What is 50/30/20 Rule: How to Budget Effectively


Severally, we have created budget, and as we try to work with it, we realize we have omitted some important commodities. In most cases, we end up abandoning our budget planning to make another the following month.

Budgeting should not be complicated nor should it take a lot of your time. If you have a clear picture of your income, you can easily spend your money wisely without overspending. You can also build your savings overtime with 50/30/20 Rule. The 50/30/20 Rule is a monthly budgeting method that tells you exactly how much to spend and how much to put towards savings. In fact, it is one of the best budgeting tips you can have and this is how it works.

What is 50/30/20 Rule

This is a simple budgeting method that can help you manage your income simply in a sustainable manner. The rule is simple where you divide your monthly net pay income into three spending categories: 50% allocated for needs, 30% for wants and 20% towards savings or else paying debts.

Once you allocate your income in these categories, you can operate within your budget without going beyond the set percentage of your allocation.

How do you Apply 50/30/20 Rule?

1. Spend 50% of your income on Essentials

To act on this rule, you need to set aside half of your after-tax income to be spent on essentials. The most necessary items that you may require.  Most of these items under this category, are gotten regardless of whether you are working, where you are staying and whatever may happen in future.

Such expenses include: food, clothing, house payments (either rent or mortgage), utility bills such as electricity and waters, transportation and insurances for healthcare.

The proportion may keep changing, but keep in mind its about the total sum (50%) not the individual costs.

2. Spend 30% 0f your Income on Wants

Wants are things that enhance your lifestyles. You choose to spend your money on them yet you can live without them. They make life more comfortable and sometimes they become mandatory to us. They differ depending on the lifestyle of an individual.

They include: mobile phones, expensive clothing, entertainment, holidays, dining out among others.

The list is usually long, however, you have a room to decide which things are worth spending on first.

It is vital to note, expenses on want should be taken after those of essentials.

3. Save 20% of Your Income

Commit 20% of your money towards savings. Consistent saving enables you build a sustainable saving plan. You can save through retirement benefits accounts, emergency funds and debt repayments. In this case the expenses should be taken after having taken care of the essentials needs and before taking care of the wants.


50/30/20 Rule gives you only three categories to follow while spending your money. The rule makes your work easy as you do not require to budget for every of your expense. It is a structure that helps you improve your spending habits.