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The 50/30/20 Budgeting Rule Explained (+FREE Monthly Budgeting Excel Template)

Last year, Bank of America released its Better Money Habits report that provided detailed statistics on millennial money habits. Here’s what caught my eye.

While 73% of millennials are saving, only 48% are doing so monthly. This is interesting, as putting money aside regularly is a great way to build savings over time. With the economic challenges posed by the current pandemic, it’s understandable why contributing to savings regularly might be difficult for millennials right now.

However, if you’re hoping to start saving regularly, the 50/30/20 budgeting rule is a great starting point.

What is the 50/30/20 budgeting rule

Popularized by Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan, the 50/30/20 rule is a method of budgeting where you divide your take-home pay into 3 categories: needs, wants, and savings.

An infographic explaining the 50/30/20 budgeting rule

50% goes towards needs or the must-haves

For e.g. utilities, rent, mortgage payments, food, essential groceries, health insurance, and car payments. If half your income is not sufficient to cover all your necessities, then you can either try to cut costs or dip into the 30% allocated for your wants.

30% goes toward wants or the nice-to-haves

For e.g. travel, dining out, food delivery, entertainment, and subscriptions.

20% goes toward savings

Experts advise that building an emergency fund that covers 6 to 12 months of expenses should be the first priority, after which you can start to consider long-term investments.

So, if you have a monthly income of $5,000:

  • $2,500 goes toward needs (50%)

  • $1,500 goes toward wants (30%)

  • $1,000 goes towards savings (20%)

You can use this 50/30/20 budget calculator to determine how much of your income should be allocated for needs, wants, and savings respectively.

The pros of the 50/30/20 rule

It’s important to consider the pros and cons of the 50/30/20 rule, so we can better understand its limitations and correct them accordingly.

Here are the pros:

  • It’s a good, structured way to start saving regularly.

  • With the 50/30/20 rule, you begin to incorporate savings into your budget, rather than rely on whatever is leftover at the end of the month for your savings.

  • If you use this rule and set a standing order to move 20% of your salary to a separate saving account every month, you’ll start saving on auto-pilot. With the example above, for instance, one could save $12,000 per annum automatically.

  • It doesn’t leave you feeling deprived, as it accounts for your wants as well.

If you’re looking for ways to save more and hit that monthly target of 20% savings, check out these tips to save more money.

The cons of the 50/30/20 rule

Here are some of the cons to keep in mind:

  • If you have big saving goals (e.g. retiring early or extensive travel after retirement), 20% savings might not be enough. You may need to bump up your savings to meet these goals.

  • Also, the 50/30/20 rule is just a guide on how to budget your money. You’ll still need to actively track your expenses to gauge how you’re doing. To help you with this, I have a FREE monthly budgeting Excel template just for you!

How to use this FREE monthly budgeting excel template

This Excel template comes with a detailed guide that walks you through how to use the two main spreadsheets: Budget and Expenses.


A screenshot of a monthly budgeting Excel template

This is where you plan your monthly budget. Start by keying in your take-home pay. The pre-inserted formula will calculate how much you need to put aside for savings (20%). Next, allocate the remainder of your income to the different spending categories listed.


A screenshot of an expense tracker Excel template

This is where you enter your daily expenses to stay on track with your budget. Key in your day-to-day expenses on a daily or weekly basis. With the pre-inserted formulas, you'll be able to compare your budget against your actual expenses and gauge how you're doing so far.


The 50/30/20 rule is a good starting point, especially for young adults who are still learning how to manage their finances. But ultimately, it’s just a guide.

Everyone has a unique financial situation, and there’s really no one-size-fits-all solution to personal finance. Use the 50/30/20 rule as a guide, but change it up to suit your financial situation.

Right now, if you can only save 10%, that’s okay. Start with 10% and over time, you can increase this amount when your income rises. The important thing is to start saving regularly. Every bit counts.

If 20% seems conservative for you, feel free to save more. If you can swing 30 or 40%, go ahead and do so.

How do you budget your money? Do you use the 50/30/20 budgeting rule or a variation of it? Do share in the comments below.

For more budgeting ideas, check out this recent blog post on different budgeting methods.

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A glass jar filled with coins and labelled 'Budget'


Hi there!

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Hi, I’m Vidhya. I’m a freelance writer and millennial who often struggles with adulthood.

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