Everything You Need to Know About The 50-30-20 Budget Rule


This post was written by Danielle Paradis.

There are as many ways to budget as there are people in the world, but it’s best to err on the side of simplicity. The 50-20-30 Budget Rule is a simple way to organize your spending and savings to ensure all your money is going to the right place.

What is the 50-20-30 budget rule?

The 50-30-20 budget (sometimes called the 50-20-30 budget) is an easy and effective way to manage your finances. You divide your spending into three different categories: needs, wants, and savings.

To clarify, needs are things like housing, groceries, and car payments. Wants are things like entertainment, gym memberships, and those new boots you have been dying to purchase. And savings is pretty self-explanatory, it means building your emergency fund and paying off any debts you owe!

For example: If you are making $3,400 a month after taxes, you would budget:

  • Needs: $1,700
  • Wants: $1,020
  • Savings: $680

Interestingly, Senator Elizabeth Warren coined the 50-30-20 budget for spending and saving money in her 2005 book with her daughter, Amelia Warren Tyagi, “All Your Worth: The Ultimate Lifetime Money Plan”. The basic premise is to take your after-tax income and divide it into the aforementioned categories. The hardest part of this budget is deciphering your wants from your needs. Just remember your needs are required for you to live and work.

The 50/30/20 Budget Breakdown

Here’s how each of the categories work in the 50/30/20 budget:

50% of your net income is for the things you need

This category is all your essential expenses. Your rent or mortgage payment, groceries, cell phone bill, car lease or loan, utilities, and childcare would all be included in this category. Within this category, you have some room for how you allocate your finances, You can choose to rent rather than own, eat budget-friendly recipes, or buy a car with cash rather than finance.

If you are spending more than 50% of your budget on needs, and depending where you are living that can happen easily, then you will need to find a way to downsize your lifestyle, or trim down what you spend on your ‘wants’. 

30% of your net income for the things you want

This category includes anything that is not an absolute necessity. It might take some thought to separate this from the needs section For example, we need exercise but a gym membership is not essential. You can work out at home, or go for a run or a walk. 

This category includes anything related to entertainment: Netflix, going out to a theatre, dinners out, or a new iPhone. You can also think about this as the ‘upgrade’ category.

For example, when shopping or dining out are you opting for a soup and salad, or a steak? Are you buying designer clothing and shoes, or shopping during sales or at used-clothing stores? There’s nothing wrong with upgrades, they can make life more interesting or more enjoyable. Nevertheless, you have to fit it into your 50-30-20 budget accordingly. 

20% of your net income is for savings and debt repayment

20% of your after-tax income should be allocated to savings, and debt repayment if you have outstanding debts. An easy way to tackle both is to split them evenly: 10% towards savings and 10% towards debt repayment.

The savings category includes investments in the stock market, as well as contributions to your emergency fund. According to the Government of Canada, 64% of Canadians have an emergency fund to cover three months’ worth of expenses. This fund can also cover unexpected medical expenses, or any emergency repairs you need to make to your car, so it is vital to make it a financial goal!

Debt repayment constitutes any balance owing. Student loans, credit cards, lines of credit, personal loans, and car loans all count as debt. Even money you promised to pay back mom & dad counts as debt!

Within the 50-30-20 budget, you can also use specific debt repayment strategies to help you pay off your debt in the most effective way. You can check out our post on The Debt Avalanche vs. The Debt Snowball for two great methods of paying off your debt!

Extra budgeting tips

A great way to track your spending, increase savings, and earn ample cash back on purchases is through KOHO. KOHO is a pre-paid Visa linked to a budgeting app that will easily help you stay on budget! You can enter the referral code MONEYAFTERGRAD when you sign up for KOHO and receive 1% bonus cash-back on all your purchases for 90 days! 

Along with that, aomating your savings is another great way to stay on track with your 50-30-20 budget. Check out our post The TFSA vs. The RRSP to determine which savings vehicle is best for you.

Final thoughts on the 50-30-20 budget

Your budget is personal. Depending on your financial circumstances, even the 50-30-20 budget can be tweaked to accommodate your financial needs and concerns! No matter what way you choose to budget, it is an essential step in taking control of your finances!

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2 Comments. Leave new

  • Hi there,

    I always find your content useful. Thanks for sharing! This is just a piece of friendly feedback on some article typos that made it confusing during my first read. You alternate between using “50-30-20” and “50-20-30.” I assume you mean 50-30-20 in all instances. Just friendly feedback to help clarify for your readers 🙂

  • Hi,
    I noticed you are using after tax dollars. I have an RRSP match with work that I’m putting 17% toward (10% me, 7% company match).

    I am also maxing my TFSA each year.

    I am not quite at the 20% savings/month and wondering if you were me would you make that a priority to get that up to 20% or does the RRSP contributions before tax count for anything in your calculations.



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