50/30/20 Rule Explained

Ramit Sethi definitely made this one famous and popular. Basically you have three categories for how you spend your money: needs, wants and savings/debt repayment. The general rule is that you use 50% of your take home pay on the things you need, 30% on the things you want and 20% on savings and/or debt repayment. It’s pretty simple!

But what can get tricky is what is a need versus what is a want, so I’ve written some categories for each below:

50% - Needs:

Housing (rent or mortgage)

Utilities (electricity, water, gas, etc.)

Groceries

Transportation (car payments, public transit)

Insurance (health, auto, renters, etc.)

Minimum debt payments (credit card minimums, student loans)

30% - Wants:

Dining out

Entertainment

Travel

Hobbies and leisure activities

Non-essential clothing and personal care

Subscriptions (streaming services, magazines)

20% - Savings and Debt Repayment:

Saving for emergencies and long-term goals

Paying down high-interest debt beyond the minimum payments

Investing for retirement or other financial goals

Building an emergency fund