The Basic Framework
The 50/30/20 rule divides your after tax income into three buckets. 50% for needs like housing, utilities, groceries, insurance, and minimum debt payments. 30% for wants like entertainment, dining out, and hobbies. 20% for savings and extra debt payments.
It's a solid starting point because it's simple enough to remember and gives you a quick way to evaluate if your spending is roughly balanced. But like any rule of thumb, it breaks down when you zoom into individual situations.
When It Doesn't Work
In high cost of living areas, 50% for needs might be laughably low. If your rent alone is 40% of your income, the math doesn't math. Similarly, if you have significant debt, you might need way more than 20% going toward payoff to make real progress.
Low income earners often find that needs take up 70% or more of their budget, leaving little room for wants or savings. The framework assumes a certain income level that doesn't match everyone's reality.
Making It Your Own
Use the framework as a starting point, then adjust based on your priorities and constraints:
- If needs exceed 50%, look for ways to reduce fixed costs over time
- If you're aggressively paying debt, shift from wants to savings/debt
- If you're comfortable financially, maybe 25% or 30% to savings makes sense
- If you're paycheck to paycheck, start with any savings at all
The goal is progress toward balance, not perfect adherence to arbitrary percentages.
See Your Actual Split
Spendify automatically categorizes your spending and shows you your actual ratios. You might be surprised how your spending compares to the 50/30/20 benchmark, and that awareness is the first step to intentional change.
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