50/30/20 budget and how to use it

Everyone has an opinion on how you should budget. From experts touting the latest app for online money management to bloggers giving personal perspectives on cash-only lifestyles, you won’t find a shortage of advice. You’ve likely heard of the 50/30/20 budget.

First mentioned in Elizabeth Warren and Amelia Warren Tyagi’s 2005 book “All Your Worth: The Ultimate Lifetime Money Plan,” it’s now become mainstream — for good reason. The rule’s easy to remember and contains sound financial advice.

Check out our budget calculator.

What Is the 50/30/20 Budget?

The 50/30/20 budget breaks your money up into three simple chunks: needs, wants and debt and savings. Sounds simple, right?

Flip through these 50 everyday things you need to stop spending money on:

51 PHOTOS
50 everyday expenses you need to stop spending money on
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50 everyday expenses you need to stop spending money on
ATM fees

"Take a bit of extra time to withdraw money from your bank's ATM and save on the cost to withdraw your own cash or if your bank has a mobile app, use it to find an in-network ATM near you."

Credit: My Debt Epiphany

Lottery tickets

"According to the Powerball, the odds hitting the jackpot are 1 in 292,201,338.00, and CNN cites that Americans spent $70.15 billion in 2014. Let's save our hard-earned money."

Credit: My Debt Epiphany

Coffee

"A daily cup of joe adds up if you purchase it at places like Starbucks and Dunkin Donuts. Save by brewing at home."

Credit: My Debt Epiphany

Credit card interest

"Maintaining a balance on your card usually you to pay interest each month. Try to pay off your credit card balance in full each month or send more than the minimum payment. As always, use your credit cards responsibly."

Credit: My Debt Epiphany

Kids meals when dining out

"When you do dine out and if you have kids with you, be sure to take advantage of 'kids eat free' specials. Most restaurants have specific days of the week when they offer free kids meals."

Credit: My Debt Epiphany

Gas station food and snacks

"Although it may be convenient, prices are always marked up when compared to other stores. So take the time to shop for food in advance at your grocery store and pack emergency snacks in your car."

Credit: My Debt Epiphany

Pumping premium gas

"Some vehicles may not require premium gas, which is the most costly of the gasoline grades. Stop trying to be fancy, check the owner's manual, and save."

Credit: My Debt Epiphany

Banking fees

"Don't pay to manage your money at a bank. Find banks that offer free banking or bank online for free like CapitalOne 360. Earn $25 when you open a free checking or high-yield savings account."

Credit: My Debt Epiphany

Change-counting machines

"Many of us like to keep our loose change in a jar and let it collect over time. Once it's full, don't pay machines to count it for you, go to your bank to deposit your savings or have it exchange for cash."

Credit: My Debt Epiphany

Wasting gas due to low tire pressure

"You may not know this, but having low tire pressure affects your mileage significantly. Save gas and money by improving your gas mileage by simply checking your tire pressure and maintaining it at the proper level."

Credit: My Debt Epiphany

Single car washing

"Many car wash places offer a flat monthly rate for unlimited washes, so check with your local car wash to find out if they offer a monthly rate and cash in on a clean car. Or, you can get a discount when you pump your gas."

Credit: My Debt Epiphany

Bottled water

"Unless you live in an area where potable water isn't safe, don't waste your money on bottled water. Often times, it's simply bottled tap water. Buy a reusable water bottle or invest in a quality water filter, and save (plus you'll reduce plastic waste)."

Credit: My Debt Epiphany

Cigarettes

"It's a tough addiction to beat, but it is a very expensive to purchase cigarettes daily. Aside from causing deadly health effects, according to Time, smoking can cost you $1 to $2 million in a lifetime. Make an effort to better your health and wallet."

Credit: My Debt Epiphany

Gift bags and wrapping

"Reuse bags from previous occasions if they are still in good condition. We started doing this last year and no longer have to run out and by $3+ gift bags when we go to events or parties."

Credit: My Debt Epiphany

Plastic bags fees

"For those living in an area where stores charge for plastic bags (*cough cough Chicago*), bring your own reusable one. Those cents add up!"

Credit: My Debt Epiphany

Utility bill payment fees

"Skip the line at the currency exchange or grocery store and pay online using checking account or debit card. Some companies charge to use a debit card, so schedule e-check payment, which is typically free."

Credit: My Debt Epiphany

Travel size toiletries

"For the frequent traveler, you should buy empty travel containers and refill with shampoo, lotion, etc. as needed."

