The 50/30/20 budget rule
The 50/30/20 rule is a simple way to split your take-home pay:
- 50% for needs – housing, utilities, groceries, insurance, transportation and minimum debt payments.
- 30% for wants – dining out, travel, entertainment, subscriptions and hobbies.
- 20% for savings and extra debt payments – emergency fund, retirement, investing and paying debt faster.
If your needs take more than half of your income, as is common in high-cost cities, start by protecting the 20% for savings and trim wants first.
Building an emergency fund
An emergency fund covers surprise costs such as a job loss, car repair or medical bill without using credit cards. Keep it in a separate, FDIC-insured savings account that is easy to reach but not too easy to spend. Use the planner above to set a goal and see how long it will take.
Frequently asked questions
How much should be in an emergency fund?
Many experts suggest three to six months of essential expenses. Aim for six to twelve months if your income is irregular or you are the only earner in your household.
Should I pay off debt or build an emergency fund first?
A common approach is to save a small starter fund first, then focus on high-interest debt, then finish building the full emergency fund.
Is 50/30/20 based on gross or net income?
It uses take-home (after-tax) pay. Our paycheck calculator can estimate yours.