The 50/30/20 Budget Rule

What is the 50/30/20 Rule?

The 50/30/20 rule is a simple budgeting framework that divides your after-tax income into three categories:

• 50% Needs: Essential expenses like rent, utilities, groceries, insurance
• 30% Wants: Non-essential spending like dining out, entertainment, hobbies
• 20% Savings: Emergency fund, retirement accounts, debt repayment

How to Implement It

Step 1: Calculate Your After-Tax Income

gross_salary = 100000
tax_rate = 0.25
after_tax = gross_salary * (1 - tax_rate)
print(f"After-tax income: ${after_tax:,.0f}")  # $75,000

Step 2: Allocate Your Budget

Step 3: Track and Adjust

Review your spending monthly and adjust as needed. The percentages are guidelines, not strict rules.

When to Modify the Rule

• High cost of living areas: You may need 60% for needs
• Aggressive savings goals: Consider 50/20/30 instead
• Debt payoff: Temporarily shift wants budget to savings

Conclusion

The 50/30/20 rule provides a simple starting point for budgeting. Customize it based on your situation and goals.