GLOSSARY · BUDGETING, SPENDING & SAVING

50/30/20 rule

A rule of thumb that divides take-home pay into about half for needs, about three tenths for wants, and about a fifth for saving and paying down debt. It is most useful as a quick check on where pressure in a budget comes from, rather than as a fixed target, since high housing costs, debt or ambitious saving goals can all justify different shares.

Also called: 50/30/20 budget, 50 30 20 method, 50-30-20 budget, needs, wants and savings split, balanced money formula

FORMULA

Needs ≈ 50%, wants ≈ 30%, savings and debt repayment ≈ 20% of take-home pay

COMPUTE IT WITH YOUR NUMBERS

Savings Rate Optimizer →What is my savings rate and how many years to FI at this rate?Household spending vs peers →Is my spending on housing/transport/food normal for my income and household?Paycheck budget →How should I split each paycheck between bills, savings and spending?

LEARN IT PROPERLY

CHAPTER · BUDGETING METHODS & FUNDAMENTALS · FOUNDATIONSThe 50/30/20 Method CHAPTER · BUDGETING METHODS & FUNDAMENTALS · FOUNDATIONSChoosing a Budgeting Method That Fits

SOURCES

All Your Worth: The Ultimate Lifetime Money Plan. Elizabeth Warren & Amelia Warren Tyagi, Free Press, 2005.

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