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How to Build Your First Budget Using the 50-30-20 Rule

Money Basics • Beginner Investing • 5 min

What this lesson is about

One simple percentage split turns a vague resolution to "save more" into an actual, followable plan for every paycheck.

2 parts · a quick check after each · then the quiz

Part 1 of 2

“Save, more, money”, is, a, goal, that, rarely, gets, followed, through., It’s, too, vague, for, every, payday., The, 50-30-20, rule, changes, that., It, offers, a, clear, split, of, your, paycheck., Popularized, by, Senator, Elizabeth, Warren, and, her, daughter, Amelia, Warren, Tyagi, in, their, 2005, book, "All, Your, Worth:, The, Ultimate, Lifetime, Money, Plan,", this, rule, divides, your, after-tax, income, into, three, parts:, 50%, for, needs,, 30%, for, wants,, and, 20%, for, savings, and, extra, debt, repayment.

“Needs”, includes, costs, you, can’t, skip:, rent, or, mortgage,, utilities,, groceries,, minimum, debt, payments,, insurance,, and, basic, transportation., “Wants”, covers, everything, fun, but, optional:, dining, out,, streaming, subscriptions,, hobbies,, travel,, and, entertainment., The, last, 20%, is, set, aside, to, build, your, financial, security., This, could, go, into, an, emergency, fund,, retirement, contributions,, investing,, or, paying, more, than, the, minimum, on, debt.

What insurance is forIt costs more in a normal year and removes the year that ends you.

Quick check

In the 50-30-20 budgeting rule, what does the 50% generally cover?

Part 2 of 2

Insider, Angle:, The, real, value, of, the, 50-30-20, rule, isn’t, that, the, percentages, are, magic., It’s, that, having, a, specific, target, shows, when, something’s, wrong., If, “needs”, takes, up, 70%, of, your, paycheck, instead, of, 50%,, that’s, a, clear, signal., No, more, vague, feelings, of, being, broke., For, someone, earning, $4,000, a, month, after, taxes,, this, rule, means, $2,000, for, needs,, $1,200, for, wants,, and, $800, for, savings, and, extra, debt, repayment., These, numbers, are, specific, enough, to, check, against, real, spending.
Try, This:, Using, your, monthly, after-tax, income, (or, a, hypothetical, $3,000/month, if, you, don’t, have, one, yet),, calculate, what, 50%,, 30%,, and, 20%, come, out, to, in, dollars., Then,, estimate, your, real, spending, in, each, category, and, see, how, close, it, is.

Quick check

What does the 30% in the 50-30-20 rule typically represent?

Quiz

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