50/30/20 Budget Calculator

What does the 50/30/20 rule entail?

The 50/30/20 rule serves as a widely recognized budgeting approach that allocates your monthly income across three key categories. Let's delve into the breakdown:

Monthly after-tax income

Before you can implement the 50/30/20 budget, it's crucial to determine your monthly take-home income. It's important to note that additional payroll deductions, such as health insurance premiums, should not be subtracted from your gross (pre-tax) income. If these deductions are combined with your taxes, it's advisable to separate them, deducting only taxes from your gross income.

50% of your income: Needs

This portion of the budget addresses essential expenses that are unavoidable. It should cover necessary costs such as:

• Housing.
• Food.
• Transportation.
• Basic utilities.
• Insurance.
• Minimum loan payments, with any excess directed toward savings and debt repayment.
• Child care or other essential expenses required for work.

30% of your income: Wants

Distinguishing between needs and wants can be subjective and may vary between budgets. Generally, wants encompass non-essential, enjoyable extras such as:

• Monthly subscriptions.
• Travel.
• Entertainment.
• Dining out.

20% of your income: Savings and Debt

This segment focuses on preparing for the future by allocating funds for savings and debt management. Specific actions within this category will depend on individual circumstances, but may include:

• Establishing and expanding an emergency fund.
• Saving for retirement.
• Prioritizing debt repayment, starting with high-interest accounts like credit cards.