Rule of thumb · FinanceNº 67 / 167

50/30/20 as a first budget

Aim 50% of take-home pay at needs, 30% at wants, 20% at saving and debt paydown.

Why it works

A starting allocation, not a law — its real job is forcing the three categories to be looked at separately at all.

When it fails

On a low income the needs half is not a choice — rent alone can exceed 50% of take-home, and no amount of budgeting reallocates it. At the other end, someone on a high income who genuinely spends only 20% on needs should be saving far more than 20%.

Do it exactly

Estimate with the rule, then check it against the calculator that models it properly.

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How should you split your take-home pay?

Aim 50% of take-home pay at needs, 30% at wants, 20% at saving and debt paydown. A starting allocation, not a law — its real job is forcing the three categories to be looked at separately at all.

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