Credit: My Debt Epiphany

Paper

"Unless you're a student, you probably don't really need to buy a lot of paper – reuse already printed pages and use both sides."

Credit: My Debt Epiphany

Magazine and newspaper subscriptions

"Save money and paper by keeping up with free online news services."

Credit: My Debt Epiphany

Paying for premium streaming music services

"In the digital age of music, don't pay for premium services. Streaming companies like SoundCloud and Spotify allow you to listen to music for free."

Credit: My Debt Epiphany

Buying books

"If you'd like to truly own a book, then save on the paper and extra cost by purchasing the digital version, or go to your local library and check them out for free."

Credit: My Debt Epiphany

Library late fees

"Remember to return all materials on time. It'll save you money and allow for other library patrons to enjoy the material in a timely manner. If you do have library fees, wait for a month when they accept canned goods as a payment method (usually around the holidays)." 

Credit: My Debt Epiphany

Brand new video games

"Skip the early release and commotion of having the latest video game. Save major bucks by purchasing a used version of the game online or at stores like Game Stop."

Credit: My Debt Epiphany

In-app purchases

"Gaming apps are meant to entertain, and while most of them are free, don't fall for the "purchase bonus lives" trap. In-game purchases add up."

Credit: My Debt Epiphany

Greeting cards

"Take some time to make your own personal cards or send an eCard and skip on the expense."

Credit: My Debt Epiphany

New phone chargers

"If you forget your charger and your phone needs to be charged, some time you'll be inclined to purchase a new one, but it can be costly or even poor quality. Always keep your charger handy, look for a charging station where you're at, or simply ask to borrow one."

Credit: My Debt Epiphany

Expiration dates

"Sometimes, expiration dates may not reflect the true shelf life of a product. Don't waste food (and money) by throwing out a product which may still be fine to consume. Check out Eat By Date and see for yourself the true shelf life of your groceries."

Credit: My Debt Epiphany

Stuff on your birthday

"When you're heading out and can't or don't want to drive, consider calling Uber or Lyft instead of calling a cab so you can save money on the ride. You can use my linkto get $20 off your first Uber ride."

Credit: My Debt Epiphany

Batteries

"Save on disposable batteries and purchase rechargeable ones. They can last up to two to three years."

Credit: My Debt Epiphany

Pens

"Many offices, banks, insurance companies, etc, give them away for free. Save them and skip on the purchase."

Credit: My Debt Epiphany

Insurance

"Be sure to get the best rate for your individual needs, whether it is car, health, home or life insurance."

Credit: My Debt Epiphany

Garbage bags

"If your area doesn't charge for using plastic bags, reuse the ones you get from shopping as garbage bags. I do this all the time."

Credit: My Debt Epiphany

More house than you need

"While some families "grow into" their homes, sometimes less is more. Save on mortgage and the possibility of purchasing more for a larger home. Downsize and save."

Credit: My Debt Epiphany

Club/bar full cover charges

"While having a spontaneous night out is fun, if you RSVP when possible, arrive early, or take advantage of online ticket sales, you can skip out on paying in full at your favorite nightlife places."

Credit: My Debt Epiphany

Leaky faucets

"If you pay for water utility bill, according to the EPA, fixing leaky faucets saves you 10% on your bill. By ignoring it, you not only lose money every day it goes unfixed, but you also waste clean water, at a rate of 10,000 gallons per year."

Credit: My Debt Epiphany

Fast food restaurants

"Improve your health and wallet by not eating fast food often. It may be cheap, but it adds up, especially if you eat out a few times per week. Instead, spend the money and the time to grocery shop and prepare meals."

Credit: My Debt Epiphany

Cool drafts

"Save on heating and electric bills by fixing drafts and keep the warmth and cool in your home during the winter and summer."

Credit: My Debt Epiphany

Unnecessary data phone plans

"Unless you need unlimited data for work, you should not spend much on your cell phone bill. I save a ton of money on my cell phone bill by using Republic Wireless."

Credit: My Debt Epiphany

Pet food

"You may not be able to cut out this expense completely if you have pets, but you can score free cans of pet food with coupons occasionally so you won't have to spend as much."

Credit: My Debt Epiphany

Buying lunch

"Sometimes you're running late for work and don't have time to pack a lunch. Buying lunch often costs much more than preparing and bring a meal to work. Spend some time planning, purchasing and preparing meals ahead of time so they're ready to go, even when you're in a hurry."

Credit: My Debt Epiphany

Leaving electronics plugged in

"Even though you may not use them often, electronics that are plugged in still consume energy. Unplug appliances you don't you often and keep other electronics on a power strip, turning them off when not in use."

