How to Use the 50/30/20 Budget Rule

At its core, a budget is simply a plan for how to spend and save your money. This plan is extremely important to your financial well-being, as a good budget will help you build successful spending habits and prevent your debt from spiraling out of control.

It’s essential to find a budgeting plan that works for your unique financial situation, however. There are now many different budgeting plans available, but one of the most widespread and universally useful budgeting plans is the 50/30/20 budget.

What Is the 50/30/20 Budgeting Rule?

The 50/30/20 budgeting plan is a straightforward, sensible budget that divides your expenses into the three categories of needs, wants, and savings. These categories are then assigned a percentage of the overall budget: 50 percent to needs, 30 percent to wants, and 20 percent to savings.

As with any budget, the first step is to go through all of your monthly expenses and determine which of the three categories they belong to. At the end of this process, you’ll have a clear picture of what your spending habits look like and whether you need to make any adjustments to bring them in line with your budgeting plan.

Needs: 50%

Needs and obligations make up the single greatest portion of a 50/30/20 plan, receiving a full 50 percent of the budget. Your needs are the things that you absolutely must spend money on to survive. Also in this category are obligations, which are the bills you have a financial obligation to pay every month.

These are just a few examples of the needs and obligations you might have in your budget:

• Mortgage or rent
• Groceries
• Medication
• Car payment
• Student loans
• Clothing and shoes
• Transportation
• Utilities

It’s important to note that with obligations such as mortgage or student loan payments, only the minimum amount due goes into this category. Any amount you want to pay beyond the minimum will be budgeted toward the savings category, which we’ll cover later.

Wants: 30%

Wants are your discretionary spending and will receive 30 percent of the overall budget. These are things you’d like to spend money on but could get by just fine without. Because you don’t have to spend money on wants, this is the first place you’ll look if any cuts or pruning need to take place in the budget.

These are a few examples of budget items that would be classified as wants:

• Entertainment, such as streaming services, movies, or sports
• Dining out
• Vacation spending
• Non-essential travel
• Hobbies

Savings: 20%

The final 20 percent of the budget will go toward your savings. Whether the savings is short- or long-term, if you are putting money away, it will be categorized here. Also in this category are your debt repayments that aren’t obligations. Any debt you pay off beyond the minimum payment due is categorized here as it represents a form of savings in that you are paying it off earlier than expected, which saves you on interest later.

These are a few examples of savings and debt repayments that you might find in your budget:

• Emergency fund
• Retirement saving
• College saving
• Debt repayments beyond the minimum amount due

Fine-Tuning a 50/30/20 Budget

Once you’ve gone through all of your monthly expenses and determined which of the three categories they fall under, you can add up all of your monthly expenses and compare the end total to your monthly income.

Do you have enough income to cover all of your expenses? If the answer is no, you’ll need to take a hard look at your expenses and determine where you can make cuts to bring your budget in line. The first place to look is the wants category, as these are the items you don’t absolutely need.

Once you’re at a spot where the income in your budget can cover all of your expenses, you can start to fine-tune things. Does the cost of your needs equal 50 percent of the budget? Are the wants at 30 percent and the savings at 20 percent?

If yes, then you’re ready to implement your budget and put it into action. If no, then you have some work to do yet. You’ll need to evaluate all of the items in your budget and determine if you can make adjustments to bring everything in line with the 50/30/20 rule. It might turn out that you need to cut a few more wants or that you won’t be able to pay off additional debt as aggressively as you’d hoped.

Can You Adjust the Percentages of a 50/30/20 Budget?

Of course, you’re also free to adjust the percentages of your different expense categories so that they work better for your unique financial situation. The important considerations here are the following:

• Your expenses don’t cost more than your income
• Your needs are covered before you allocate additional funds to wants or savings

For example, it may turn out that you only need to allocate 40 percent of your budget to needs to fully cover everything. If this is the case, then you’re free to distribute the difference between your savings and wants. The important thing is that you have a budget that makes sense and works for you.

Budgeting Tools for the 50/30/20 Budget

Developing a budget is hard work that requires thoroughness. Having the right tools for the job can make developing a 50/30/20 budget a smooth process. Our Hancock Whitney mobile app includes robust budgeting tools that you can use to track and categorize your expenses. And of course, you have access to your checking and savings account from the app, making it simple to review your spending habits.

Is a 50/30/20 Budget Right for You?

While there’s no one-size-fits-all solution when it comes to budgeting, the 50/30/20 budget is a great place to start. The key to a successful budget is to review it regularly and make adjustments as needed.

Hancock Whitney’s checking and savings accounts make it easy to build the budget that makes sense for your finances. Contact us today for more information on how to open an account.