• Rebekah Gamble

50-30-20 Budget: How It Works

Just starting to budget? The 50-30-20 budget can work for people who are looking to use budget categories without micromanaging their finances.


Elizabeth Warren coined the term “50-30-20” budget and it gained popularity amongst those on their personal finance journey. For those who began using this budget style it was a way to watch their finances while still buying things they enjoyed.


Keep reading to find out what are the pros and cons of the 50-30-20 budget and how you can implement this budget style into your life.


The 50-30-20 budget gives your money structure without being overwhelmingly strict.


If you’re looking for a budget that tells you what to do without several categories, then the 50-30-20 budget will be great for you.



Every budget style should be tweaked to fit your lifestyle

Pros of the 50-30-20 budget


Freedom to spend


It gives you 30% of your budget for regular guilt free spending. This is a good idea for people who are interested in budgeting without giving up everything that they are interested in.


Related Post: Simple no budget- budget


Freedom to save


You can decide how much of the 20% you want to save, invest, and use toward debt.


Cons of the 50-30-20 budget


Doesn’t work for everyone


Most Americans have a budget that includes more than 50% of bills.


So this alone can be discouraging if they have to make tweaks to the budget style before implementing it.


Doesn’t prioritize debt


The 50% needs category only includes minimum payments on bills.


If you are attempting to battle debt this would not be the budget style for you. You would be paying the minimum due and then deciding how much extra you wanted to put toward your debt.


To aggressively pay off debt it has to be high on your priority list.

How to start budgeting


You can start the 50-30-20 budget by gathering your monthly or bi weekly income.


Take the number you have post tax and divide it in half. This is how much you have to spend on your mandated bills and things you can not live without like food or transportation.


Take the remaining number and take 30% of it. Plugging this into the calculator can look like (remaining income) X (30%)


30% is how much you can spend without guilt.


Lastly the amount left over is called your savings category.


An example of the 50-30-20 budget. How it works
An example of the 50-30-20 budget

Automate your savings


(Income) x (20%) = How much you can transfer out of your account.


The key to any successful budget is to save BEFORE you spend any money on necessities or wants.


Separate your savings category


20% is how much you have to invest, save, and pay off debt.


An example of saving money


10% can be sent to your investing brokerage

5% can be sent to your savings account

An extra 5% can be sent toward your debt


Keep in mind the numbers from above can be tweaked to fit your lifestyle. For example you may want to send 10% to savings, 5% toward investing, and 5% extra toward debt.


The 50-30-20 budget is a guidepost for budgeting and not a strict set of rules.


Related post: 5 ways you can invest in yourself for free


Creating your needs category (50% category )


You can add up your bills (necessary expenses) by reviewing last month's bank statements.


Usually we have more recurring expenses than annual expenses.


If you want to be extra precautious you can print out the last year of bank statements in case you have upcoming annual credit card fees, or business fees.


I own an Etsy shop that sells budget and savings templates. This shop charges me $0.20 per listing every 3 months to renew the items I am selling.

Take your time when doing this and don’t get overwhelmed by the numbers. If it starts to feel like too much, get up stretch and then continue.


In a world where you can use the 50-30-20 budget without tweaking, you will have bills that add up to 50% of your income.


Related post: 27 FREE self care ideas for busy people


Creating your needs category ( 30% category)


This is your guilt free spending category where you can indulge in self care, and have consequence free retail therapy.


Mindfully spending the money that you have will save you more money in the long run. When you intentionally spend there is always money rolled over to be spent later or added to your emergency fund.


Related post: This is why you can't save money


Creating your savings category (20% category )


This is where you can make extra debt payments, invest in the stock market and increase your savings.


Debt payments are mentioned again because in the 50% category you should only be paying the minimum.


Additional debt payments to pay off your bills can only be made once you divide your income in the three categories of the 50-30-20 budget.


What you can expect from the 50/30/20 budget


If you have a lot of debt this may not be the budget style for you.


If you are interested in investing more than you spend you will have to tweak this budget style.


Possibly consider swapping your wants category for the savings category. Remember personal finance is personal.

Many people feel financial anxiety. Recognizing that the 50-30-20 budget does not work for you just means you need to try another style.


The most successful budget will include your values, your financial goals, and grow as you grow. This is a living budget.


In conclusion


Try out the 50-30-20 budget and don't be afraid to tweak it. If there are any difficulties, this budget style feels constricting there are a ton of other budget styles you can try.


When we first start to save money and determine how we can save more daily, it can feel challenging.


But with more habit changes you will learn money management and it will get easier.


Have patience with yourself because it's a journey of financial growth. Nothing happens overnight but each and every day you are creating lasting changes.


Leave a comment below and let us know how your budgeting journey has been going and if you would try the 50-30-20 budget!


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