Credit: My Debt Epiphany

Prepared grocery store meals

"When you do go grocery shopping, sometimes the already-prepped sub or diced fruits and veggies tempt you to buy them and save time, but you'll be paying top dollar for those products. Plan a list ahead of time and buy the individual food items, then spend the time prepping them yourself in order to save.

If you have trouble making grocery lists and figuring out what you're going to eat each day, I'd highly recommend trying out the $5 Meal Plan so you can receive healthy meal plans and recipes to your inbox."

Credit: My Debt Epiphany

Vending machine snacks

"Not only are these snacks typically unhealthy (there goes your healthy habit), they are typically much more expensive than their grocery store counterparts. If you find yourself buying vending machine snacks, try to save the money instead and see how much you have leftover at the end of the month. You can probably invest it."

Credit: My Debt Epiphany

Transportation

"When you're heading out and can't or don't want to drive, consider calling Uber or Lyft instead of calling a cab so you can save money on the ride. You can use my link to get $20 off your first Uber ride."

Credit: My Debt Epiphany

Brand name items

"Save money by skipping on the brand names, like medicine, toiletries, and certain foods. Remember that healthier options with fewer additives may cost more and in that case they may be worth it. Otherwise, generic is the way to go."

Credit: My Debt Epiphany

Buying smaller/single packs

"Save money by skipping on the brand names, like medicine, toiletries, and certain foods. Remember that healthier options with fewer additives may cost more and in that case they may be worth it. Otherwise, generic is the way to go."

Credit: My Debt Epiphany

Purchasing paper towels/paper napkins

"You are purchasing these to eventually throw them out. Save on the waste and save money by buying reusable, washable towels and napkins. Your wallet and the environment will thank you."

Credit: My Debt Epiphany

Paying extra for night time movie showings

"Primetime showings are typically 2x higher than those during the day. Go to morning matinees or take advantage of weekly specials ($5 movie nights during the week)."

Credit: My Debt Epiphany

Movie theater food

"Often times, movie theater food can cost more than the ticket to get in. Try to keep food purchases to a minimum when you can or eat a filling meal before you go see a movie."

Credit: My Debt Epiphany

DVDs and On Demand

"Instead of spending money on purchasing the movie, subscribe to streaming services and find an alternative or go to your local library."

Credit: My Debt Epiphany

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You start by calculating your monthly take-home pay. This is your salary minus taxes. If you have a health insurance plan or retirement contributions deducted from your paycheck, add those back in. OK, now you know your monthly pay, let’s divvy it up according to the budget.

50% of Your Net Pay for Needs

Divide your monthly pay in half. That number is the amount of money you’ll allocate for needs. Housing, utilities, health insurance, groceries, transportation and prescriptions all count as needs. Some debt is considered a need as well, such as credit card payments or car payments. If you miss payments, your credit score’s negatively impacted. Other needs include child support and alimony. Missing payments for either will get you in hot water. Therefore, it’s a need.

But that’s not an exhaustive list. If you’re not sure what’s a need versus a want, consider the impact if you take it away. Health insurance, for example, is a need because you’ll be fined if you forgo coverage. Plus, it’s essential for your wellness. Trickier situations, such as whether your cell phone is a need or a want, take more thought. It might be a need, but owning anything above a base model cell phone and basic phone plan tilts more toward a want.

30% of Your Net Pay for Wants

Now for the fun stuff: wants. Multiply your monthly take-home pay by 0.3 to find the amount you have in this category. A want is anything that’s not a basic need to survive. Vacations, cable and Netflix, gym memberships and dining out all count as wants. Salon visits and clothes shopping are included in the category, as well.

Where the line gets fuzzy is with expenses you may consider essential, but in reality, could live without. This could mean high-speed internet in your apartment or leasing a large car instead of economy-sized.

With the 50/30/20 budget, you allocate a larger percentage of your money for wants versus savings. You may want to change your allocations if your goal is to build wealth or pay down debt as fast as possible.

20% of Your Net Pay for Debt and Savings

To find what you should set aside for debt and savings, multiply your take-home pay by 0.2.

For example, if your paycheck (after taxes) is $3,200 a month, you’d set aside $640 for debt and savings ($3,200 x 0.2). Savings include retirement accounts, emergency funds and whatever other financial goals you have.

As for debt, this category includes student loans or other debt you want to put extra money toward paying off. While the “needs” category may have included a large portion of your essential must-pay debt (such as your credit card), this money is for any extra payments you can make once you put aside retirement or health savings account funds.

