Budgeting using the 50/30/20 Rule

Steve Cummings

Budgeting is quite difficult to some. Breaking down costs, needs, wants, and you need to save. Senator Elizabeth Warren helped popularize a budgeting rule called the 50/30/20 rule in her book, “All Your Worth: the Ultimate Lifetime Money Plan.” This thought about breaking down your money into three different categories makes life a bit simpler.

The 50/30/20 Rule to Budgeting

The three categories that are broken down in the 50/30/20 rule is based upon the money you take home after tax. 50% of your take home pay should go towards Needs. 30% of that pay goes towards wants. Lastly, 20% of your pay goes to saving. Let us break it down even further.

50% for Needs

In this budget, 50% of your take home pay should go towards Needs. These are things you need to survive to live. Think about all the things you need. That would be food, water, clothing, shelter, transportation, and even insurance for health. These all constitute a need.


First big one would be a shelter. Rent or a mortgage is something that everyone needs to pay for, unless you are living in a van (which would be cool). It is a payment. Usually, experts say you should not pay more than 30% of your take home pay for rent. If you keep it low then you can save more money.


With shelter you need utilities like electricity and water. These are two things people cannot live without. You will need to pay your utilities. The internet would count as one of these utilities as well. In this world, the internet gives many opportunities to learn, to work, and to make things happen. Without the internet, this blog would not exist. The Internet is a need.


Transportation is a big need. Depending on where you live depends on what type of transportation is needed. In a big city with tons of public options, maybe the use of a pass or some sort of card that allows you to ride on the transportation is all you need.

Some places are so spread out that a vehicle of some sort is what is needed. No matter where you live, transportation is something that is needed to get from Point A to Point B.


Insurance is something else that is needed. In a lot of countries, there is a free health care, which is totally awesome. You just pay out of your taxes and you get guaranteed health care. It makes it way cheaper.

Other countries have you pay for insurance, and places like the states a lot of Insurance is based upon your employer. If you are not employed healthcare can be quite expensive. In the states, they do offer HSAs for those that have higher deductibles. Healthcare is a need, and the less you have to pay the more you can save.


Food would be the last of these needs. This is the thing that keeps us all going. I am not talking about going out to eat, these are basic necessities. In order, to survive people need to be able to provide food for themselves.

Lots of Needs

That was the basic breakdown of the 50% of your money going to needs. If you can cut down these costs you can save more money and make it last longer as well.

30% is for Wants

People love to want the good things in life. Netflix, hulu, cable tv, and the many things that everyone has that you may want to enjoy as well. I want to travel and therefore that is one of the highest things that Mrs. FE and myself want. Let’s hit some of the wants.


Television is something big to people. They must sit in front of the TV and watch their shows. DVR gives people the ability to see their shows whenever they want.

Then people started to cut cable and that is when streaming services took the place of TV. Through services like Netflix, Hulu, HBO Max, and Disney+ we are all saturated with wanting to veg out in front of a TV. This is a huge want for people.


Not only TV being a big want, but entertainment. There is an innate want to be entertained through sports, concerts, and events that are happening in our neighborhoods or communities. These are all wants too. People love buying tickets to go to these entertainment events.

Gym Memberships

Another want would be the gym. People want to look good. Especially, if you sit down all day at a desk with lack of exercise you need to go and workout. The perfect place for this is the gym. A place that charges you to run, lift weights, and find a cool trainer to teach you some things. 

A lot of workouts can be done at home using youtube and body weight, but working out in a gym is something people want.

Dining Out

Dining out is a big want with people. The ability to spend your money on restaurant cooked food.

Now in Asia, where I reside the dining out options is sometimes the only option for people since residence homes may not have a kitchen. The food can often be cheaper.

In the Western world, food at restaurants is often more expensive. You also may have to tip like in the USA where tipping is a cultural thing.

Buying food at a grocery store would be much cheaper, but going out with some friends for a good meal is something people want.

Plenty of wants, but you can spend less

30% of your take home pay is for wants. If you spend less than that you can put it towards savings and watch it grow.

20% is for Saving

After spending 80% of your take home pay, you need to put the rest into savings. 20% is a good start for savings. It could be a lot more, but at least you are saving.

These savings can be put into an IRA or your 401K. This way you will use these savings to increase your retirement savings.

If you do not have either of these you can create a brokerage account and save through investments or even save in a savings account, but a savings account does not get good returns.

Automation makes life easier

To make his part even easier, you can automate it. Pay yourself first. Have this money automatically taken out of your account to your savings account or 401k and IRA therefore allowing you not to spend it. Every little bit of savings helps.

The 50/30/20 rule to Budgeting

There you have it. This is a simple budget using the 50/30/20 rule. It breaks everything down into three categories. If you are looking to make life a bit simpler. This simple budget can help you out.

Personally we spend less and save more.

Personally, Mrs. FE and myself spend between 20-25% of our take home pay on Needs. We do not have many wants besides traveling so we save 50-55% of our take home pay. This allows us to invest more, and let our savings and investments compound faster over time. Living overseas as an expat has some perks.

Oh Budget life

Budgets can be a stressful thing to think about. I hope I made life a bit easier and simpler. Let me know how you like to budget.

” Spend less than you make, stay out of debt, and invest the rest”

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