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The Formula 50/30/20 Rule For Budgeting Success

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Apply The 50/30/20 Rule To Your Life For Financial Success

Budgeting using the 50/30/20 rule is one of the simplest ways of budgeting for new kids on the financial block.

You may also know this as the 50/20/30 rule of budgeting but in all honesty it’s a balanced approach to savings, debt, and survival.

This plan of budget attack became popular after Senator Elizabeth Warren published her book, All Your Worth: The Ultimate Lifetime Money Plan.

Some people who have been budgeting for years continue to use this success formula even after they become debt-free.

Why? Because it works for them and why change something that works right?

With any budgeting system, the core values of it have to be that you are earning, saving, and spending.

Those three are a reality for everyone when it comes to their net income.

However, if you stop to consider budgeting you’ll realize it’s simply an automatic system of standardization.

By this I mean it’s a means to get the user to pay attention to where their money is going and understanding why.

It’s also teaching the user how to make improvements and whether they are paying down debts fast enough and saving enough for their future.

In essence, you’re creating a book of your present and future life so make sure it’s a journey worth walking.

Is The 50/30/20 Rule Budget For Us?

Dear Mr.CBB,

We’re struggling financially since COVID-19 as I’ve been laid off and working with a limited amount of money.

My wife continues to work from home earning her full income which we are thankful for.

As of now we are living on a tight amount of money but all of the bills are getting paid.

It scares us and we know we need to do something now before it gets any worse.

We were talking last night and decided that we need to start budgeting but don’t know where to start.

I’ve been following your blog for a while now out of curiosity since I found out you were debt-free.

In a way I’m jealous but I’m also wanting to know what I need to do to achieve this success for my family.

I’ve done some research on different budgets and came across the 50/30/20 rule which seems easy enough.

  • What are your thoughts about this budget?
  • Have you used the 50/30/20 budget?
  • Where should we begin with our budget in terms of education?

Thanks for any help.

C and R

Alberta, Canada

Thanks for your questions C and R from Alberta, Canada.

Beginning A Budgeting Journey

When we started budgeting journey around mid-2011 it started with using our bank account as tracking.

We would simply track what was going in and out and as you know this is not even close to budgeting.

It’s amazing looking back what we thought we were doing was right, but we all make mistakes.

That’s why I’m here to tell you that we’ve been where you are.

We’ve had tonnes of debt, paid bills on minimum wage, lost a job, and suffered severe health issues.

Sometimes we think if it could happen to us, it has however we’ve made it through the fire successfully.

That’s why it was important for us to share our journey on this blog to let other’s know it is possible to become debt-free.

Honestly, when this blog began we were still paying our mortgage and sharing our monthly budgets for our readers.

At first we were skeptical about whether to share our financial information but it has proven to help so many people.

It was tough at times especially when we wanted to go on holidays but chose to do short road trips in the summer.

We gave up lots of big things to pay off our mortgage in 5 years and it was worth it from start to finish.

Finding The Right Budget

The budgeting system that we use is the zero-based budget however there are no hard rules on what budget to use for success.

The important part is that you are budgeting or using some financial system that is at minimum tracking four things:

  1. Net Income
  2. Expenses
  3. Debt Repayment
  4. Savings

There are many types of budgets out there but one of the favourites is the 50/20/30 rule of budgeting.

We have never used the 50/20/30 budget but it does come highly sought-after for its simplicity.

It’s only fair that I’m transparent on this blog because you want to learn from someone truthful.

What I can tell you is this type of budget might work for you.

The only way to find out whether a budget fits your lifestyle is to try it out and see what happens.

We didn’t jump into our excel budget spreadsheet without first as we transitioned from a paper budget.

For example, you could try a cash budget or budgeting using jars only to find out they worked but you want more.

Wanting more means you’ve mastered the simple budget and now want more financial data.

For example, if you want to know exactly how much money you spent on groceries every month or for the entire year you can do that with an excel budget.

Perhaps you want to know how much money you paid back in credit card debt or set aside for savings throughout the year.

