If you’ve ever wondered where all your money goes each month, you’re not alone. Between bills, groceries, and the occasional coffee run, it can be tough to keep track of spending, let alone set money aside for savings. That’s where the 50/30/20 rule comes in. This simple budgeting method helps you divide your income into clear categories so you can start taking control of your spending. Our team at Legacy Bank is breaking it down in a way that’s easy to understand and simple to put into practice. Let’s get started saving!

What Is the 50/30/20 Rule?

The 50/30/20 method is a percentage-based budgeting tool that helps you divide your after-tax income into different categories. The idea is straightforward:

• 50% of your take-home pay goes toward necessities
• 30% goes toward wants
• 20% goes toward savings

Instead of tracking every dollar (which can feel tedious and time-consuming), this method gives you a quick snapshot of where your money’s going. Because it’s flexible enough to fit different lifestyles and financial goals, it’s the perfect starting point for anyone who wants to be more in control of their spending.

50%: Necessities

So, what constitutes a “necessity”? When thinking about necessities in terms of your budget, these are the things you can’t live without; in simple terms, they are not optional. How much you need to allocate for necessities may change over time (such as when you pay off a loan, etc.), but these expenses typically include:

• Rent or mortgage payments
• Utilities
• Transportation costs
• Groceries
• Insurance
• Minimum debt payments

If these costs exceed 50% of your take-home pay, it may be time to reevaluate your budget and make adjustments where possible. This could include finding more affordable housing options, refinancing a loan, or finding ways to trim monthly bills. Remember, you’re not aiming to be perfect but to become more aware of your spending. By knowing how much of your income is going to essentials, you can make small, informed changes that add up over time.

30%: Wants

Now comes the fun part—wants. These include expenses that you would like to have, but aren’t necessary for your survival, such as dining out, streaming subscriptions, new clothing, gym memberships, and any other hobby-related costs. Allocating 30% of your monthly income to wants allows you to enjoy your money without guilt and reward yourself for all of your hard work. However, if your “wants” start creeping into the “needs” category, it might be time to pause and prioritize.

Let’s See an Example: If takeout dinners have become a daily habit that cuts into your “needs” budget, consider cooking at home a few nights a week and saving the extra cash for a future trip or larger purchase you’ll truly enjoy!

20%: Savings

Finally, the last 20% of your after-tax income should go toward savings, investments, and debt repayment. Our team at Legacy Bank recommends using this portion of your budget to make contributions to:

• Emergency savings funds
• Retirement accounts
• Loan or credit card payments
• Investments or other long-term goals

Don’t have an emergency fund? That’s the best place to start! Click here to discover how to build your emergency fund today.

Tips for Getting Started

Like any budgeting method, the 50/30/20 rule works best when you customize it to your lifestyle. If you’re not sure where to begin, our team has compiled some simple tips to help you start saving:

1. Track your spending for a month. Look at where your money actually goes before setting targets. You might be surprised by how much falls into the “wants” category.
2. Use automatic transfers. Set up recurring transfers to your savings account each payday, and treat your savings account like a bill you can’t skip!
3. Be flexible. Your income and expenses may change month to month, and that’s okay. The rule is meant to guide you, not restrict you.
4. Revisit regularly. Reassess your budget every few months to make sure it still fits your goals and life circumstances, and make adjustments as necessary.

Click here to calculate your customized “50/30/20” budget!