The Ultimate Lifetime Money Plan.”

Do 401(k) contributions count in 50/30/20 rule calculations? Yes, 401(k) contributions are included in the 50/30/20 budget planner under the 20% savings category.

Are there 50/30/20 budget apps that can help? If you’re looking for a 50/30/20 budget app, one option is the Moneywyn Personal Finance App. The free budgeting app is available for iPhone users in the Apple App Store.

Are there 50/30/20 calculators available? Some financial institutions offer 50/30/20 calculators to help you budget your money using this approach. For example, Northeast Credit Union and Georgia United Credit Union provide simple 50/30/20 budget calculators. Enter your monthly after-tax income to see how much you have for each category.

Eric Rosenberg contributed to this report.

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1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.

2 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

3 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.

4 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 7.33% APR (with AutoPay). Variable rates from 2.25% APR to 6.88% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.13% plus 2.37% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The discount will not reduce the monthly payment; instead, the interest savings are applied to the principal loan balance, which may help pay the loan down faster. Enrolling in autopay is not required to receive a loan from SoFi. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.  

5 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.

6 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.


This information is current as of January 4, 2021. Information and rates are subject to change without notice.