How to Follow The 50-30-20 Rule

The 50-30-20 rule says you use 50% of your after-tax income for needs, 30% for wants, and 20% for savings and extra debt payments.

To follow it, you just need to know your monthly take home pay, set dollar limits for each bucket, and try to stay within those amounts each month.

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Step 1: Find Your Monthly Take-Home Pay

The rule uses your after-tax income, not your salary before tax.

That usually means:

• Look at your paycheque and find the amount that lands in your bank after tax and other deductions.

• If you are paid every two weeks, add up your pay for a month.

• If you have more than one job, add those amounts together.

Example:
If you bring home $3,000 per month after tax, that is the number you use.

Step 2: Split It Into 50%, 30%, and 20%

Take your monthly amount and do three quick calculations:

• Needs (50%): $3,000 × 0.50 = $1,500

• Wants (30%): $3,000 × 0.30 = $900

• Savings and extra debt (20%): $3,000 × 0.20 = $600

Now you have simple targets:

• Try to keep your must-pay bills at or under $1,500

• Try to keep fun spending at or under $900

• Aim to put $600 into savings or extra debt payments every month

You do not need a fancy spreadsheet. Even a notes app or simple tracker is enough.

Step 3: Know What Counts as Needs, Wants, and Savings

To make the rule work, you need a clear idea of what goes where.

Needs (50%)

These are things that keep your life running:

• Rent or mortgage

• Basic groceries

• Transportation to work or school

• Utilities and phone

• Insurance

• Minimum debt payments

If you stopped paying these, you would be in trouble pretty quickly.

Wants (30%)

These make life nicer but are not required:

• Eating out and coffee runs

• Streaming services and subscriptions

• Trips, concerts, hobbies

• Upgrades like nicer clothes or phone plans

If money is tight, this is the bucket you cut first.

Savings and Extra Debt (20%)

This is your future you bucket:

• Emergency fund

• Savings in a high-interest account

• Investments

• Extra payments on credit cards or loans (above the minimum)

If you have high-interest debt, a big part of this 20% should go toward knocking that down.

Step 4: Adjust If 50-30-20 Does Not Fit Perfectly

Real life is messy. Rent in many cities can take more than 50% of your income.

If that happens:

• Let your needs go a bit over 50% for now.

• Try to trim wants so you still save something.

• Even 10% to savings is better than nothing.

You can think of 50-30-20 as a target, not a strict law. You are allowed to shift the numbers as your situation changes.