Budgeting 101: The 50/30/20 Rule Explained

By Penny Wise • January 8, 2026

Budgeting doesn't have to be complicated spreadsheets. The 50/30/20 rule is a simple framework popularized by Senator Elizabeth Warren to help you keep track of your money.

50% - Needs

Half of your after-tax income should go to things you absolutely cannot live without. This includes:

• Rent or Mortgage
• Groceries (not dining out!)
• Utilities
• Health Insurance
• Minimum Debt Payments

30% - Wants

This is the fun category. 30% of your income is for things you enjoy.

• Dining Out & Drinks
• Hobbies
• Netflix/Spotify Subscriptions
• Vacations

20% - Savings & Debt

The final 20% should be allocated to your future.

• Emergency Fund
• Retirement Investments (401k/IRA)
• Extra Debt Payments (to pay it down faster)

Applying Rule: If you take home $3,000 a month: $1,500 for needs, $900 for wants, $600 for savings.