What Does the 50-30-20 Budget Plan Look Like?

Are you looking for ways to manage your budget better? Want to learn how to save but still maintain a good quality of life? The 50/30/20 budgeting plan might be the answer to your financial worries.

50-30-20 Budget Plan

The 50 30 20 budget plan is an effective and straightforward approach that helps individuals keep track of their spending and live within their means. 

Named after its main components, it suggests that individuals should dedicate no more than 50% of their income towards essential expenses, 30% for discretionary spending, and the remaining 20% for savings and debt repayment.

This plan can provide structure and help individuals take control of their finances by having better-defined parameters when allocating money. We will delve deeper into what the 50 30 20 budgeting plan is, how it works, and how it can help you get your finances back on track.

The 50/30/20 Budget Rule Explained

It’s all about your needs, wants, and savings. It ultimately comes down to emergency funds , retirement savings, and debt repayment.


Necessities are the expenses that you have to pay for in order to survive, such as rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment and utilities. These “must-haves” do not include luxuries such as HBO subscriptions, Netflix memberships, Starbucks coffee or eating out.

To cover your needs and obligations, you should not spend more than half of your after-tax income. If you are overspending, consider reducing wants or downsizing your lifestyle with a smaller home or more affordable vehicle. Other ideas to help include carpooling, taking public transportation, or cooking at home instead of eating out.


Desires encompass all the items you spend money on that are not necessary. This includes dinner and cinema outings, a new purse, tickets to sports games, holidays, the newest electronic contraption, and very quick web access. Anything categorized in the “desires” container is voluntary fundamental you get right down to it. You can exercise in your dwelling rather than visiting the gym, cook meal instead of dining out, or observe sports on television rather than acquiring tickets to the event.

If emergency funds are ever used, the first allocation of additional income should be to replenish the emergency fund account.


Ultimately, assign 20% of your net salary to savings and investments. This includes putting money into a precautionary fund in a bank account, allocating IRA monies to an pooled investment fund portfolio, and buying stocks. 

Ensure that you have at least three months of emergency money in store should you lose your job or a fortuitous occurrence occurs. Afterward, concentrate on retirement and amassing other financial objectives down the line.

If you ever need to tap into your emergency funds, the first thing to do is replenish them with extra income.

Making more than the minimum payments on any existing debts can be beneficial to your overall savings plan, as it reduces both your current principal and the amount of interest you will owe in the future.

An Example of a Family's 50-30-20 Budget Plan

If we’re looking at a family with 2 children, their monthly income is $5,000. Under the 50-30-20 budget plan, they would allocate their money as follows:

  • 50% of their income, or $2,500, would go towards essential expenses such as rent/mortgage payments, utilities, groceries, transportation costs and health insurance.


  • 30% of their income or $1,500 would be allocated towards discretionary spending such as entertainment, dining out, vacations, clothing and other luxuries.


  • 20% of their income or $1,000 would be allocated towards savings and debt repayment such as emergency funds, retirement savings and debt repayment.


This is proven to be a great way to manage your finances and ensure that you are not overspending or living beyond your means. With this budget plan, you will be able to keep track of where your money is going and make sure that you are sticking to a budget.

The Importance of Family Savings

The USA has a reputation of not being great with managing money, which is evidenced by the country’s staggering debt levels of $14.9 trillion in the third quarter of 2020. Of that sum, $756 billion was attributed to credit card balances while personal savings rates decreased to 6.4% in January 2022.3

The 50-20-30 rule encourages households to prioritize creating an emergency fund in case of job losses, unexpected medical bills, and other unanticipated costs. This way, they can have access to funds when they need it and be able to save some for retirement. If such funds are used up, then households must immediately prioritize replenishing it.

Securing a comfortable retirement necessitates planning early: calculating how much you will need for retirement and setting aside funds accordingly, since individuals are living longer.

The History of the 50-30-20 Budget Plan

The 50-30-20 budget plan was first introduced by Senator Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan”, which she co-authored with her daughter, Amelia Warren Tyagi. 

In the book, they argued that individuals should allocate no more than 50% of their income towards essential expenses, 30% for discretionary spending, and the remaining 20% for savings and debt repayment.

The Bottom Line

Achieving success financially can be demanding, particularly when sudden outlay happens. To deal with after-tax income judiciously and accomplish financial objectives, pursuing the 50-20-30 directive can be a worthwhile assistance. 

People should try to constrain their impulse buying (on desires) to 20%, and divide their funds toward more critical areas like emergency funds and retirement. For those that find that their expenses on desires surpass 20%, making adjustments can assist to better direct these resources.

Constructing a budget and adhering to it are essential for enjoying life without worrying about expenses, retirement savings, and all the other activities that bring you joy.

The 50-20-30 guideline is designed to aid people in the management of their post-tax income, predominantly to prepare funds for contingencies and savings for retirement. It’s highly advised that all households prioritize establishing a financial cushion in the event of job losses, unrehearsed healthcare bills, or any other unexpected costs. 

If your emergency fund is exhausted, then your focus should be on restoring it as soon as possible.