Having data such as this at your fingertips may be the motivation you need to continue building your financial empire.

The 50/30/20 Rule of Budgeting Explained

debt freedom

Tracking is key and no matter what type of budget you use building a budget binder of tracking sheets is worthwhile.

Next to the basic bare-bones budget, the 50/20/30 rule offers the considers three rule sections.

  •  #1 Rule is using 50% of your Net Income towards your Needs.
  • #2 Rule is using 20% of your Net Income towards your Savings.
  • #3 Rule is using 30% of your Net Income towards your Wants.

Let’s break this budgeting system down a little further to give you more insight.

50% Needs of the 50/30/20 rule

You have $1000 to spend in this category of your $2000 net income using 50%.

The equation goes like this Net Income $2000 x 0.50 = $1000.

Let’s talk about what needs are when it comes to your budget.

Needs are expenses that you must pay for every month no matter what just to survive.

Using 50% of your net income or after-tax income on your needs is part of this budget rule.

For example, if you net $2000 a month then 50% of that is $1000 and must go towards your needs.

Spending More Than 50% On Needs

If you are spending more than 50% on your needs then you must do one of two things.

  • Earn more money
  • Lower expenses

These needs won’t impact your quality of life or you can find ways to save money while lowering your expenses.

For example with groceries, you can use coupons, cashback offers, coupon apps such as Checkout51, or the Flash Food App.

My favourite when I was living in the UK is using the program Nielsen Scan Canada to earn points towards gift cards or other items.

I bought a new refrigerator with my points just before I moved to Canada.

It helped sell my house faster with a new kitchen that I installed from Ikea and a new mini-fridge.

The idea is to target what you can change including your lifestyle especially if it’s over the top costly.

Owning that big house might not be working for your budget so perhaps consider downsizing.

The vehicle that costs too much to maintain and the monthly payments are too high, sell it, and buy something economical.

The 50% needs category might include the following;

  • Housing including property taxes
  • Food
  • Basic Utilities (Gas, Hydro, Water, Water Heater rental, etc.)
  • Vehicle Payment/Bus Pass
  • Debt Repayment (minimum payment)
  • Insurance such as house insurance, tenants insurance or life insurance
  • Prescriptions and Healthcare

So you’ve spent $1000 of your $2000 net income in the needs category. 

You have $1000 left to spend in the savings and wants category of the 50/30/20 rule budget.

30% of the 50/30/20 rule for Wants

You have $600 to spend in this category of your $2000 net income using 30%.

The equation goes like this Net Income $2000 x 0.30 = $600.

This is the category that you can make changes to because they are non-essential to your budget.

Wants are simply things you desire to have but can still survive without them.

For example, if your Needs category is too high and you need money then this is where it will come from.

You’ll simply be using money from one bin to put into the other which is why you must balance your budget.

As I mentioned above you have to evaluate your lifestyle and change it according to what you can afford.

  • Concert Tickets, Sports tickets, Car show tickets, etc.
  • Summer fun tickets for the family (Great Wolf Lodge, Wonderland, Toronto Zoo, Niagara Falls, etc.)
  • Participating in sports teams
  • Road Trips
  • Travelling for Leisure
  • Eating Out at restaurants or fast food
  • Buying high-end foods you don’t normally buy
  • Splurging on a new outfit or pair of shoes
  • Buying gadgets, tools or other items you can get away with doing without
  • Gym membership
  • Magazine subscriptions
  • Online subscriptions (Amazon Prime, Netflix, Spotify)
  • Television, the Internet, Telephone, Mobile Phone

20% Savings and Debt Repayment

You have $400 to spend in this category of your $2000 net income using 20%.

The equation goes like this Net Income $2000 x 0.20 = $400.

This part of the 50/3020 rule of budgeting is meant for investing in such things as your retirement.

You may want to consider contributing to;

Save the money as cash in the bank to build your emergency savings or pay extra on your credit cards or mortgage payments.

If you still have a student loan this is where you will want to add extra to that debt to crush it faster.

If your employer has a retirement program at work where they match a certain percentage, take advantage of that too.

