The 50/40/10 budget: Benefits, drawbacks and example

Budgeting is an essential skill for achieving financial stability and freedom. However, the best budgeting method depends on your priorities and circumstances. The 50/40/10 rule is a straightforward and adaptable strategy if you want to balance disciplined spending and increase savings and investments.

Let's review how this budgeting rule works and how you can apply it to your daily financial routine.

This budgeting framework simplifies money management by allocating your after-tax income into three basic categories: needs, savings and wants. This budgeting method prioritizes essential spending, saving and investing while allowing room for discretionary spending. It's easy to understand because you don't have to track several budgeting subcategories—all your monthly expenses fall into one of three buckets:

• 50% for needs. Half of your income goes toward essential expenses, such as housing, utilities, groceries, transportation, health care and other bills.
• 40% for saving and investing. The next chunk is dedicated to savings and investments. This includes contributions to retirement accounts, an emergency fund and other long-term financial goals.
• 10% for wants. The smallest portion of a 50/40/10 budget goes toward discretionary spending like dining out, entertainment, travel and nonessential purchases.

If you have debt, the minimum monthly payment falls into the needs category while any extra payments you make to pay down the debt fall into the saving and investing category. The idea is that when you pay down your debt, you'll ultimately have more money to save and invest.

Let's say your household has $6,000 in take-home pay each month. Using the 50/40/10 method, that would mean you use $3,000 to pay for your needs, put $2,400 in savings or investment accounts and spend $600 on wants.

"Distinguishing wants from needs takes honest reflection," says Claire Hevel, design leader and co-founder of Thrivent's Money Canvas program. "A simple yet effective way to assess the difference is to ask yourself: 'If I lost my income tomorrow, would I still need this to live safely and function day-to-day?'"

The key is to assess spending through its underlying purpose rather than routine, she says. For example, a car might feel essential—but is it the model that’s needed, or simply wanted? 

"It’s not unusual for core expenses to stretch beyond the 50% mark—especially with rising costs," Hevel adds. "And that’s OK. Budgeting frameworks like the 50-40-10 rule are designed to guide your choices, not police them. It’s perfectly normal to adjust the balance between 'needs' and 'wants' as your circumstances evolve. At the end of the day, your savings rate is the real compass. As long as you’re consistently putting aside a meaningful portion toward your financial future, you’re moving in the right direction."

Like other budgets that split your income into different-sized spending portions, the 50/40/10 budget aims to give you some guidelines along with some flexibility. Here are a few other upsides of this method:

• It's simple. The 50/40/10 rule has three straightforward budgeting categories that make it easy to divide your expenses.
• It aims to balance present and future needs. By automatically setting aside 40% for saving and investing, you're putting almost as much toward your down-the-road financial goals as you're spending for your current needs. It can lay a strong foundation for balancing needs for today and your future.
• There's a modest fun factor. This strategy leaves you with a bit of money every month to spend on items and experiences that let you live in the moment.

No budget is universally perfect, and the 50/40/10 rule has its downsides, including that it's not realistic for every budgeter:

• It's not an ideal split for everyone. If you have more expenses than income or live in an area with a high cost of living, even just the most essential of your needs might require more than 50% of your income.
• The large savings portion may not align with your priorities. This budget method assumes that saving up money is important to you. Putting 40% of your income in savings and investment accounts every month may mean you skimp elsewhere—either not putting enough toward your needs or not giving yourself enough discretionary money to spend.
• It can be hard to do if you have a variable income. The 50/40/10 model can be tough for freelancers, commission-based workers and other people with a different income amount each month. The amount that's 50% of their income may change frequently and drastically, making it challenging to commit dollars to investing and saving if they don't have enough to cover needs.

The 50/40/10 rule works well for certain types of people or specific financial goals. It might be a good fit for you if:

• You have a stable and predictable income.
• You want to balance present enjoyment and future security.
• You're new to budgeting and want a simple framework to manage your spending and saving.

On the other hand, the 50/40/10 rule might not be for you if:

• Your earnings fluctuate from month to month.
• You have more expenses than income or live in a high-cost area.
• You prioritize experiences, entertainment and travel over saving for the future.

"Modern life makes it easy to confuse wants with needs," Hevel says. "Advertising, convenience, and cultural norms often cloak desires in the language of necessity—phrases like 'I need my daily coffee' or 'I need faster Wi-Fi' reflect how comfort and identity creep into our sense of essentials. Over time, habitual purchases can start to feel indispensable, even when they’re not.

"To build more self-awareness, pause before spending and ask: 'Is this solving a problem, or simply adding comfort?' That brief moment of reflection can shift your mindset from autopilot to intentional—and help you align your budget with what truly matters to you."

If it sounds like the 50/40/10 rule might be right for you, here are some tips to help you get started.

1. Assess your income and expenses. Begin by calculating your total monthly take-home pay. Then list all your monthly expenses and categorize them into needs, savings and wants. This initial assessment gives you a clear picture of your current spending and how it aligns with the 50/40/10 rule.
2. Adjust your categories. If your spending doesn't align with the 50/40/10 allocations, identify areas where you can make changes. For example, you might need to cut back on dining out to boost your savings.
3. Set up automatic transfers. Setting up automatic transfers to a savings or investment account every payday makes saving effortless and helps avoid the temptation to spend what you should save.
4. Use budgeting tools. Budgeting apps and spreadsheets can help you track your spending in real time and ensure it stays within your target budget allocation percentages.

The 50/40/10 budget framework can help you balance your needs, savings and wants and encourage disciplined spending. But for this and other budgeting methods, remember the "rule" is largely a guideline. You can adapt it to fit your financial situation and goals. For example, if you live in a higher-cost area or are just getting started in your career, you might need to allocate more of your budget to needs. In that case, a 60/30/10 budget might work better for you.

If you're uncertain about how to prioritize your spending, a Thrivent financial advisor can help you assess your financial situation and tailor a budgeting approach that ensures your spending supports your long-term goals.