50/30/20 Rule

Popularized by Senator Elizabeth Warren, this rule provides a simple framework for budget allocation. 50% goes to needs (housing, food, utilities, minimum debt payments), 30% to wants (entertainment, dining out, hobbies), and 20% to savings and debt repayment. It's a starting point that can be adjusted based on individual circumstances.

The Breakdown:

**50%

• Needs (Essential Expenses):**

• Housing (rent/mortgage, property taxes, insurance)

• Food (groceries, not dining out)

• Utilities (electric, gas, water, internet)

• Transportation (car payment, gas, public transit)

• Insurance (health, auto, home)

• Minimum debt payments

• Childcare (if working)

**30%

• Wants (Lifestyle Choices):**

• Dining out and entertainment

• Hobbies and subscriptions

• Travel and vacations

• Shopping and personal care

• Gym memberships

• Streaming services

**20%

• Savings & Debt Payoff:**

• Emergency fund

• Retirement savings (401k, IRA)

• Investment accounts

• Extra debt payments

• College savings

• Other financial goals

Example with $5,000 monthly income:

• Needs: $2,500 (50%)
• Wants: $1,500 (30%)
• Savings: $1,000 (20%)

When to Adjust:

• High-cost areas: May need 60% for needs
• Low income: May need 80% for needs
• High earners: Can save more than 20%
• Debt payoff: May need 30% for debt

Benefits:

• Simple to understand and follow
• Ensures you save money
• Balances needs vs wants
• Easy to track and adjust