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The 50/30/20 Rule

You might feel confused or intimidated when it comes to budgeting. I know—it can feel like a lot at first. And on top of it all, there are so many different ways to budget. How do you pick?

Let’s dive into one popular method out there: the 50/30/20 rule. We’re going to talk about what it means and how it works—and see if it’s the best way to budget for you.

What Is the 50/30/20 Rule?

This budgeting plan first showed up in 2005 in a book called All Your Worth. It was originally named the 50/20/30 rule—but you’ll see it called the 50/30/20 rule more often. This budgeting method divides your spending and saving into three categories: needs (50%), wants (30%) and savings (20%).

50% Needs

We all have needs. And some of us think we need more than others. But needs in your budget are all the things that would majorly affect your life if you dropped them: food, utilities, shelter, transportation, health insurance, day care, and the minimum payments on all your debts.

You need to pay for those things, so they fall into this section.

30% Wants

You guys, read this carefully: Wants aren’t needs.

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And we all know this—in theory. But when we start dividing things into budget categories based on wants versus needs, the lines can get real fuzzy.

Wants still affect our lives, but not like a need. We can do without wants (even if it’s uncomfortable).

The 50/30/20 rule says to spend 30% of your take-home pay on the stuff that improves your standard of living. This includes unlimited data plans, eating out, and new clothes—what some people call the fun stuff.

Hmm. . . So 30% of your income can go to the things you want, even if you’re drowning in debt or have an empty savings account? Something’s off here.

20% Savings

The savings category in the 50/30/20 rule covers a lot: retirement investments, emergency fund savings, and any extra debt payments above those minimum payments.

That’s just 20% of your income to get you feeling safe and secure with money for today, tomorrow, and down the line in retirement. And you’re working on all three at once.

Okay, so you can probably tell by now that I have some problems with the 50/30/20 rule. Let’s talk about why.

What's Missing From the 50/30/20 Rule?

So, on the upside, the 50/30/20 rule gives you percentages that make it easy to decide where your money goes. That makes it seem simple, right? Here’s the problem: Those three percentages stay the same no matter where you are in life. Whether you have a mountain of student loan debt or you’re debt-free and investing in retirement, you’re stuck with 50/30/20.

And that’s not how it should be. Your budget should live and breathe with you. It should adapt to your stage of life.

Listen: Your motivation to win with money isn’t just about math. It’s about behavior—and you’ll have to change your behavior to get moving on your goals. That means you can’t spend 30% of your income on wants if you’re in debt. You have to cut down on extras so you can focus on what you really need. The 50/30/20 rule is just way too focused on wants. And that kind of thinking keeps you from ever getting ahead with your money. You might have to make sacrifices in your budget right now, and that’s okay. It’ll all be worth it in the end.

Your budget should reflect your reality and where you're right now—not fit into some blanket percentage category.

The 50/30/20 Rule vs. the Zero-Based Budget and the Baby Steps

So, if I don’t think you should use the 50/30/20 rule, what budgeting method do I recommend? The zero-based budget. When you use the zero-based budget alongside the Baby Steps, you’ll be so focused on your goals and progress that nothing will stop you.

Okay, let’s define a zero-based budget. It’s when all your income minus all your expenses equals zero. And I love it.

Here’s why: Zero-based budgeting gets every dollar every month working for you. After you enter your monthly income, you list out expenses, starting with your needs. Cover your Four Walls first: food, utilities, shelter, transportation. Then prioritize everything else in the budget based on where you are in life. Because a budget should be flexible like that! If your expenses are more than your income, you know you’ve got to cut back on your spending. If you’ve got money left after you account for all your expenses, you give that money a job—put it toward the Baby Step you’re working on. Then you’ll be at zero! You’ve given every dollar purpose in your budget. You’re in control of your money.

Now, let’s talk about the Baby Steps—the proven plan to help you get out of debt, become financially secure, and build wealth. It breaks the process into seven steps you focus on one at a time.

That’s right! With the Baby Steps, you take on one goal at a time with focused intensity, instead of throwing money at multiple goals like with the 50/30/20 rule. And you sacrifice wants at the beginning to help that intensity—instead of allowing yourself to spend 30% on wants just because your budgeting rule says you can.

Baby Step 1 is saving $1,000 as a starter emergency fund.

Baby Step 2 is attacking all of your nonmortgage debt and paying it off with the debt snowball method.  

Baby Step 3 is saving up 3–6 months of expenses in a fully funded emergency fund so you feel secure knowing you’ve got cash ready for whatever life brings.

Baby Step 4 is investing 15% of your take-home pay into retirement—building a future life most people think exists only on the covers of magazines.

Baby Step 5 is saving for your children’s college funds to get you ahead of the game when your teen graduates from high school.

Baby Step 6 is paying off your home early—which will save you tens of thousands of dollars in interest.

Baby Step 7 is building wealth and giving. This is when things get really exciting! You’ve made your dream future a reality. And listen, you’ll never have more fun with your money than when you’re giving it away.

Guess what happens when you take those steps one at a time instead of struggling to do it all at once? You make progress.

And that’s what I want for you—to make progress on your money goals.

But first, you need a zero-based budget. You guys, it isn’t hard to budget this way, but it can take a few months to get it just right. That’s why I made an online course to walk you through it called Budgeting That Actually Works. You’ll get that course and the premium version of our EveryDollar budgeting tool—perfectly made for zero-based budgeting—when you start a Ramsey+ free trial. Oh, and you get unlimited access to other money courses like Financial Peace University, which breaks down those Baby Steps and shows you how to start doing them right now.

With Ramsey+ you can build the best budget possible—one that’s right for you, right now. Then you’ll be able to build the best life possible.

No 50/30/20 for you—go all in with a zero-based budget. That’s how you’ll take control of your money and create a life you love.

Rachel Cruze

About the author

Rachel Cruze

Rachel Cruze is a two-time #1 national bestselling author, financial expert and host of The Rachel Cruze Show. She has appeared on Good Morning America, Today and Live With Kelly & Ryan, among others. Since 2010, Rachel has served at Ramsey Solutions, where she teaches people how to avoid debt, save money, budget and win with money at any stage in life. Learn More.

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