What is the 50-20-30 Budget (and does it make sense for you)?


Spreadsheets, percentages, fractions – sometimes determining how to allocate the funds from your paycheck can feel more like a punishment than a privilege. But it doesn’t have to be that way.

With strategies like the 50-20-30 budget, you can put your paycheck planning on autopilot. But, like any budget, the 50-20-30 plan isn’t the best move for everyone. To help you take the guesswork out of whether or not this strategy is right for you, the Finance Opinion team has broken down the basics for you. Keep reading to learn more

The 50-20-30 Budget

The 50-20-30 budget was designed as a simple, intuitive way to help people reach their financial goals. As implied by the name, this budget has you divide our after-tax income into three sections:

  • 50% of your monthly income should go toward needs and obligations. This includes housing, car payments, utility bills, groceries, insurance – the essentials you need to live. 
  • 20% should go toward savings and debt repayment. This includes credit card debt, personal loans, student loans, and a 401(k) and/or rainy day fund.
  • The remaining 30% can go toward anything else that you want, from dining out and entertainment, to shopping, beauty, vacations – you name it.

Keep in mind that this plan can be modified to match your unique financial situation and future goals. For example, if you have a lot of high-interest credit card debt, it may be in your best interest to swap the 20-30 section of the plan and allocate 30% to debt repayment, 10% to savings, and 10% to “unnecessary” expenses (like that monthly takeout meal you just can’t pass up!). 

When the 50-20-30 Budget Makes Sense

If managing a budget makes your head spin, the simplicity of the 50-20-30 budget may be a good fit for you. By dividing your expenses into just three categories, even the most budget-adverse person can put their money to work more efficiently, while saving time and unnecessary stress digging into every detail of every expense. 

Additionally, if you seem to have a tough time building up your savings, the 50-20-30 budget could help you bolster it up. That’s because the structure of the plan has savings built right into it. And, to make it even more effortless, consider setting up an auto payment for 20% of your paycheck to go directly into a savings account. 

… and When to Consider Other Financial Strategies

Like any budget or financial plan, the 50-20-30 plan isn’t the right fit for everyone. If you reside in a city with a high-cost of living, you could actually be spending upwards of 70% of  your income on basic necessities. This doesn’t leave much left to split between debt, savings, and additional expenses, making the 50-20-30 rule a bit hard to follow. 

Whatsmore, if you’re inching closer toward retirement but are still a ways off from your savings goals, the 50-20-30 budget can not only feel restrictive, but can actually be destructive in helping you reach your goal on time. 

The Bottom Line

The 50-20-30 (or however you decide to split it up) can be a good fit for those who appreciate a “set it and forget it” plan when it comes to budgeting, as well as for those who have a tough time setting cash aside for savings. However, if the rising cost of living is catching up with you, or you just don’t like restrictive plans, it may make sense to consult with a financial advisor to determine the best budget to match your financial goals and lifestyle. 


The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.

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