What is the 50 30 20 Rule?

The 50 30 20 Rule is a spending plan that breaks down expenses into simple percentages. In this method, 50% of your income should go to needs, 30% to wants, and 20% to savings. Income here means monthly take-home pay, after taxes. The 50 30 20 ratio represents a balanced formula for enjoying the present while saving for the future.

The idea is to stick to these percentages every month (or most months), but maintain flexibility in each category. In other words, the 50 30 20 Rule is a guideline for how to spend your money without telling you what to spend it on. It’s a sustainable way to keep the big picture in focus.

Origins of the 50 30 20 Rule

The 50 30 20 Rule was first described in a book called All Your Worth by Elizabeth Warren and Amelia Warren Tyagi. Yes, that’s Massachusetts Senator Elizabeth Warren; Amelia is her daughter. It was published in 2005, but the words on the first page still ring true 20 years later, perhaps even more so.

“The rules of the game have changed. Somewhere in your bones, you already know this…
You can’t count on good old-fashioned work the way your parents did. Go to school, get a good job, do your work,
don’t go crazy with spending, and everything will work out, right? Not anymore.
That advice may have worked in your parents’ day, but today you have to be smart with your money…
You have to learn the new rules—the rules nobody told you and nobody talks about.”

Ouch. That’s rough when you spell it out, but despite the gut-punch intro, the book is meant to be empowering. It’s full of illustrative stories and pithy quotes that are usually on point. Some examples: “Savvy money managers start with the dollars, not the pennies” and “Paying off your debts may be the most important investment you ever make in your future.” There are also worksheets that guide you through how to think about your own expenses in the 50 30 20 framework.

Working with 50 30 20

What’s a need vs. a want? There’s no one right answer; you decide on your own definitions. It’s harder than it sounds! Overcommitting on needs (an expensive monthly rent or car payment, for example) can make it harder to spend on wants. That may leave you feeling like you can’t afford anything you really want, can’t manage to save any money, or both.

Overdoing it on wants sounds like an easier problem to fix, but overspending can be a hard habit to break. Consumer companies (we won’t name names, but iykyk) have legions of marketers who are experts in human behavior and are really good at getting us to make a purchase. Don’t give up! Even if you’re not hitting 20% savings every month, it’s better to start with a 10% or even 5% goal than not to try at all.

How Brightfin uses 50 30 20

The Brightfin app owes much of its simplicity to its foundation in 50 30 20. We translate needs, wants, and savings into “Spend Splurge Save” and add one more for gifts and donations: “Spend Splurge Save Share.” With these four words and a simple, swipeable interface, it’s easy to get started tracking your expenses and understanding all you’re worth. Start your free trial today.

Try the 50 30 20 calculator for your monthly income.

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I love baseball and I’ve played it my whole life. One of the best lessons I got from baseball is, “Win every inning.” It breaks down a large, difficult goal into smaller, more achievable pieces. Don’t think about the whole game, just take it one step at a time.

It also allows you to dust yourself off (sometimes literally) after things go wrong. Let’s say you’re down 0-10 in the 4th of nine innings. You still have time. Don’t focus on the 10 runs, just think about the 4th inning. Try to score more runs than the other team in that inning alone. Same thing with money—each month is an inning in the year. If you spent way too much in January and February and it’s now March 1st, don’t dwell on the past. Just focus on March. One step at a time.

Of course, if you do win every inning, you’ll also win the game. #lifegoals