What Is The 50/30/20 Rule?

Overview

• What Is The 50/30/20 Rule?
• How The 50/30/20 Rule Works
• How To Set Up A 50/30/20 Budget
• Benefits Of The 50/30/20 Rule
• Drawbacks And When It May Not Fit
• Alternatives To The 50/30/20 Rule
• Is The 50/30/20 Rule Right For You?

The 50/30/20 rule is a budgeting guideline that suggests you allocate around 50% of your after‑tax income to needs, 30% to wants and 20% to savings and debt repayments. Needs usually include things like rent or mortgage, groceries, power, transport, minimum loan repayments and other essential bills you must pay to get by.

Wants cover non‑essential spending such as eating out, streaming services, holidays, hobbies, and impulse purchases. The remaining 20% goes towards building your emergency fund, saving for goals, and paying extra off debts to get ahead faster.

At its core, the 50/30/20 rule is about giving every dollar a job without tracking every single line item. Once you know your take‑home pay, you simply split it into the three broad buckets and check whether your current spending roughly matches those ratios.

For example, if your monthly take‑home income is $4,000, the rule would suggest using about $2,000 for needs, $1,200 for wants and $800 for savings and extra debt repayments. Some people then set up separate accounts or digital “buckets” for each category to make it easier to stick to the plan.

To put the 50/30/20 rule into practice, it helps to move through a few clear steps.

1. Work out your take‑home income

Add up your regular after‑tax pay, including salary, predictable casual shifts and any other consistent income.

2. List your essential expenses

Include housing, utilities, food, basic transport, insurance, minimum repayments on existing debts and other non‑negotiable bills. Add these up and see whether they fit within roughly 50% of your income.

3. Review your wants

Look at recent bank statements to see how much you spend on non‑essentials like takeaways, subscriptions and entertainment. Aim to bring this part of your budget close to 30% if it’s currently higher.

4. Set your savings and debt goals

Decide what you will use the 20% bucket for – for example, building a three‑month emergency fund, paying extra off a personal loan or saving for a car deposit. If you’re not sure how much to keep aside for unexpected costs, you may find it useful to read about how much you might need in an emergency fund.

5. Adjust and automate

If your needs are above 50%, look for ways to trim bills, negotiate costs or gradually reduce high‑interest debts. Set up automatic transfers on payday so your money flows straight into your needs, wants, and savings accounts.

The 50/30/20 rule is popular because it’s simple, flexible and easy to remember. You don’t need a complex spreadsheet; instead, you focus on three big categories and make sure your spending lines up with your priorities.

Another benefit is that it encourages you to consistently put money towards savings and debt reduction, rather than treating these as “leftovers” at the end of the month. Over time, this can help you build a buffer for emergencies, pay off personal loans sooner and create more breathing room in your budget.

While the 50/30/20 rule can be a helpful starting point, it isn’t a perfect fit for everyone. If you live in a high‑cost area or have a lower income, your essential expenses might easily exceed 50% of what you earn, leaving very little room for wants or savings.

It can also feel too broad if you prefer a more detailed plan that assigns every dollar to a specific goal. In some situations – for example, when you’re focused on reducing multiple debts – you may need a more tailored strategy for how you prioritise repayments and structure your cash flow. Reading about ways to reduce debt and gain financial control may give you more ideas for handling this stage.

If the standard percentages don’t work for your situation, there are other frameworks you can consider. One common alternative is the 75/15/10 rule, which puts around 75% of your income towards overall living expenses, 15% into long‑term investing and 10% into shorter‑term savings. This can suit people whose essential costs take up a larger share of their budget but who still want to keep savings and investing on the radar.

Others prefer very simple approaches, such as paying yourself a set amount first and then using what’s left for bills and everyday spending. If you’re trying to keep lifestyle spending under control, you might also find it helpful to explore low cost hobbies that give you a break without putting too much pressure on your wants category.

Is The 50/30/20 Rule Right For You?

The 50/30/20 rule is best thought of as a guide rather than a strict rulebook. It can help you quickly see whether your money is going towards the things that matter most, and it offers a simple framework to tweak as your situation changes.

If you’re facing a short‑term cash gap while you refine your budget – for example, an unexpected car repair or moving costs – a small, well‑structured loan can sometimes bridge the gap without derailing your long‑term goals. Red Tree Finance offers secured personal loans of up to $5,000, which can help manage a one‑off expense while you keep building better habits with tools like the 50/30/20 rule.

Is the 50/30/20 rule a good idea?

For many people, the 50/30/20 rule is a useful starting point because it’s easy to understand and encourages regular saving and debt reduction. Whether it’s a good idea for you depends on your income, cost of living, and financial goals, so it can be helpful to treat it as a flexible guideline and adjust the percentages as needed.

What is the 75-15-10 rule?

The 75‑15‑10 rule is another budgeting framework that divides your income into three buckets: about 75% for living expenses, 15% for long‑term investing and 10% for short‑term savings. It’s designed for people who need a larger share of their income for day‑to‑day costs but still want a clear structure for building their future financial security.

What is the 3 jar method?

The 3 jar method is a simple budgeting tool often used to teach kids about money by splitting it into three jars: saving, spending, and giving (or sharing). Each time a child receives money, they divide it between the jars, helping them learn how to plan for future goals, enjoy some spending now, and set something aside to help others.

The information provided in this blog is of a general nature and is provided without considering your specific objectives, financial situation, or needs. It is intended for informational purposes only and should not be relied upon as financial, investment, or other professional advice.Before making any financial decisions or taking action based on the information presented, you are strongly encouraged to assess its appropriateness in light of your individual circumstances. Red Tree Finance does not intend to provide personalised financial advice, and you should seek independent financial, legal, tax, and other relevant advice tailored to your unique situation.