Save Money With The 50/30/20 Budgeting Rule

Do you find yourself asking,how much money should I save? If you are already aware of your spending habits, then a budgeting plan can help you tighten your strategy and help you focus on the road ahead.
save money with the 50/30/20 budgeting rule||||the 50, 30, 20 budgeting rule

Do you find yourself asking, how much money should I save? If you are already aware of your spending habits, then a budgeting plan can help you tighten your strategy and help you focus on the road ahead. The 50/30/20 budgeting rule was created by Harvard bankruptcy professor and Senator, Elizabeth Warren. In her book titled “All Your Worth: The Ultimate Lifetime Money Plan”, Warren discusses the idea of a 50/30/20 rule to help manage your budget.

The 50/30/20 budgeting rule is designed to help you organise your finances and start saving.

After-tax income.

The first step is to calculate your after-tax income. This is the amount of money that you receive on your payslip after your tax has been taken out. If you have a regular income this is extremely simple to calculate. Your payslip will outline the amount.

If you are however self-employed, your after-tax income will equate to your gross income minus any business expenses. This includes money set aside for tax repayments.


Once you have established you’re after-tax income, it is important to assess how much you are spending on your “needs” per month. To help you understand what a need is, think about the bills that you must pay each month. These bills are crucial for survival. Without these bills, it will be extremely difficult to live and work.

Some common needs include groceries, home and utility bills, transport and automotive bills, debt payments and medicine. A need does not include items such as eating out, Foxtel or your Spotify subscription. A budgeting calculator can help you go through each of these needs. It will also calculate the total amount that you are spending per month.


Do you need a new pair of runners? How about 2 week trip to Italy? Or maybe you just want to enjoy a 10-course degustation. Remember these are not defined as needs.

Your wants are just that, things you spend money on, but are not absolutely necessary. A want may include ordering uber eats, going bowling or buying those fancy runners. Wants include lifestyle upgrades. For example, you own a 10-year-old Toyota Corolla that works fine, but you are thinking of upgrading to a Mercedes.

Allocating 30% of your income to your wants may seem easy on the surface, but it requires a high level of self-discipline.  A want drives enjoyment. A want entertains you and sometimes this need for pleasure and entertainment may outweigh the need to save money. It is for this reason that saving becomes a mental struggle.


According to Warrens 50/30/20 rule of thumb, you should spend at least 20% of your after-tax income on savings. This includes allocating money into your savings accounts, paying off debt and keeping an emergency fund in place.

The minimum payment that you allocate towards repaying your debt is also considered a need. This is not included in the 20% savings. If you are saving well, you can consider making extra contributions to credit cards, mortgages or even car finance. Start by quickly paying off any high-interest debt and then move towards lower interest debt. Remember that extra contributions are part of your 20% savings contribution.

Calculate your 50/30/20 budget.

Use our handy calculator to see how much money you need to be saving each month. Simply enter your after-tax income to get started.

Is saving 20% of your income enough?

Whist Warrens 50/30/20 rule of thumb is a great tool to get you started with budgeting, it may not be an exact guide for everyone. Your financial situation plays a large part in whether 20% of savings is really enough.


As a low-income earner, Gary still has many responsibilities. He has to pay weekly rent, top-up his opal fees and purchase groceries. At the same time, he still needs to enjoy himself. Gary likes to eat out and visit museums. As a low-income earner, a 20% saving per month is quite difficult but it is manageable.


Susanne, on the other hand, is a high-income earner. She has her own property and pays the mortgage. Susanne is single and has a range of needs that she must pay each month. These, however, do not cost anywhere near $6,600. After inputting her needs into a budget planner, she realised that she is only spending $3600 per month. This already includes her minimum debt repayments. Besides her interest in travel and video games, she does not really splurge. As such her wants are only at $2400 per month. In Susanne’s case, she would rather put the unused $4,200 towards her savings so that she can quickly pay off her mortgage.

The bottom line

As you can see, the 50/30/20 rule of thumb is a great tool for setting a budget, but it may not be entirely useful for every person. As a budgeting tool, it is helpful in building the foundation for budgeting. Chances are that if you are reading this article, you are already thinking about budgeting. Now, all that you need to do is calculate your budget and stick to it.

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