The idea is to balance this 20% so it works the smartest for you financially.

Final Thoughts 50/30/20 Rule of Budgeting

50/30/20 budget rules

I think this way of budgeting is great for beginners who want to get their feet wet.

It’s a system where you plant the seeds with your net income (take-home pay) and with each step, you grow towards debt freedom.

At least that’s the way I see it although I view almost every budget in this sense as the main goal is to rid of debt.

However, I think spending 30% of my net income on ‘wants’ is a bit much.

I’d spend more time on saving money and paying off debt so I can live debt-free.

The good thing about this type of budget is that you can allocate percentages of how you see fit.

For example you might want to do a 60/20/40 or a 70/10/20 budget.

So 70% for Needs, 10% Wants, and 20% to Savings and Debt Repayment.

Lastly for C and R I would suggest educating yourself on budgets by reading my 10 Step Budget Mini-Series.

It’s jam-packed full of information that we used along our journey to debt freedom.

I trust you will find bounties of information that will help you get started.

The only way to know if this 50/30/20 budget strategy will work for you is to test it out.

Good luck.

Discussion: Have you used the 50/30/20 budget rules before and what did you think of it?

I’d love to read your comments and experiences so please leave them below.




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  1. I like the 40/30/30 breakdown with it being for Needs / Debts / Savings. When I ran into a financial struggle after my 1st marriage broke down, I ignored my wants until the debts were paid.

    Once all the debts were paid, I bought a home and the 40/30/30 remained in place but it became Needs / Mortgage Extra Payments / Savings. Again I ignored my wants but because of it I managed to get my mortgage repaid in 5 years. Of course this was back before the residential market prices exploded and I bought a brand new 4 bedroom home with only a $68,000 mortgage.

    Now that we are completely debt free, I have changed the game plan again to 40/20/40 but now it stands for Needs / Wants / Savings as we focus on saving for a happy and enjoyable retirement. 🙂

    I found that if I wanted to change my lot in life as a single gal earning only a tiny income that I needed to forget about the “wants” category until I have eliminated my debts and the mortgage. I also found ways to earn additional income and in fact worked 2 full time jobs at the same time for a couple of years. Luckily, I met and married a wonderful man so for a period we had two incomes before my health failed.

    No one said the journey would be easy but I wanted a better life and I did what was necessary to get there.

    I want to stress that ever since I started working at 16, I have always saved at least 30% and even when things were tough…I never touched any of those savings to fund my life or make debt repayment easier. It may not have been a lot of money but it was all I had that I could put towards building wealth. I could always imagine a scenario when things were much, much worse so, even when it would have made my life easier, I never touched my little bit of savings. I would rather reduce expenses even and do without whatever I could do without rather than touch my little nest egg…and I do mean little! LOL

    My husband says that those savings funds go whoosh off to the various savings accounts and are never seen again. I tell him that he’ll see them after he turns 71 and starts drawing from his RRIF. 🙂

    C and R, good luck with your journey! I watched Tony Robbins one night at 3:00 am and his motivational talk has been a cornerstone of my financial recovery. He said:

    1. Make a plan

    2. Start that plan

    3. Don’t quit your plan before you make it

    4. Don’t quit your plan when you do make it

    5. Continue your plan when you arrive at you goal and make a new plan and repeat steps 1-4

    This is pretty much what Mr CBB has said but for some reason that night I heard Tony Robbins’ call to action. If it worked for me, it can work for you too!

    1. Hi Mary,
      What an excellent response and thanks for sharing the way you saved and continue to save. I often feel like I’m reading my wife’s story as she is so like you in many ways. I agree with if you really want out of debt and to get ahead you have to put those ‘wants’ on hold. In many ways I did that growing up and like you were stashing away cash from a young age as did Mrs. CBB. Are you still living in the house you bought for 68k or have you moved on from there? It seems like such a low price tag but at the time I bet it wasn’t. What I love about this type of budgeting system is the availablity to switch up the % figures as you’ve done. I’ve never gotten into Tony Robbins. What do you suggest I watch first?
      Talk soon,

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