The Takeaway

You don’t have to feel tied to the 50/30/20 rule. If you want to tweak it to your personal financial goals, go right ahead! While you probably don’t want to dip below saving 50% for needs, you can always scale back wants and add more to your savings.

On the flip side, if you’re debt-free and have healthy savings, perhaps you can allow yourself more wants.

Or, perhaps you add a percentage for charitable contributions. Whatever your financial goals are, remember that making a plan is the best way to meet them.

Tips for Budgeting

  • Savings accounts and budgets go hand-in-hand. It’s the best place to sock the extra cash you’re saving. If you’re savvy, you’ll compare savings accounts interest rates and see where you can earn the most with your rainy day fund.
  • Freelancers can find it tough to stick to a budget. With irregular paychecks and quarterly self-employment taxes to worry about, you might find it impossible to find a budget that fits your situation. Fortunately, there are some best practices to follow when you have an irregular income.

RELATED: 31 easy money hacks to help you get richer

31 PHOTOS
31 easy money hacks to help you get richer every single day this month
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31 easy money hacks to help you get richer every single day this month

1. List at least one item you aren't using on Craigslist or eBay.

Not only will this help you clear out clutter, but it will turn an unwanted item into cash. If you get inspired and want to sell more, check out this Lifehacker guide to turning unwanted junk into cash.

REUTERS/Kacper Pempel/File Photo 

2. Pack your lunch instead of buying it.

Time calculated how much someone in New York could save by bringing a brown bag lunch ($3) versus buying lunch ($15). At that rate of savings, if you packed lunch instead of buying it every day for a decade, you'd save $31,200. Calculate how much you would save using this Bankrate tool.

(KatarzynaBialasiewicz via Getty Images)

3. Change out at least one incandescent bulb to a CFL.

According to Consumer Reports: "By replacing a 60-watt incandescent bulb — the most common household bulb — with a spiral-type 13-watt CFL that produces an equivalent amount of light, you could save more than $57 over the life of the CFL."

(Jose Luis Pelaez)

4. Program your thermostat to turn off while you are at work or sleeping.

According to Energy.gov, "You can save as much as 10% a year on heating and cooling by simply turning your thermostat back 7°-10°F for 8 hours a day from its normal setting."

(Getty Images/iStockphoto)

5. Delete your stored credit cards from online accounts.

Have your credit card stored to make one-click purchases? If you instead have to manually enter your card each time, you make buying online more of a hassle, which will limit impulse purchases.

(Shutterstock / Vladimir Gerasimov)

6. Eat meatless.

Many people have adopted Meatless Mondays to help save money and the planet. Start this Monday and see if you can make it a habit.

(shutterstock)

7. Buy a re-usable water bottle.

Consumer Reports calculates that bottled water costs $346 a year, while tap water costs just $0.48. If you are using bottled water, stop now and start refilling a water bottle instead.

(shutterstock)

9. Download at least one money-saving app.

Check out Mic's guide to apps that will save you money. And U.S. News also has a list of nine apps to save you on everything from parking to cheap beer.

10. Cancel any memberships you aren't using.

Planet Money report found that half of all members of one popular gym never go — and the Washington Post reports the gym industry actually relies on members paying for, but never using, the service. Don't let money be auto-debited monthly for anything you don't actively use. Call now to cancel, and read Mic's guide to getting fit for free.

(guvendemir via Getty Images)

11. Make sure you are using the right bank.

Check out what unnecessary fees you pay for ATM use and for maintaining a monthly account. If you're paying anything, it may be time to switch to a different bank: Check out Mic'guide to some of the best banks to use in 2016 to 2017 and see how your bank compares. If your bank falls short, make the switch.

12. Open an IRA, if you don't already have one. If you do, check on your investment mix.

An IRA is one of the best ways to save for retirement because you can potentially get tax breaks for investing in it. Check out this 5-minute guide to retirement savings to find out more and follow this simple step-by-step primer on opening one. If you already have an IRA, use an asset allocation calculator to see if you have the right mix of investments. 

(c-George via Getty Images)

13. Create (or review) your budget. 

Read up on the basics of how to budget so you can determine the steps you need to take to get a handle on where your money is going. You can also use recommended budgeting apps to make the process easier. 

(cnythzl via Getty Images)

14. Make sure you are using the right credit card.

Figuring out the best credit card for you is a matter of looking at your usage and needs. If you carry a balance, it's time to shop for a low APR card with a 0% balance transfer. But if you are a responsible card user, aim for a card with big cash-back perks or rewards.

