50/30/20 Rule Explained

When budgeting, it’s helpful to divide your expenses into categories like Needs, Wants and Savings. The 50/30/20 Rule is a framework for this exercise, helping you determine how to divvy up your after-tax income to manage your money, pay down debt and plan for the future. Here’s how it breaks down:

50% for Needs

Up to half of your take-home pay should go toward non-negotiable expenses and obligations. This includes:

• Rent or mortgage payment
• Groceries
• Utilities
• Insurance
• Transportation expenses such as gas
• Childcare
• Minimum debt payments

30% for Wants

Use 30% of your income for things you enjoy. This might be:

• Dining out
• Subscription services like Amazon Prime or Netflix
• Hobbies/Interests like a gym membership, tickets to concerts or sporting events, or fees to participate in activities
• Shopping for non-essentials like new clothing or home décor
• Vacations

20% for Savings

It’s important to invest in yourself and plan for the future. Set aside 20% of your after-tax income in things like:

• Emergency fund
• Retirement account like a 401(k) or IRA
• Saving for a large purchase like a home or car
• Increased payments on debt like student loans or credit cards to save on interest charges

It’s good to evaluate your spending to see if you can make adjustments to better manage your money. Calculate your monthly take-home pay, then list out and categorize your monthly spending to see if you’re following the 50/30/30 Rule.

Use the Money Manager tool in the CNB Mobile Bank app to help track your spending and get a better understanding of your cash flow.