By Ken McCormick
Vice President, Relationship Management;

How To Budget Using the 50-30-20 Rule

Jun 05, 2023

  • Helpful Tips
  • Savings Accounts
  • Banking

If you have trouble budgeting your income from month to month, you are not alone. According to a Gallup poll, only about 32% of Americans maintain a household budget. If you’re part of that 68% and need help planning your finances, the 50-30-20 rule may be your solution.

The 50-30-20 rule states that 50% of your monthly income should go to needs, 30% to wants, and 20% to savings. To start budgeting using this rule, you first need to determine your after-tax income each month. This is done by looking at your paycheck stub and adding back any deductions that are not taxes. That can include items like health insurance and 401K contributions. Then you need to divide that amount into your needs, wants, and savings. Here's a calculator that allows you to enter your after-tax income and then allocates the proper amounts into the needs, wants, and savings buckets. Now we can see how your actual expenses align with how they should be distributed.

First, let’s look at needs.  These can include:

  1. Mortgage payments
  2. Car payments
  3. Groceries
  4. Utilities
  5. Insurance

Ideally, no more than half of your income should be allocated to needs. However, it could be that in your current situation, more than 50% of your income goes to needs—and that is okay. Taking the time to look at your finances this way might allow you to see where making adjustments, like refinancing your home, might allow you to keep more of your income for wants and savings.

Here are some examples of some wants:

  1. Tickets to concerts or sporting events
  2. Dining out
  3. Premium TV channels
  4. Vacations

If your wants expense each month exceed 30% of your income, you may need to cut back. Eat out less, subscribe to fewer premium channels, or take a vacation closer to home.

Finally, here are some savings examples:

  1. Savings, CD, or money market account
  2. IRA or 401K contributions
  3. Stock market investments
  4. College fund

The types of contributions made to savings can vary by stage in life (young people adding more to a college fund, seniors to a retirement fund), but no less than 20% should be put into savings regardless of age.

Proper budgeting using the 50-30-20 rule can lead to paying off debt sooner, ensuring you have money for the things you need, and saving for important things. And it's never too early to start learning to budget. Check out NASB’s 50-30-20 Rule course geared towards kids elementary and up. If you would like to talk to a NASB representative about how you can start a savings account, give us a call at 800-677-6272, or click here for more information.