The 50/30/20 rule is one of the simplest budgeting methods. It divides your after-tax income into three categories: needs, wants, and savings.
The Rule in Brief
- 50% — Needs: Essential expenses you can't avoid
- 30% — Wants: Non-essential but enjoyable spending
- 20% — Savings: Future security and debt repayment
Breaking Down Each Category
50% — Needs
Essential expenses required for living:
- Rent or mortgage
- Groceries (basic food, not dining out)
- Utilities (electricity, water, gas)
- Transportation to work
- Health insurance
- Minimum debt payments
- Basic clothing
Key test: If you lose this, can you survive? That's a need.
30% — Wants
Things that make life enjoyable but aren't essential:
- Dining out & takeaway
- Entertainment (Netflix, movies, concerts)
- Shopping (non-essential clothing, gadgets)
- Travel & vacations
- Hobbies
- Gym memberships
- Upgraded versions (fancy coffee vs. home coffee)
20% — Savings & Debt
Building your future:
- Emergency fund
- Retirement savings
- Investments
- Extra debt payments (beyond minimums)
- Down payment savings
50/30/20 Examples
Example: ₹50,000/month salary (India)
| Category | Percentage | Amount |
|---|---|---|
| Needs | 50% | ₹25,000 |
| Wants | 30% | ₹15,000 |
| Savings | 20% | ₹10,000 |
Example: $5,000/month salary (USA)
| Category | Percentage | Amount |
|---|---|---|
| Needs | 50% | $2,500 |
| Wants | 30% | $1,500 |
| Savings | 20% | $1,000 |
Adapting the Rule for Your Situation
The 50/30/20 is a guideline, not a law. Adjust based on your reality:
High Cost of Living (Mumbai, NYC, SF)
Consider 60/20/20 — Housing costs may push needs higher.
Aggressive Debt Payoff
Consider 50/20/30 — Redirect wants to savings/debt.
Low Income / Starting Out
Consider 70/20/10 — Needs may dominate, save what you can.
High Income / No Debt
Consider 40/30/30 — Increase savings when possible.
How to Track Your 50/30/20
- Calculate your after-tax income
- Download an expense tracker (like Pocket Clear)
- Categorize each expense as Need, Want, or Saving
- Review weekly to see if you're on track
- Adjust as needed — It's a guideline, not perfection
Common Mistakes
❌ Classifying wants as needs
"I need Netflix" — No, you want Netflix. Be honest with yourself.
❌ Ignoring irregular expenses
Annual insurance, car maintenance, festivals — budget for these.
❌ Being too strict
This isn't meant to make you miserable. The 30% wants exist for a reason.
Why This Rule Works
- Simple: Only 3 categories to track
- Balanced: Allows for enjoyment while saving
- Flexible: Adapts to different income levels
- Sustainable: Not so restrictive you'll quit
Start Your 50/30/20 Budget
Track your spending simply with Pocket Clear.