The ‘50/30/20’ Budget Is Key To Saving Money (or Paying Down Debt) Without Missing Out on Life’s Little Luxuries

Your money can be a tool to build the life you want, but typically, that requires allocating funds to a bunch of competing interests. Certainly, you need money to cover basic living expenses, plan for your future, and pay down debt, if you have it. But you also likely want to enjoy some of the money you’re earning right now. So, how do you create a budget that honors all the ways you need (and want) your money to work for you? Enter the 50/30/20 budget, a financial framework that ensures the necessities are covered while making room for lifestyle spending and saving for the future, too.

Here’s the basic layout of the 50/30/20 budget: Considering your take-home pay after taxes, you’d allocate 50 percent of those funds toward necessities—think: rent, utilities, bills, and groceries. The remaining 50 percent is then divided into 30 percent for lifestyle spending (dining out, clothes, vacations, concerts, etc.) and 20 percent for retirement savings and debt.

“This budget allows you to build in lifestyle experiences with your money so you can enjoy life today and not [just] later.” —Cassandra Cummings, investment strategist

This simple framework gets top marks from financial experts because it allows for balance between what’s fun and what’s necessary. It’s also not restrictive and can be easily tailored to fit someone’s needs, says Cassandra Cummings, investment strategist and author of Fearless Finances: A Timeless Guide to Building Wealth. “Most budgets really have people sacrificing, but [the 50/30/20 budget] has become popular because people don’t want to delay gratification, and this allows you to build in lifestyle experiences with your money so you can enjoy life today and not [just] later,” she says. That means feeling totally free to buy that latté (or make any other just-because splurge) every once in a while, no guilt included.

The balance baked into the 50/30/20 budget also makes it easier to maintain for the long haul than a budget that’s either too loose or too strict, says Judi Leahy, senior wealth advisor for U.S. Consumer Wealth Management at Citi Personal Wealth Management. Naturally, spending too much on the fun lifestyle stuff will leave you less prepared to deal with unexpected challenges, like a medical emergency, and to plan for the future—but cutting out all fun isn’t realistic either. “Certain life events may still throw you off track, but if you keep coming back to the 50/30/20 framework, it can really work long-term,” says Leahy.

Its main limitation arises for those whose income may not allow them to allocate just 50 percent of their take-home pay to necessities, according to financial coach Dasha Kennedy, founder of financial education platform The Broke Black Girl. In that case, it may be possible to adjust the percentages, so that you’re using however much is necessary to cover your basic living expenses while still dividing anything left over into a chunk for lifestyle spending and a chunk for savings and debt.

4 steps for getting started with and making the most of the 50/30/20 budget, per financial experts

1. Figure out where your take-home pay is going right now

Before implementing any new budget, it’s a good idea to take a look at your finances as they are now in order to get a clear picture of what’s happening, says Leahy. Maybe you’re already spending close to or within the guidelines of the 50/30/20 budget, or maybe you’re devoting a more substantial amount toward debt and future-planning than the budget entails, and you’d like to make a shift. Once you have a clear idea of your present financial status, you can figure out how to re-allocate.

2. Assess whether you need to adjust in order to limit necessities to 50 percent

The key part of the 50/30/20 budget that ensures its flexibility and sustainability is the 50-percent portion, according to Leahy and Cummings. Allocating just half of your take-home pay to the necessities is what will allow you to find some wiggle room with the rest of your money. But that can be easier said than done.

If you find that you’re regularly devoting more than half of your budget to the basics, examine if there are places to make trims. For example, if you live in a particularly expensive housing market and find that your rent alone accounts for more than 50 percent of your take-home pay, you might consider getting a roommate. Similarly, shopping at a big-box store for groceries and buying in bulk can help you cut down on the amount you’re spending on everyday food.

3. Determine your values, and use them as a guide

At this point, you could simply adjust your current spending and saving to align with the 50/30/20 framework, and that would be totally fine. But exploring how your money is being allocated also presents the opportunity to optimize your new budget for your values.

Figuring out what those values are—and aligning your spending and saving habits with them—is an under-discussed piece of financial wellness that the 50/30/20 budget helps spotlight, according to Lauren Bringle, an accredited financial counselor at fintech Self Financial. “It’s about shifting your mindset to focus on what you value, and making a plan so that your money aligns with that,” she says.

For example, maybe you determine that, right now, you value saving for your future more than present-day spending on meals or trips, so you decide to allocate the 30-percent portion of the 50/30/20 framework toward saving and the smaller 20-percent chunk toward lifestyle expenses.

Beyond allocating 50 percent of your take-home pay for necessities, the budget’s numbers aren’t set in stone, says Cummings. “You can play around with that other half of the pie based on where you are in your financial journey.”

Naturally, that means the budget can also flex one way or the other as your circumstances change, in both the short-term and long-term. For instance, if you’re someone who very much values being out of the house in the summer, whether on lengthier vacations or excursions with friends to local activities, you may want to allocate more of your budget to lifestyle spending in those months—which might mean decreasing that spending and upping your savings allocation in the winter, says Leahy.

In any case, it’s wise to consider the 50/30/20 budget as a loose (rather than rigid) framework, and adjust it to align with your values as they shift over time.

4. Don’t forget about your future self

It may be easy to justify more lifestyle spending now—whether based on your current values, stage of life, or circumstances—but that still doesn’t mean you should skimp too much on the piece of the budget dedicated to savings and debt.

Within that chunk, Leahy says it’s important to at least include retirement savings, like contributions to a Roth IRA (particularly if contributions to an employer-provided 401(k) aren’t already coming out of your take-home pay). And to give your future self maximum flexibility, it’s also important to include regular payments toward any debts within that (roughly) 20-percent chunk, so you don’t wind up paying more in interest down the line.

In particular, Kennedy suggests prioritizing paying off debts that carry high interest rates, as well as low-amount debts (to get them out of the way). And Leahy recommends staying on top of credit-card debt because that has a way of quickly adding up, leading to more trouble in the future if you delay now.