A simple rule for a monthly budget
Tracking every expense category is tiring. The 50/30/20 rule, popularized by Senator Elizabeth Warren and Amelia Warren Tyagi in their book on personal finance, uses just three buckets: half of your take-home pay for needs, 30% for wants and 20% for savings and extra debt payments. This calculator applies it to your income and checks how your current spending compares.
The three buckets
- Needs (50%): housing, utilities, groceries, insurance, transportation to work, child care and minimum payments on debts. Things you would still pay if you lost your job.
- Wants (30%): dining out, travel, streaming, hobbies, upgrades beyond the basics.
- Savings (20%): emergency fund, retirement contributions beyond payroll deductions, investing, and any payment above the minimum on debts.
The rule works on take-home pay, after taxes. If your 401(k) contribution is deducted from your paycheck, you are already saving part of the 20%.
Worked example: $5,000 take-home
- Needs: $2,500 a month.
- Wants: $1,500.
- Savings: $1,000, or $12,000 a year.
- You currently spend $2,900 on needs, which is 58%: $400 over the target.
Budget by take-home pay
| Monthly take-home | Needs (50%) | Wants (30%) | Savings (20%) |
|---|---|---|---|
| $2,500 | $1,250 | $750 | $500 |
| $3,500 | $1,750 | $1,050 | $700 |
| $5,000 | $2,500 | $1,500 | $1,000 |
| $7,000 | $3,500 | $2,100 | $1,400 |
| $10,000 | $5,000 | $3,000 | $2,000 |
When 50/30/20 does not fit
In high-cost cities, rent alone can take 40% of take-home pay. You can change the ratios in the calculator: 60/20/20 keeps savings intact by cutting wants, while 50/20/30 speeds up saving or debt payoff. The savings share is whatever remains after needs and wants.
Bringing needs down
The biggest fixed costs offer the biggest savings: housing, cars and insurance. Refinancing a loan, shopping for car and home insurance once a year, or moving to a cheaper phone plan frees up money every month without changing daily habits.
Making it stick
- Set up an automatic transfer to savings on payday, so the 20% is set aside before you can spend it.
- Keep wants in a separate checking account or card: when it is empty, the month’s fun budget is spent.
- Build an emergency fund of three to six months of needs first, then direct savings to retirement and other goals.