How It Works

The 50/30/20 Rule is a guideline developed by U.S. Senator and bankruptcy law expert, Elizabeth Warren. The rule states that your after-tax income should be divided as follows: 50% to needs, 30% to wants, and 20% to long-term savings. This calculator will show you exactly how much of your income you should dedicate to each category if you follow this guideline—just enter your monthly income after taxes.

What is the 50/30/20 Rule?

The 50/30/20 rule is a simple budgeting guideline that divides after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings or debt repayment. Needs encompasses essential expenses like housing, food, and transportation, while wants are non-essential items like entertainment and dining out. The remaining 20% is dedicated to building financial security through savings or paying down debt.

The Importance of Emergency Savings

Within the 20% allocated for savings, it’s a good idea to save a portion of that money for an emergency (just in case!). Emergency funds are savings set aside to cover the unexpected curve balls life throws at us, such as medical bills, car repairs, or job loss. Traditional savings, on the other hand, are usually reserved for long-term goals, like a down payment on a house, or college tuition. It basically boils down to this: emergency funds need to be readily available in a crisis, while traditional savings don’t require the same amount of liquidity—they can sit somewhere, preferably accruing interest (like in a 401(k) or certificate of deposit)..

Who came up with the 50/30/20 Rule?

Senator Elizabeth Warren popularized the 50/30/20 rule in her book, “All Your Worth: The Ultimate Lifetime Money Plan.” While the concept of budgeting in percentages has existed for some time, Senator Warren and her daughter, Amelia Warren Tyagi, structured it into this easy-to-remember format. They designed this rule to simplify personal finance and make a budget structure that’s accessible to individuals regardless of their financial expertise. Since Elizabeth Warren didn’t include a calculator, you can use ours to make a 50/30/20 budget.

Tips for Budgeting with the 50/30/20 Rule

The first step to effective budgeting with the 50/30/20 rule is to accurately calculate your after-tax income. After that, you need to differentiate clearly between needs and wants, which, understandably, is easier said than done. Do you need another streaming subscription or do you just want it to watch the show everyone is talking about? Try to be as honest as possible with yourself.

Regularly review your spending to make sure your habits account for the 50/30/20 percent breakdown. But it’s also important to be flexible and adjust the percentages as needed to accommodate life changes or financial goals. Consider automating savings and debt repayments for consistency and to keep your financial progress on track.

Why Should I Use a 50/30/20 Rule Calculator?

A 50/30/20 rule calculator makes maintaining a needs vs. wants budgeting method attainable for everyone, no matter their financial situation. By inputting your after-tax income, the 50/30/20 calculator automatically divides it into the three categories, providing clear figures for your needs, wants, and savings. This tool eliminates the need for manual calculations and helps you visualize your budget, making it easier to track spending and stay on course. It also provides a quick and accurate snapshot of your financial allocation, to help with effective financial planning.

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