The 50/30/20 Budget Rule Explained

Summary

The 50/30/20 rule is a simple budgeting guideline that divides your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings. It was popularised by U.S. Senator Elizabeth Warren and her daughter Amelia Warren Tyagi in their 2005 book All Your Worth: The Ultimate Lifetime Money Plan. The rule has since been adopted worldwide — including by UK banks such as HSBC and Halifax — as a straightforward starting point for personal budgeting.

How it works

After receiving your monthly take-home pay (i.e. after income tax, National Insurance, and any pension deductions), allocate your spending as follows:

Needs — 50%

Essential expenses you cannot avoid. These are the bills that must be paid regardless of lifestyle choices:

• Rent or mortgage payments
• Council tax and utility bills (electricity, gas, water)
• Groceries (basic food, not dining out)
• Transport to work (commute costs, fuel, bus/train fare)
• Insurance (home, car, health)
• Minimum debt repayments (credit cards, loans)
• Childcare

Wants — 30%

Discretionary spending on things you enjoy but could live without:

• Dining out and takeaways
• Entertainment (streaming, cinema, concerts)
• Shopping (clothing, gadgets, non-essential items)
• Holidays and travel
• Gym membership and hobbies
• Subscriptions beyond essentials

Savings — 20%

Money set aside for your financial future:

• Emergency fund (typically 3–6 months of expenses)
• Pension contributions (beyond employer minimum)
• ISA or investment account contributions
• Debt repayment above minimum payments
• Saving for specific goals (house deposit, car, wedding)

The formula

Worked example

Inputs explained

• Monthly take-home pay — your income after all deductions (tax, NI, pension). This is the number that lands in your bank account each month.
• Needs / Wants / Savings percentages — the calculator defaults to 50/30/20 but allows you to adjust the split. The three percentages must always sum to 100%.

Outputs explained

• Monthly amounts — how much to allocate to each category per month
• Annual amounts — the monthly figure multiplied by 12, useful for annual planning
• Visual bar — a proportional bar chart showing the relative size of each category

Assumptions & limitations

• The rule is a guideline, not a prescription. In high-cost areas (e.g. London), needs may exceed 50% — the rule still helps by making the overshoot visible so you can plan adjustments.
• The rule applies to after-tax income, not gross salary. If you’re not sure of your take-home pay, use a salary calculator first.
• Minimum debt repayments are classified as needs (they’re non-optional). Extra debt repayment above the minimum goes under savings.
• The rule does not distinguish between good debt (mortgage, student loan) and bad debt (credit cards) — both minimums are needs.
• Percentages can be customised. Common variations include 60/20/20 (tight budget), 70/20/10 (survival), and 40/20/40 (aggressive savings).

Verification