Skip to Main Content

Start Of Main Content

How to use the 50/30/20 budget rule

Balance your personal spending and saving with the 50/30/20 budget rule.

A couple is discussing budgeting with the 50/30/20 budget rule.

Inspired by Next Door®

If you’ve ever wondered how much of your take-home pay (after taxes) you should be spending on housing versus entertainment versus saving, one popular budgeting rule is the 50/30/20 financial plan.

While there’s no best way to split up income that fits 100% of us, balancing your personal spending and saving can add comfort and confidence to your financial picture. And the 50/30/20 rule is a pretty straightforward way to manage your personal finances.

What are the basics of the 50/30/20 budget rule?

Spend no more than 50% of your monthly take-home pay on needs.

  • Things like rent, utilities, insurance, groceries and minimum debt payments.

Spend about 30% on your wants.

  • Things like dining out, entertainment, ride-sharing services and shopping on luxury items.

Add at least 20% to your savings.

  • Things like extra payments on your debts or savings for things that will benefit you long-term (like your all-important emergency fund, your retirement, the down payment for a future home purchase, etc.).

Here’s a 50/30/20 budget example for someone who takes home $2,000 a month:

50% NEEDS = $1,000
30% WANTS = $600
20% SAVE = $400

Important reminder: The 50/30/20 budget rule only considers your take-home pay for the month, so anything automatically deducted from your paycheck — like your work health insurance premium or 401(k) retirement contribution — doesn’t count in the equation.

Steps for starting your 50/30/20 budget plan

  1. Take an inventory of all your expenses. The Next Door® monthly budget worksheet is a great resource for getting started.
  2. Classify each expense on your worksheet as either “needs,” “wants” or “savings.”
    • Keep in mind that these terms don’t exactly correspond with the definitions of fixed, variable and non-monthly expenses. You might pay the same amount every month for a TV streaming service, which means it’s a fixed expense, but it is clearly a “want” — not a “need.”
  3. Add up your “needs,” your “wants” and your “savings.”
  4. Add up your expenses for the month.
  5. Divide the total of your “needs” by your total expenses. Multiply the decimal by 100 to see the percentage you spend on “needs.”
  6. Do the same for your “wants” and your “savings.”
  7. Compare your “needs,” “wants” and “savings” percentages to the 50/30/20 rule to see how balanced your budget is.
  8. Set small, realistic goals to reduce spending on “needs” and “wants,” so you can increase your “savings.” Start small and go from there!

Small changes can deliver big results

Even if you can’t achieve the 50/30/20 budgeting plan right now, working to make small changes can get you closer to financial balance. Small actions starting today can lead to big changes over time, so don’t let budget perfection discourage you from making progress.


The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.


Also Important

Helpful Car Insurance Tips for College Students

Helpful Car Insurance Tips for College Students

When your child goes away to a college or university and leaves their car behind, there are options you might take to lower your insurance premiums during the months they are away.

When Does a Loan Make Sense

When Does a Loan Make Sense

Read examples of good and bad borrowing so you can use credit to help your finances.

Related Articles

Up To Your Neck in Debt

Up To Your Neck in Debt

Do you find yourself juggling multiple bills and wondering how to make ends meet? Here is some advice to help control your debt.

Insurance Tips for College Students and Their Belongings

Insurance Tips for College Students and Their Belongings

Plus a few things parents of college students should be aware of regarding insurance.

Is Going Back to School as an Adult Worth It

Is Going Back to School as an Adult Worth It

Lots of adults ask themselves how to go back to school — especially with jobs and families. These 5 questions help them consider their options.