Glossary
50/30/20 rule
The 50/30/20 rule splits after-tax income into 50% needs, 30% wants and 20% savings or debt repayment. It is a starting allocation, not a law, and is meant to be adjusted to your cost of living.
The rule is coarse enough to follow. You can check three categories in seconds, where a thirty-line budget takes an evening.
It breaks down where housing is expensive relative to income, since a 50% needs share is out of reach in many cities. Keep the 20% savings target there and let needs and wants absorb the difference.
Related terms
- Zero-based budgetingZero-based budgeting assigns every unit of income a job: spending, saving or debt repayment, until nothing is unassigned. The budget balances at zero, which describes a plan rather than an empty account.Read
- Savings rateSavings rate is the share of your income you did not spend, expressed as a percentage. It is calculated as income minus expenses, divided by income, over the same period.Read
- Discretionary spendingDiscretionary spending is money spent on things you chose rather than things you were committed to. It is the part of a budget that can change next month without renegotiating anything.Read
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