Wouldn’t it be nice if you could budget without a lot of fuss? The 50/30/20 rule of thumb can help you do exactly that.
Using the rule helps you to quickly see both where you stand and where you may need to adjust. It’s an easy way to get a big-picture view.
What is the 50/30/20 Rule of Thumb?
The 50/30/20 rule is a simple way of budgeting. To use it, you put 50% of your after-tax income toward needs (aka must-haves), 30% to wants, and 20% to savings (and debt). Like all rules of thumb, it acts as a broad guideline that works for many people.
It was created / made popular by Elizabeth Warren (yes, that Elizabeth Warren) and Amelia Warren Tyagi. They call it the Balanced Money Formula in their book, All Your Worth.
Warren & Tyagi point out that comparing your spending to the rule “helps you flag when something is wrong, and it shows you where you need to take a closer look at your money choices.”