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The 50/30/20 budget system: A plan that gives every dollar intention

Family of 4 in the kitchen
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A budget can play a big role in setting yourself up for financial success. Tracking savings and spending is a positive step toward making your money last and building a secure financial future. Regardless of your life stage—whether you're just starting out on your own, supporting a family or coming up on retirement—budgeting can keep you aligned with your goals.

But creating and sticking to a budget can feel daunting. Thankfully, the 50/30/20 budget rule makes it easier by splitting your income between three key areas and helping you build strong financial habits. Here's what you should know.

What are the benefits of the 50/30/20 rule?

If you've never budgeted before, knowing where to start can seem challenging. This portion-based framework stands out because it offers a concrete starting point for your financial journey without much complexity. The 50/30/20 budget rule can offer:

  • Simplicity. You only need to track three categories without a lot of confusing calculations.
  • Balance. The system covers your primary and secondary financial needs while also factoring in future goals.
  • Financial habits. You're paying yourself first, setting aside savings and reducing debt every month.
  • Allowance for fun. This budget doesn't completely remove nonessential spending from your life.
  • Flexibility. When you need to make adjustments, you can. You decide what goes in each portion.
  • Building for the future. Consistently setting aside part of your income can bring you financial security.
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Financial Clarity: Setting a financial foundation guided by your priorities

What is the 50/30/20 budget rule?

The idea behind the 50/30/20 budget rule is to split your income into portions that will allocate 50% to your needs, 30% to your wants and 20% to your savings.

Before you get started, you may want to ponder a few questions:

  • What are your ongoing spending and saving priorities?
  • What bigger goals do you want to accomplish in 10 to 20 years?
  • How do you imagine spending your time in retirement?

Digging into these can help you better identify what you need, what you want and how much you should probably be saving as well as which of your short- and long-term goals are truly important to you. Then, you'll have the foundation you need to lay out your 50/30/20 budget.

Step 1: 50% of your income goes to your needs

These are your baseline monthly expenses for the essentials—the costs that keep a roof over your head, the lights on, and your family fed. Examples of needs include:

  • Housing payments.
  • Groceries.
  • Utilities.
  • Transportation.
  • Insurance.
  • Childcare expenses.
  • Loan and debt payments.

You may add up what you're spending and realize 50% of your income doesn't cover these necessities. This is where the nitty-gritty of budgeting comes in and pushes you to make adjustments. Some options to reach that 50% mark might be downsizing what you spend on some of your needs (finding more modest housing or cheaper transportation), reassessing if a need is actually a want (ending your cable service or opting for generic brands) or generating more income (seeking a promotion or taking on a side gig).

Step 2: 30% of your income goes to your wants

The next portion of your income is made up of the things and experiences that are nice to have but aren't absolutely essential. Examples of wants include:

  • Dining out.
  • Entertainment.
  • Hobbies and leisure activities.
  • Nonessential clothing, toys and electronics.
  • Monthly gym memberships or beauty care.
  • Charitable giving.

As mentioned previously, it can be hard to weigh your wants, and not all wants can realistically make the list. On the upside, this portion of your budget can be extremely fluid, where you prioritize getting some new sneakers one month and then treat yourself to concert tickets the next. If you find that 30% of your income doesn't cover your expenses for this section, you'll again have to decide if a cheaper substitute is acceptable, if you could do without it altogether, or if you have a way to increase your income.

Step 3: 20% of your income goes to your savings

The remainder of your income is for building up savings to serve your future self's best interests. While it can seem like a big chunk, the 50/30/20 rule is designed to make sure those short- and long-term goals you thought about in the beginning get the attention they deserve. One budgeting method focuses on paying yourself first, which loops in:

  • Starting or replenishing your emergency fund.
  • Adding contributions regularly to your retirement savings.
  • Putting money aside in a high-interest or investment account for a house, car or vacation.
  • Funding your, or a loved one's, higher education.
  • Creating a legacy account.

One alternative use for this savings is to pay down extra on any high-interest or bad debts that are holding back your creditworthiness. Just as with your needs and wants portions, deciding which of these options to pursue each month will require some thoughtful consideration—but the important thing is to designate a full 20% of your income for it.

Need some extra help setting up your own budgeting system?

Sign up for Money Canvas™, a free money coaching program from Thrivent.
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Practical guidance: How to do the 50/30/20 rule

Understanding the pieces of a budget is one thing, but implementing them is another, and it helps to know exactly how to put the theory into practice.

Before you can get into the habit of naturally prioritizing your needs, wants and savings and neatly divvying up your paycheck among them, give yourself time to get familiar with everything.

  • Track your expenses for a few months to get a baseline of what you have coming in each month, what you're spending and what's left over.
  • For your income, apply the 50/30/20 rule after taxes and withholdings are taken out of your income. If your paycheck has deductions for employer-based health insurance or retirement contributions, factor those into your "needs" and "savings" portions—though keep in mind that you may want to supplement those amounts.
  • For your expenses, take a list from a sample month and sort each into your needs, wants and savings categories to find out how on target you are. You may only need minor adjustments to meet the allotted percentages.
  • If your expenses don't hit the 50/30/20 budget divisions, review your spending and identify where you can reasonably make cuts or changes to get them there.
  • Consider setting up separate accounts for your necessary spending, nonessential spending and various savings goals, as well as automating payments in and out as much as you can so you can more easily stick to your plan.
  • Once everything's in place and you've started using your budget, regularly check back over your numbers for opportunities to adjust, particularly if you have changes in your income, spending or family situation.

Is the 50/30/20 budget good for everyone?

While 50/30/20 budgeting provides a simple framework, it may be too simple for some situations. For example, if you live in an area with a high cost of living, keeping your needs-related expenses within 50% of your income may be unrealistic or unsustainable. The same may be true if you have a limited income with little left over for wants and savings after covering necessities.

No budget rule is perfect for everyone; the right plan depends on your needs. Clearly defining your financial goals, understanding your monthly income and evaluating how a savings strategy can align with your lifestyle and goals can help you find a budget that works.

The 50/30/20 way of budgeting is just one approach for managing your spending and saving to reach your short- and long-term goals. If you want to learn more about developing different budgeting tactics, Thrivent has the resources to help. You can try our free money coaching program, Money Canvas, and complete a series of personalized one-on-one meetings to take control of your budget.

To explore more personalized options for managing your money to achieve your goals, consider meeting with a Thrivent financial advisor.