If building a budget line by line feels like too much, start with one easy rule: 50/30/20. It splits your money into three simple buckets. In this lesson of Mondosol’s Make Money course, Amara shows you how it works, when it fits, and how to adapt it to your life.
Read the article, watch the videos, or press play and listen.
In this article
What the 50/30/20 rule is
The rule says: take your net monthly income (after tax) and split it like this:
- 50% for needs
- 30% for wants
- 20% for savings and paying off debt
It was made popular by Elizabeth Warren and her daughter Amelia Warren Tyagi in their 2005 book All Your Worth. It is a guideline, not a law.
The three buckets
Needs (50%)
Things you must pay to live and work: rent, basic food, utilities, transport, insurance, minimum debt payments.
Wants (30%)
Things that make life nicer but you could live without: eating out, streaming, hobbies, travel, new clothes you do not need.
Savings and debt (20%)
Your future self: an emergency fund, savings goals, and paying off debt faster than the minimum.
Not sure if something is a need or a want? Revisit Needs vs. Wants.
A worked example
An invented example with 20,000 kr net income per month:
| Bucket | Share | Amount | Examples |
|---|---|---|---|
| Needs | 50% | 10,000 kr | Rent, groceries, transport, phone |
| Wants | 30% | 6,000 kr | Eating out, hobbies, streaming |
| Savings and debt | 20% | 4,000 kr | Emergency fund, savings goal |
| Total | 100% | 20,000 kr |
Saving 4,000 kr a month adds up to 48,000 kr in a year, before any interest.
When to adjust the numbers
- High rent city? Needs may take 60% or more. Then shrink wants first, for example 60/20/20.
- Student or first job? Even 10% savings is a great start. Build the habit, then raise it.
- Paying off expensive debt? Move more from wants into the 20% bucket until the debt is gone.
The rule is a starting point. Your own budget shows what really fits.
Watch: the rule explained
Video: “How to create a budget: the 50-30-20 rule explained” by GoHenry, on YouTube.
Video: “How to Budget Smarter: The 50/30/20 Rule Explained” by Cary Stamp & Company, on YouTube.
Try it: Amara’s bucket split
- Write your net monthly income.
- Multiply by 0.5, 0.3 and 0.2 to get your three targets.
- Put last month’s spending into the three buckets.
- Which bucket is over? Pick one small change for next month.
FAQ
What is the 50/30/20 rule?
A simple way to split net income: 50% for needs, 30% for wants and 20% for savings and debt repayment.
Is it based on gross or net income?
Net income, the money you receive after tax.
What if my needs are more than 50%?
That is common in expensive cities. Reduce wants first, and keep some savings even if it is less than 20%.
Where does debt repayment go?
Minimum payments are needs. Anything extra you pay to clear debt faster goes in the 20% bucket.
Who created the rule?
It was popularised by Elizabeth Warren and Amelia Warren Tyagi in their 2005 book All Your Worth.
Keep learning
- Practise it: open the interactive Make Money lessons in your learning journey.
- Previous lesson: Your First Budget: a simple 5-step plan.
- Next lesson: Tracking your spending.
- Related: The Power of Saving and compound interest.
This article is educational and is not financial advice. Amara is a fictional character from the Mondosol cast.
