The 50/30/20 Budget

Needs, wants, savings — 50/30/20 budgeting delivers financial clarity and a plan you can stick to.

Table of Contents

Everyone needs a budget, but how do you know where to start? In theory, every budget works — if you stick to it. But it can feel overwhelming when it comes to finding one that works for you. Perhaps you’ve had a budget in the past but have had a change of circumstance, or you’re doubling down on your money goals and looking for a money method to get you there firing.

Well, the 50/30/20 Budget could be for you. Here’s everything you need to know about the popular budgeting strategy, including pros and cons, tips to nail it, how to set it up, and who it’s best suited to. Buckle up!

What is the 50/30/20 Budget?

The 50/30/20 method is a money management method that involves splitting your income by percentage, apportioning 50% to your needs, a 30% chunk to your wants, and 20% to savings. Let’s look a little closer at those categories.

50/30/20 Budget: Needs

Your needs would be anything that is necessary to live. That’s things like:

Your rent, mortgage or other living costs
Groceries and household items, like cleaning supplies
Utilities, like gas, electricity and water
Transport costs, like fuel or public transport tickets
Appliances
Work-related expenses, like teaching materials*
Childcare costs and school fees
Kids clothing, shoes and school supplies
Insurances, like car, home and contents, and health

*While work-related expenses may be claimed as a tax deduction at the end of the financial year, if they’re a regular expense for you, it helps to factor them into your 50/30/20 budget allocations.

50/30/20 Budget: Wants

Your wants come down to anything that is an optional spend. That’s things like:

Gym membership or workout studios
Entertainment, like events and experiences
Eating and drinking out
Takeaway
Non-essential clothing and shoes
Haircuts, nails, and other personal care services
Subscriptions and streaming services
Hobbies, like surfing, hiking, camping, golf, crafts, etc.

50/30/20 Budget: Savings

Savings is the money you keep — money that isn’t spent on needs or wants and is instead reserved for use in the future. Your savings may be further categorized beyond the 20% allocation, perhaps into long and short- term savings, or be broken down by goals. Some of this money may also be invested.

Your savings may be used for things like:

An emergency fund	A holiday or other travel goals	A home deposit
A big ticket event or purchase	Renovation or home improvements	Starting a business
Leaving a job or relationship	Towards your retirement	Stashed for your kids’ futures

Are the 50/30/20 allocations flexible?

Traditionally, the 50/30/20 budget calls for allocating 50% of your income to needs, 30% to wants, and 20% to savings, but some people like to interpret the percentages in their own way. Some prefer to allocate 20% to wants and 30% to savings, while others find 50% isn’t enough to cover their needs, perhaps due to living in a HCOL (High Cost of Living) area or being a single parent, so they shift the percentages to suit their own financial situation.

The beauty of the 50/30/20 budget is that you can adapt the percentages to suit your own situation. You can even change the percentage allocations over time to adapt your budget when life happens, or when you want to work towards a specific goal.

Alternatives to the 50/30/20 Budget

60/20/20
60% to needs, 20% to wants and 20% to savings. Great for higher cost of living areas.

70/20/10
70% to needs, 20% to wants and 10% to savings. Great keeping your priorities in check when life gets expensive.

30/20/50
30% to needs, 20% to needs and 50% to savings. Great for hustling hard on your savings goals when you have the opportunity to live cheaply.

Pros and cons of 50/30/20 Budgeting

Let’s look into some pros and cons of this popular budget method, to help you discern whether it’s the budget choice for you.

Pros

Great for first-time budgeters or those managing a paycheck for the first time. The 50/30/20 Budget works really well when you’re first learning to manage an income, as you’re likely to have more control over what kinds of expenses you’re going to take on. Learning to keep your expenses below half of your income and setting some money aside for savings straight away will set you up with solid money habits from day one.
It’s adaptable and flexible. Working with a percentage-based budget encourages you to stay on top of where your money is allocated, and reminds you to shrink your expenses along with your income if necessary.
It prioritizes paying yourself first. A common budget blunder is telling yourself you’ll save what’s left at the end of the month, but the 50/30/20 Budget prompts you to pay into your savings with the same level of importance as your wants and needs.
It teaches you to spend less than you earn. One of the biggest errors in human behavior when it comes to personal finances is our reluctance to reserve resources for the future. Many of us see money as a resource to be used and replenished and find it hard to hold onto. The 50/30/20 Budget teaches you to spend less than you earn and build up the habit of saving from every paycheck.
It teaches you the art of prioritization. A key part of financial literacy is understanding how to prioritize between the things we need and the things we want, while reserving a surplus of income for the future. The 50/30/20 method teaches you these key principles in practice.
Works for variable incomes. Freelancers and casual workers rejoice — the 50/30/20 Budget can work for you! Many budgeting methods only work with a standardized income, but the percentage-based model means you can allocate each paycheck, large or small, in the same way.

