What Is the 50-30-20 Rule?
- The 50/30/20 rule allocates your money in a simple, straightforward way.
- Fitting your spending into those percentages can sometimes be tough, but it’s often worth it in the long run.
- If you're paying down debt, you can work it into a 50/30/20 budget.
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The 50/30/20 rule is a simple rule of thumb that helps you manage your money. It can give you an easy way to decide where your funds should go if you don't want to make a detailed budget.
Following the framework of the 50/30/20 rule could help you save, put money toward debt payback, and pay for necessities. If you can't make the numbers work, it may also show you that it may be time to explore options like debt relief.
This guide explains how the 50/30/20 rule works, where debt payoff fits in, and how to tell if it will work for you.
What Is the 50/30/20 Rule?
The 50/30/20 rule is a way to create a simple budget plan. Essentially, when you follow this rule, you:
Limit your fixed costs to 50% of your budget.
Use 30% for discretionary spending.
Save the remaining 20%.
Fixed costs include things like housing, utilities, car payments, minimum debt payments, and essentials like childcare. The 20% savings can go to retirement, your emergency fund, or saving for big purchases. And the remaining 30% is used for things like entertainment, non-essential clothing, dining out, and hobbies.
Following this rule could help ensure you don’t spend so much on the basics that you have nothing left to save or to spend on fun. It's also a simple way to budget that doesn't require you to assign a job to every individual dollar.
How to Make Your 50/30/20 Budget
To make your 50/30/20 budget:
Calculate your net income. This is the money coming into your bank account from all sources after taxes and other deductions.
Add up your essential costs. Figure out how much you're spending on housing, groceries, utilities, and other essentials. You can track this manually, use an app, or look at credit card statements.
Limit your essential fixed expenses to 50% of your income. This can be tricky if you have high fixed costs. You may need to make changes, including bigger moves like downsizing to a smaller apartment, or trading in for a cheaper car. While these changes can feel drastic, maintaining a lifestyle with fixed costs above 50% could strain your budget.
Assign 20% of your income to savings or debt payoff. If you can, automate this process. For example, you could have 10% of your monthly income go right into your workplace 401(k) account, have 5% go into an emergency fund, and have 5% go toward debt.
Decide what you'll do with your remaining 30%. This is your fun money to use for dining out, saving for a trip, buying streaming services, or other purely entertaining activities.
Making drastic lifestyle changes to get your fixed costs down to 50% may seem difficult. But if you can make one big lifestyle move like changing your car or apartment, you might make your financial life much easier for the long term. It could be well worth it.
How Does Debt Fit Into the 50/30/20 Budget?
If you are paying off debt and you’d like to make a 50/30/20 budget, you have to decide what category to put the debt in.
You must make the minimum payments on your credit cards every month, so include that amount in your fixed costs. Paying the minimums means you avoid late fees, penalty charges, and collections activity. If you can't realistically pay the minimums, this is a sign you need to look into solutions like credit card debt relief. Not being able to pay minimums could also hurt your credit score significantly.
Be proactive by reaching out to your creditors. You may be able to enter into a payment plan. Consider exploring debt relief programs as well.
If you can swing it, paying more than the minimums could get you out of debt faster. The extra payments can come from your 20% savings category. Or, if you want to save and pay down debt—and you're okay with some temporary sacrifices—you can pay from your 30% discretionary spending.
The more you pay, the more interest you could save, and the faster you could pay down your debts.
Will the 50/30/20 Rule Work for You?
The 50/30/20 budget is a great option for people who want a quick, simple solution to allocating their dollars. If you can keep your spending within the 50/30/20 percentages, it could work well.
If you find it tough to control spending, you may want a more detailed, bare-bones budget that sets more specific limits on different kinds of expenses—especially if you're really focused on paying off debt.
If your fixed costs are too high and you can't make changes, it's also worth considering approaches that limit your discretionary spending or boost your income.
The key is to find a budgeting method you can stick to over the long haul. Whether it’s the 50/30/20 budget or another, aim for a solution that gives you good control over your financial life.
Author Information
Written by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.
Reviewed by
Christy Bieber
Christy Bieber has been writing about personal finance and law for 16 years. She has a JD from UCLA School of Law with a focus on business law, and a BA in English, Media & Communications from the University of Rochester, as well as a Certificate of Business Administration.