How to make a budget with the 50/30/20 rule

Split your take-home pay into needs, wants, and savings, with a worked example and tips for making it fit real life.

A budget is a plan for your money before the month starts. The 50/30/20 rule is one of the simplest ways to make one: it splits your take-home pay into three buckets and gives you a clear target for each. The three buckets Start with your monthly take-home pay — what actually reaches your bank account. Then split it: Needs or wants? The line is not always obvious. A basic phone plan is a need; the newest phone is a want. Groceries are a need; takeout is a want. A simple test: would you still have to pay it if you lost your job tomorrow? If yes, it is a need. When needs take more than 50% In expensive cities, rent alone can take more than half of take-home pay. If your needs are above 50%, the rule still helps: shrink wants first, and keep some saving going, even if it is 10% instead of 20%. Over time, look for ways to bring needs down: a roommate, a cheaper phone plan, shopping around for insurance, or refinancing debt. Making it stick A budget only helps if you follow it. These habits make that easier: Where the 20% should go Work through it in order: first a starter emergency fund, then any employer retirement match, then high-interest debt, then a full emergency fund of three to…