What Is the 50/30/20 Rule? The 50-30-20 rule involves splitting your after-tax income into three categories of spending: 50% goes to needs, 30% goes to wants, and 20% goes to savings. U.S. Sen. Elizabeth Warren popularized the 50-20-30 budget rule in her book, "All Your Worth: The Ultimate Lifetime Money Plan."
Setting budget percentages
That rule suggests you should spend 50% of your after-tax pay on needs, 30% on wants, and 20% on savings and paying off debt. While this may work for some, it's often better to start with a more detailed categorizing of expenses to get a better handle on your spending.
Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles: 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.
First, calculate your monthly take-home pay, then multiply it by 0.70 to get the amount you can spend on living expenses and discretionary purchases, such as entertainment and travel. Next, multiply your monthly income by 0.20 to get your savings allotment and 0.10 to get your debt repayment.
It can work well if your essential expenses are within 50% of your income and you want a balanced approach to spending and saving. 70/20/10 Rule: May be better if you aim to save more aggressively or have higher essential expenses that exceed 50% of your income.
Here's an example: If you make $3,000 each month after taxes, $1,500 should go toward necessities, $900 for wants and $600 for savings and debt paydown. Find out how this budgeting approach applies to your money.
50/30/20 budget method
To describe this method simply, you'll break your income into three categories — allotting 50% for needs, 30% for wants, and 20% for savings. This is a great method if you're looking for a simple way to reach your financial goals.
A single person household spends an average of $4,641 on monthly expenses. Married couples without kids spend an average of $7,390 on monthly expenses. A family of four spends an average of $8,450–9,817 on monthly expenses (depending on kids' ages).
The "pay yourself first" budget has you put a portion of your paycheck into your savings account before you spend any of it. The 80/20 rule breaks out putting 20% of your income toward savings (paying yourself) and 80% toward everything else.
Budgeting Rule #1: You Do You. Oh My Dollar! From the radio vaults, we bring you a short episode about the #1 most important thing in your budget: your values. You can't avoid looking at your budget without considering your values – no one else's budget will work for you.
Housing is by far the largest expense for Americans. Monthly housing expenses in 2023 averaged $2,120, a 5% increase from 2022. Over the course of 2023, Americans spent $25,436 on housing on average.
A good monthly income in California is $5,002, based on what the Bureau of Economic Analysis estimates that Californians pay for their cost of living. A good monthly income for you will depend on what your expenses are and how much you typically spend per month.
The 50/30/20 approach can be a helpful way to get started with budgeting. It's a simple rule of thumb that suggests you put up to 50% of your after-tax income toward things you need, 30% toward things you want, and 20% toward savings.
Ideally, you want to have 20% of your take-home pay left over after paying all of your bills.
Average monthly expenses per household: $6,440
The average expenses for a single consumer unit in one month in 2023 were $6,440. Average spending for the entire year came out to $77,280. The cost of living can vary by region -- some cities are cheaper to live in and others are more expensive.
Averages look at foods many people commonly purchase, such as eggs, dairy, meat, bread, and produce items. For a single person, the average grocery bill can range, depending on age and gender, between $238.46 to $434.33. For a household with two people, the average grocery bill is $5,635 per year, or $469.58 per month.
Unpredictable Market Conditions. One of the most significant challenges in budgeting is dealing with unpredictable market conditions.
Start with your take-home income. Organize your fixed and variable expenses based on your research. Then add line items for your savings goals. The budget plan lets you see how your income and spending line up.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
Outside the most expensive parts of the United States, $5,000 per month is typically enough to cover rent or mortgage payments and other lifestyle expenses if you're mindful of your budget.
It is recommended that you spend 30% of your monthly income on rent at maximum, and to consider all the factors involved in your budget, including additional rental costs like renters insurance or your initial security deposit.