What is the 50/30/20 rule?

Budgeting keeps you on track — not just for big purchases (hello, dream car 🚗) but also for everyday things, like going to dinner and buying birthday presents. 

How does the 50/30/20 rule help? It sets specific rules for you to follow when organizing your income. The rule allows you to spend 50% of your money on ‘needs,’ 30% on ‘wants,’ and to save the rest. 

What is a budget? And why is it important? 

A budget, much like a calendar or a to-do list, is a plan that helps you stay on track and reach your goals. The difference? A budget is a plan for your money rather than your activities or tasks. It outlines how much money to save and how much to spend on each expense.

Budgets are an important part of setting money goals. They let you know how much money you have and how much you spend on necessities — so you can decide how much to save toward specific goals.  

What is the 50/30/20 rule?

The 50/30/20 rule is a budget that divides your income into three categories: essentials, non-essentials, and savings. 

Here’s a list of common expenses that fit into each category.

Essentials (“needs”) 🏠

• Rent or mortgage payments

• Groceries

• Utilities (internet, electricity, gas, trash)

• Essential clothing

• Transportation (car payments, gas, and public transportation)

• Medication and healthcare

Non-essentials (“wants”) 🌴

• Eating out

• Gifts

• Subscriptions

• Non-essential clothes and shoes

• Vacations

Savings 💰

• Retirement (like a 401K, Roth IRA, or Traditional IRA)

• Investments

• Short and long-term savings

• Debt repayment

50/30/20 budget example

Good news: You don't have to be a math whiz to start budgeting. A little discipline and determination go a long way. Now let’s see a 50/30/20 budget template in action.

Imagine you make $3,500 per month in post-tax pay. After dividing your income based on the 50/30/20 rule, you have $1,750 for ‘needs’ — including rent and groceries. You have $1,050 for ‘wants’ — including going out to eat, shopping, and subscriptions. 

You have $700 left for *you guessed it* savings. You can divide this money into different accounts depending on your savings goals. For example, you may want to put some of it into a high-yield savings account for emergency expenses and save the rest for retirement (or a big purchase, like a car!). 

3 benefits of using the 50/30/20 rule

The 50/30/20 rule takes the stress out of 💸 management. Here’s why:

1. It’s easy to use. The 50/30/20 rule divides your income into three large buckets – so you don’t have to spend time setting money aside for individual expenses.

2. Saving is stress-free. Since you know how much money to save, you can do so right when you get paid. No need to wait to see how much money is left after expenses. Savings goals, here you come!

3. Tracking progress is simple. It’s good practice to compare your monthly budget and actual expenses. At the end of each month, group your transactions into the three categories and review the totals.

Greenlight tip: Saving is as easy as spending with Greenlight's debit card. Yes, really. Kids and teens can opt to round up every purchase and automatically save the change.

Alternative budgets

🔑 to successful budgeting? Finding a balance between saving and spending that works for you. If the 50/30/20 rule isn’t it – don’t stress! Try one of these methods instead.

70/20/10 rule

This budget is similar to the 50/30/20 rule because it groups your expenses into three categories. The 70/20/10 rule advises that you put 70% of your income toward essential and non-essential expenses, 20% into savings, and 10% toward debt repayment. 

60/40 rule

In the 60/40 rule, 60% of your income is dedicated to essential and non-essential expenses. The remaining 40% goes to savings and infrequent expenses (like vacations, splurge purchases, and fun activities like concerts). Many people who use this budget split the 40% into four groups of 10% – retirement, long-term savings, short-term savings, and fun.  

Use Greenlight to help you budget, save, and learn to invest 💸

Planning is powerful. And that’s what budgeting is all about. When you know how much money you make and spend, you can come up with a savings plan that works for you and gets you closer to those big goals — dream car here you come!

Ready to turn your budgeting knowledge into action? You got this. Use Greenlight to set savings goals, get spending insights, and earn cash back* on every purchase. 

*Greenlight + Invest families can earn monthly rewards of 1% per annum, Greenlight Core and Greenlight Select families can earn 2% per annum, Greenlight Max families can earn 3% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. Only Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.