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.


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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.


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Creating your needs category (50% category )