50/30/20 rule
50-30-20 budgetThe 50/30/20 rule is a rule of thumb that splits take-home pay into three shares: half for needs, such as rent, groceries and utilities; 30% for wants, such as dining out and travel; and 20% for savings and debt payments beyond the minimums. It is a shape some people give a budget before the month.
What is the 50/30/20 rule?
The shares are of take-home pay, the amount deposited after taxes and payroll deductions. Needs are the spending that has to be paid whatever the month looks like: housing, utilities, groceries, insurance, transportation to work, minimum debt payments. Wants are the rest of the spending. The last share is savings and any debt payment above the minimum.
The rule was popularized by Elizabeth Warren and Amelia Warren Tyagi in their 2005 book All Your Worth, which set the three shares against after-tax income.
The line between a need and a want is drawn by the person making the budget, and the same expense can land on either side: groceries are a need, and the restaurant meal that replaces one is a want. A month's actual split, worked the same way, can be set beside the three shares.
How the 50/30/20 rule works, with numbers
A household's take-home is $6,000 a month. Split by the rule, $3,000 goes to needs, $1,800 to wants and $1,200 to savings, and the three shares use all of the take-home.
Its actual month has $3,600 in needs, $1,500 in wants and $900 in savings: 60%, 25% and 15% of take-home. Against the rule, needs are ten points over, wants five under and savings five under.
- Needs, in the month
- $3,600
- Take-home
- ÷ $6,000
- Needs' share of take-home
- 60%
- The rule's share
- − 50%
- Over the rule
- 10 points
Why the 50/30/20 rule matters
The rule is a fast comparison. With the shares worked once, a month's spending can be read as a share of take-home and set beside them: $3,600 of needs on $6,000 of take-home is 60%, ten points over the rule's half, before any single line is looked at.
The sort is the work. An expense has to be called a need or a want before the shares mean anything, and that call is the part people disagree over. A budget with a line each for rent, groceries and dining out makes no such call.
50/30/20 rule in Taiga Finance
Taiga Finance has no 50/30/20 preset and sets no target share. The split can be read off the band at the top of the Plan, which draws the planned amounts for Investments, Savings and Spending as segments of the month's take-home, each with its dollar figure. Needs and wants are not sections of their own; with fixed lines, Spending splits into “Fixed costs” and “Variable spending”, and the band draws those two instead.
Plan & goals →Key takeaways: 50/30/20 rule
- The 50/30/20 rule splits take-home pay into half for needs, 30% for wants and 20% for savings and debt payments beyond the minimums.
- The shares are of take-home pay, the amount deposited after taxes and payroll deductions, and together they use all of it.
- Whether an expense is a need or a want is a call the rule leaves to the person making the budget.
- Taiga Finance has no 50/30/20 preset; the band at the top of its Plan draws Investments, Savings and Spending against take-home, with no target beside them.
Questions about 50/30/20 rule
What is the 50/30/20 rule?
A rule of thumb that splits take-home pay three ways: 50% to needs, 30% to wants and 20% to savings and debt payments beyond the minimums. On $6,000 of take-home that is $3,000, $1,800 and $1,200.
Does Taiga Finance have a 50/30/20 budget?
No. There is no 50/30/20 preset and no target share on the Plan. The band at the top of the Plan draws Investments, Savings and Spending as segments of take-home, so a plan's own split can be set beside the rule.
Is the 50/30/20 rule based on gross or take-home pay?
Take-home, the amount deposited after taxes and payroll deductions. The shares are of the money that arrives in the account.