Cons

The allocations won’t work for everyone. Sometimes expenses are higher than 50% of income, and in many cases, saving 20% of income just isn’t enough.
It doesn’t prevent lifestyle creep. The nature of percentage-based budgeting like the 50/30/20 method means that when you earn more, your allocations will grow and shrink in line with your income. This can be a good thing — for example, if your income drops it can ensure you shrink your expenditure in line with that decrease in income. But if your income grows, the 50/30/20 budget expands with you. Spending 30% of a smaller income on wants might be fine, but you could miss opportunities to save more as your income grows if you’re too bound to the 20% rule.
It doesn’t account for external factors, particularly economic ones. Keeping your needs under 50% (or your chosen percentage of your income) can be tricky at the best of times. But when market forces push up the prices of rent, food and utilities, your needs can easily be pushed beyond your set percentage in a way that’s totally out of your control. This may result in residual shame that you’ve somehow “failed”, which can in turn impact your ability to get your finances back on track.
You may overspend and undersave. Depending on how much you earn and what kind of lifestyle you lead, the 50/30/20 Budget may actually prompt you to spend more than you need to, and save less than you’re able to. For example, if you earn $100,000, you’d be spending $50,000 on your needs. Based on this calculation, you may then take on a more expensive rental property based on the fact that you can mathematically afford it, when actually, you could have spent just $30,000 on your needs, and missed out on a potential $20,000 of further savings.
The lines can get blurry between wants and needs. Some expenses are clearly wants or needs. For example, rent is definitely a need, whereas a new pair of sneakers is more likely a want. But it can be difficult to handle expenses that blur the lines, like a gym membership, health insurance, or kids’ sports activities. While these things aren’t essential to survive, they’re less negotiable than other discretionary spending like takeaway.

Percentage-based budgeting in general is especially well suited to people who like rules and find structure helpful in guiding their behaviour, or people looking for a standardised way to manage a fluctuating income.

The brain bit: The 50/30/20 mindset

Personal finance is personal. That means we’re all motivated by different things, and have different needs when it comes to choosing a budgeting method. Let’s look at why the 50/30/20 Budget is popular, and what kind of budgeter is best suited to this method.

Why the the 50/30/20 Budget works

The reason the 50/30/20 Budget works comes down to two things: structure and answers. We can often find ourselves overwhelmed about what to do with our paycheck when it hits our account, and we may even play the dangerous game of not really organizing it at all, or going round the cycle of a ‘payday blowout’ where we overspend just because there’s money there.

What the 50/30/20 Budget provides is structure and answers. It gives us something our brains can work with, and it gives us the yes or no answer some of us need in order to be able to take action. It gives you a framework to apply to your money and get an instant read on your financial health, while providing a clear measure of what to do to shift the balance.

For example, if you find your needs are over 50%, you can start to understand why your budget always feels so tight. If you’re not able to save that 20%, you might look to cut expenses or bring in extra income.

It also allows for a sense of autonomy and isn’t instantly restrictive. Seeing that you can allocate 30% of your income to things you want is very appealing, and doesn’t make you feel like you’re going on a nasty money diet that you’re going to want to quit 3 days in!

Who the 50/30/20 Budget is best suited to

The 50/30/20 Budget works well for those looking for direction on where to go with their money management. If you’re just getting started with budgeting, it’s a great place to begin, and you’ll notice a difference in the way money feels in your everyday life pretty quickly. It can make saving feel easier and more natural, and take the pressure off of money feeling hard and difficult all the time.

Percentage-based budgeting in general is especially well suited to people who like rules and find structure helpful in guiding their behaviour, or people looking for a standardised way to manage a fluctuating income.

Example: Fatima works in a restaurant as a casual employee. Some weeks she works 30 hours, and some weeks she works less than ten. With the 50/30/20 budget, she can treat every pay cheque exactly the same way. If she earns $200 one week, $100 goes to needs, $60 goes to wants, and $40 goes to savings. If she earns $800 one week, $400 goes to needs, $240 goes to wants, and $160 goes to savings. This structure ensures that she sets aside more money for her needs when she’s earned more, rather than feeling tempted to spend more on wants.

How to implement the 50/30/20 method

Alright, you’re sold. How do we implement the 50/30/20 Budget and start playing money on easy mode?! We’re going to show you how.

Step 1: Grab your bank statement or transaction list from the last three months (or your PocketSmith transaction dashboard, wink wink).

Step 2: Highlight wants, needs and savings. Comb through your transaction list and highlight needs in one color, wants in another color, and savings in another color.

Step 3: Do the maths. Total up each of the three categories for each month individually, so you can get a snapshot of your needs/wants/savings spread over time.

Step 4: Apply the percentages to your income. Take your monthly income and work out how much 50%, 30% and 20% would be.

Step 5: Compare and tweak. Compare these totals to the real results of your transaction combing, and see how you measure up. From here, you can look for things to cut back on from your wants and needs category to shift the percentages into balance.

Hot tip: If you realize that your needs are more than 50% of your income and can’t trim the fat enough, you can adapt the percentage allocations to suit your own circumstances. The power of the 50/30/20 Budget isn’t in the amounts — it’s in the spread of where your money is going. You can do 60/30/10, or 65/20/15, or any mix that works for you!