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50/30/20 Rule

07/17/2020 - Financial Wellness & Life Planning, Budgeting, WesBanco Wellness Series, College Prep

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WesBanco Wellness: College Prep

The 50/30/20 rule is a simple, practical rule of thumb for individuals who want a budget that is easy, yet effective, to implement. It offers guidelines for enjoying your income while putting savings on autopilot.

Humans are fallible—sometimes we just need guidelines. If you struggle making sense of a sea of budgeting systems and apps, consider the 50/30/20 rule. Developed by Elizabeth Warren, a senior U.S. Senator from Massachusetts and renowned expert in bankruptcy law, the 50/30/20 rule states that your after-tax income should be roughly divided three ways:

  • 50% to needs
  • 30% to wants
  • 20% to long-term savings

The 50/30/20 rule is not gospel and it’s not a law. It’s a guard rail around your spending and savings decisions. Here’s a tool to help you see how much of your monthly income should be used in each category according to the rule:

The beauty of the rule is its simplicity. We humans are imperfect, and one of our greatest weaknesses is our tendency to bail when things get complicated or stressful. Sophisticated budgeting systems are complicated… and stressful. Furthermore, budgeting is something you must do your entire life. Find a way to simplify it.


People define their needs in vastly different ways, however, there are several things we can easily agree on: housing, utilities, many kinds of insurance, and transportation. We also strongly encourage you to have life insurance. Most people, whether they’re single or not, have loved ones who will need a death benefit if they unexpectedly pass away. Parents should absolutely have life insurance.

Examples of needs

  • Housing: Rent, mortgage, homeowners insurance, property taxesTransportation: Car payment, insurance, gas, public transport passes, parkingShort- to mid-term savings goals: Down payment on a car, a new roof, replacement furnaceHealth care: Insurance premiums, deductibles, prescriptionsInsurance: Auto, life, home, health
  • Utilities: Gas, water, electricity, internet, cell phone
  • Loan payments: Credit card debt, student loans

Note that the necessities come in two flavors: routine bills and predictable goals. Some expenses you will pay regularly, and others (like a new roof), you must anticipate and set money aside. Caution: It’s easy to fool yourself into thinking you need a five-bedroom house. Realize that spending too much from one category will rob the others. In short, be honest with yourself about your needs.

The beauty of the rule is its simplicity.


While the necessities are easy to agree on, wants are subjective and personal. A vacation Jack considers valuable—essential, even—Jill finds frivolous and wasteful. The 50/30/20 rule encourages you to be explicit about your wants. But don’t beat yourself up over them. Give yourself permission—within a reasonable set of constraints—to spend some of your money on things that make your life enjoyable.

Examples of wants

  • Gym memberships
  • Clothing
  • Online subscriptions
  • Cable TV
  • Furniture
  • Vacations
  • Hobbies
  • Eating out

If you squint, you’ll see similarities between your wants and needs. Clothing, for example, is a necessity. The truth, however, is that most people can clothe themselves inexpensively; the majority of spending on new threads is at the margin, where it becomes plainly a want. Again, be honest with yourself.


There is no financial habit—especially for young adults—as important as saving. Unsurprisingly, it’s also the hardest. To save is to delay gratification. Make the decision today, whether you follow the 50/30/20 rule or not, to save a significant portion of your income for:

  • Rainy days, and
  • Retirement.

The former is hard because, with our money, we’re optimists. What could go wrong? Retirement, on the other hand, is difficult because it can seem so distant. (Surely I can save for retirement when I get a better job, right?)

One of the great secrets to saving is finding ways to make it automatic.

First, for emergencies, set aside a portion of your income in a personal savings account — an account without a debit card or check book. A savings account will psychologically earmark your money, making it less likely you’ll withdraw it for spurious reasons. With a little protection in place, if disaster strikes, you can still transfer the funds to a checking account easily enough.

One of the great secrets to saving is finding ways to make it automatic. Don’t put yourself in the position of deciding how much to save with each paycheck. Make the savings decision once, and ride it as long as possible.

If you own a home, pay your mortgage online via bill pay, and set the amount higher than what’s required. Two benefits accrue to paying extra: 1) you’ll sidestep large amounts of interest, and 2) equity in your home is a form of retirement savings: you will expedite the day when you have no payment at all.

Contribute as much as you can to a 401(k) or individual retirement account (IRA). If you’re employed, it’s possible your employer offers a 401(k) and maybe even matches some of your contribution. If your employer matches 3%, for example, make sure you contribute at least 3%. Otherwise, you’re leaving money on the table. But don’t stop there; contribute much more money where possible.

Some employers, if they support direct deposit, will let you split your paycheck between accounts. This payment method is also a nice way to put money into a savings account automatically.

Finally, some people frown on saving money, calling it unnecessarily severe, or self-depriving. Resist that feeling. Saving is not about amassing a pile of money—it’s about security and preparing for a time in your life when you will quit working, making it as enjoyable as possible. Saving is gratifying. It will instill confidence and self-respect.

Saving is gratifying. It will instill confidence and self-respect.

Make Adjustments

Like all budgeting methods, the 50/30/20 rule is not perfect, and shouldn’t be applied as defined to every budget. Saving 20% is a huge improvement for some people. For others it’s low. If you’re a high income earner, for example, you should consider saving (and investing) much more than 20%, especially if you intend to travel. On the other hand, if you barely make ends meet (which is fine, we all go through it!), consider spending less than 30% on wants. Resist the temptation to compare yourself to others. Make adjustments. Place an emphasis on your long-term goals.

Note: The 50/30/20 rule is not appropriate for individuals who are in deep personal debt (unsecured debt). To avoid bankruptcy, a default, or long-term credit damage, dedicate as much of your income to paying off credit card balances and student loans as possible. Without neglecting your emergency fund, you may need something like a 75/5/20 rule until you’ve cleared your obligations.


The 50/30/20 rule is a simple, practical rule of thumb for individuals who struggle to budget. It offers guidelines for enjoying your income while putting savings on autopilot. Some folks will disagree, calling it too lenient or too strict. That’s fine. Skilled budgeters and savers will develop their own habits and can be as disciplined as they like. But, if budgeting isn’t natural to you—especially if you’re young, and you’ve avoided deep debt—the 50/30/20 rule gives you permission to relax a bit and put savings on autopilot.

Content is for informational purposes only and is not intended to provide legal or financial advice. The views and opinions expressed do not necessarily represent the views and opinions of WesBanco.

While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

Neither Banzai nor its sponsoring partners make any warranties or representations as to the accuracy, applicability, completeness, or suitability for any particular purpose of the information contained herein. Banzai and its sponsoring partners expressly disclaim any liability arising from the use or misuse of these materials and, by visiting this site, you agree to release Banzai and its sponsoring partners from any such liability. Do not rely upon the information provided in this content when making decisions regarding financial or legal matters without first consulting with a qualified, licensed professional.

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