50/30/20 Budget Calculator & Complete Guide

The 50/30/20 budgeting rule pie chart

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I have been exploring new ways to manage my personal finances for a long time. One of the very first frameworks I was introduced to was the 50/30/20 budgeting method, and it still holds up to this day.

When I was fresh out of school, I used a calculator similar to the below to understand how I should be using my money. It was difficult to have any idea what was a good amount to spend on rent, how much I should be saving, and how much I should spend frivolously.

And yes, it’s OK to spend frivolously if you’ve budgeted for it! Life is about having fun. This budgeting rule accommodates for that.

The 50/30/20 rule both exposes overspending (or under saving) in your current budget and helps you to formulate a new, sensible budget strategy.

I can confidently say that calculating my budget using this framework has been incredibly helpful and effective in keeping me, and many of the people I work with, financially organized.

Its beauty is in its simplicity.

Let’s first use the calculator to determine your allocations.

The 50/30/20 Budget Rule Explained

This 50/30/20 budgeting framework is based on dividing your income into three categories: Needs (50%), Wants (30%), and Savings/Debt (20%).

You simply allocate the percentage of your income towards each category and stick to it, to ensure you stay in control of your finances.

Let me explain each category in more detail.

Needs (50% of income)

This category includes essential expenses that are necessary for survival and basic living. These expenses can vary from person to person but typically include:

  • Rent/mortgage
  • Utilities (electricity, water, gas, etc.)
  • Transportation (car payments, gas, insurance, etc.)
  • Food and groceries
  • Health insurance
  • Basic clothing and personal care products

There are plenty of other things that you might classify as a ‘Need’ such as dog treats and dog toys. I consider these essential needs – because I love my pooch.

You may well have your own expenses that you will never compromise on.

Wants (30% of income)

This category includes expenses that are not necessary for survival but are desired for a comfortable lifestyle. This category can also vary from person to person, but some common examples include:

  • Dining out
  • Entertainment (movies, concerts, sporting events, etc.)
  • Travel
  • Shopping (clothes, electronics, home decor, etc.)
  • Gym memberships or other hobbies
  • Other personal expenses

Savings/Debt (20% of income)

This category includes expenses that are directed towards saving money for future goals, paying off debt, or investing. This category is essential in building long-term financial stability and can include:

  • Emergency savings
  • Retirement savings
  • Debt payments (credit card debt, student loans, etc.)
  • Investments (we recommend passive investing)

If you have moderate or high interest debt, you should likely pay this off first before beginning saving or investing. Our personal finance flowchart can help you decide what to focus on first.

What is a want, and what is a need?

One of the most challenging aspects of this budgeting framework is distinguishing between wants and needs. This distinction can be tricky, as some expenses can be both.

For example, a car may be necessary for transportation to work, but a luxury car may fall under the “wants” category.

To help distinguish between wants and needs, I ask myself the following questions:

  • Can I survive without this expense?
  • Will this expense significantly impact my daily life?
  • Is this expense in line with my long-term financial goals?

Usually, if there is any indecision, it’s probably a want.

If ever you’re in doubt about a big purchase in general, you might want to sit on it for a month. If you still feel like you want the item after 30 days, then perhaps you really do. But often, I find I go off the idea.

A key benefit of using the 50/30/20 budget is that it helps me identify areas where I might be overspending. If I notice that I’m consistently overspending on “wants”, I can revaluate my priorities and adjust my budget accordingly.

Is the 50/30/20 rule realistic?

Of course, everyone’s financial situation is unique, and the 50/30/20 budget may need to be adjusted depending on individual circumstances. For example, if you live in an expensive housing market, your “needs” budget allocation might need to be slightly higher.

The point is that it exposes flaws in your spending.

If you’re spending 70% of your budget on needs due to high rent, then maybe you should re-evaluate the area you live in.

Sure, you might need to live there for work, or you might value the area so highly because all your friends are there, for example. And that’s ok. But it’s important to be aware that it is eating up an abnormally high amount of your budget so you can make an informed decision about whether the cost is truly worth it.

Remember, if you’re spending 70% of your budget on ‘Needs’, it’s almost certainly at the expense of another area – probably your savings/debt.

Understand the opportunity cost of your budget (what you are losing by purchasing other things) and you will make better lifestyle choices.

50/30/20 rule alternatives

While the 50/30/20 rule can be an effective budgeting framework for many people, it’s not necessarily the best fit for everyone. Here are some alternatives to the 50/30/20 rule:

  1. 60/20/20 rule: This is a slight modification of the 50/30/20 rule, where you allocate 60% of your income to essential needs, 20% to savings/debt payments, and 20% to discretionary spending.
  2. Zero-based budgeting: With this method, you allocate every dollar of your income to a specific category, leaving no money unaccounted for. This approach can help you track every dollar you spend and ensure that you’re not overspending in any area.
  3. Envelope system: This is a cash-based budgeting method, where you allocate cash into different envelopes labelled with specific categories, such as groceries, gas, entertainment, etc. Once an envelope is empty, you cannot spend any more money on that category until the next paycheck.
  4. 80/20 rule: This approach involves allocating 80% of your income towards savings and essentials, and 20% towards discretionary spending. This method can be helpful for those who prioritize savings or have a high debt load.
  5. Pay yourself first: This is a method where you allocate a set amount of money towards savings and debt payments before you pay for any other expenses. This can help you prioritize savings and ensure that you’re making progress towards your financial goals.
  6. Extreme budgeting: Some people have extreme financial goals, such as retiring by the time they are 40 years old. This is known as the FIRE (Financial Independence/Retire Early) movement. This can drastically change your budget and lifestyle, to the point that 80+% of your income goes into investments.

‘Rules’ aside, you might also want to try a more comprehensive budgeting solution, such as the Empower personal finance dashboard. This is a free tool that helps you to budget, understand cashflow, set targets and more.

The verdict on the 50/30/20 rule

Ultimately, the best budgeting method for you will depend on your individual financial situation and priorities. It’s important to find a method that works for you and stick with it consistently to achieve long-term financial success.

For me, the 50/30/20 budgeting framework played an influential role in my money-management skills early on.

As a fresh grad with limited experience managing money in the real world, allocating my income into three categories allowed me to prioritize my spending, distinguish between wants and needs, and build a strong foundation for long-term financial stability.

It’s a simple rule anyone can follow and has modest saving/debt paydown goals (20% is quite low, and possible even on relatively low incomes).

Nowadays, I play hard and fast with the rule providing I am hitting my personal long-term saving and investing goals. I use more advanced tools to track my finances. At the moment, that is Empower.

With that said, give the calculator a try. Compare your current outgoings against the suggested budget. It won’t take long, and the results might surprise you.

My advice: choose a budgeting strategy that puts you on a strong financial footing and, more importantly, allows you to live the life that makes you happy both right now and in the future.

Talk to a financial coach for free

Hi, I’m James Beckett.
Author & financial coach.

We help people take control of their finances with services such as:

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✔️ Budgeting.
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