(alice-photo via Getty Images)

15.  Clean out the air filters in your car.

Pro Car Mechanics explains: "The benefits of a clean air filter are almost immediate. Airflow goes back to the proper level to mix with the gasoline. It has been estimated that replacing the dirty air filter will increase MPG on the car up to 10% and also generate a fuel savings of close $.15 per gallon at the fuel pump." Cars Direct explains how you can clean out your car's air filter. 

16. Review your debts and make sure your repayment approach is optimized.

If you owe money on credit cards or loans, review the interest rates, terms and repayment strategy. If you have high interest debt, refinancing could make sense.Think through your debt repayment strategy and evaluate whether you can or should make extra payments.

(BernardaSv via Getty Images)

17. Call your cell phone and cable companies.

Go over your monthly plans to find out if you are paying for services you don't need. Ask for any discounts that could potentially help you to spend less. Check out these tips for saving money on cable TV.

(diego_cervo via Getty Images)

18.  Sign up for a library card.

Many libraries now offer streaming video and electronic versions of books so you don't even have to visit the library to take advantage of their media. This website will help you find your closest local library.

(Taqwa Gad / EyeEm via Getty Images)

19.  Learn a skill that will help you save.

Learn to let out pants, tailor your own skirts, change the oil in your car or fix a stopped up sink. Wisebread has a list of 10 life skills to learn to save money.

(AndreyPopov via Getty Images)

20. Call your insurance agent.

If you have car insurance, homeowner's insurance or renter's insurance, you may be able to lower your deductible, bundle your policies or get rid of coverage you no longer need. Investopedia lists 6 ways to save on insurance.

(mediaphotos via Getty Images)

21. Print, cut, or buy coupons.

Using coupons can help you save on groceries, dining out and other items you buy. Browse sites like RetailMeNot for printable coupons or use TheCouponClippers to purchase cut coupons from the newspaper. Focus on items you are going to buy anyway. You might also visit websites like DealSeekingMom to find out how to get items like toothpaste and toilet paper for free — or close to free.

(kreinick via Getty Images)

22. Unsubscribe from daily deal sites or online websites.

If you are subscribed to a bunch of sites that alert you to sales and bargains, you are more likely to spend on items you don't need. Buy stuff when you decide you need it, not when an online newsletter tells you the item is on sale.

(PeopleImages via Getty Images)

23. Go for a walk instead of watching TV.

You won't waste the electricity on running the TV — and you won't see ads shilling for products. Plus, walking is a healthy and free way to get exercise.

24.  Plan a weekend of free events.

Make a commitment to not spend any money this weekend. Look for free community events to attend — or invite your friends over for a potluck or clothing swap party.

25. Plan your meals for the week.

Meal planning allows you to avoid wasting food since you can make a grocery list and buy only what you need. Lifehacker has a simple guide to meal planning and you can check out Mic's tips for healthy eating on a budget.

26. Cook and store food strategically.

Following your meal plan, make up a few meals you'll eat over the course of the week. You can even make some extra to freeze for when you're in a rush and don't have time to cook or pack a lunch a few days later: Just portion out food in little freezer bags so it'll be easy to thaw individual meals.

(Gilles_Paire via Getty Images)

27. Have a no-spend day today.

Make a commitment not to spend even $1 on anything for one whole day. Prep your coffee at home, bring your lunch, bike to work, and eat one of your pre-planned, home-cooked meals for dinner.

28. Automate all of your bill paying ... and saving.

If you are still manually paying your bills each month, set up automation for any accounts you can. This helps you avoid late fees if you get busy or forget. If you have a savings account, set up an automated transfer of at least a few dollars per month so you can make sure you are saving something.

(Rawpixel via Getty Images)

29. Find a cheaper way to commute today.

If you normally Uber, try taking public transportation. If you normally take public transportation, walk or bike to work. If you drive, see if you can arrange a carpool or switch to the bus. Your commute can cost you thousands over your working life.

30. Call HR and ask about workplace benefits.

You should definitely be investing in a 401(k) if your employer offers one. However, you may be eligible for other benefits like corporate discounts on cell phone service or hotel rooms. Find out what benefits are available that you can use to save — you might be surprised (see: "cash in lieu").

(DNY59 via Getty Images)

31. Carry around healthy snacks bought in bulk.

It's not just meals that are a money suck, and hitting the vending machine can add up. Buy some dried fruit, granola bars or trail mix in bulk — and then bag it up into snack-sized portions to help your wallet and your waistline.

(bajker via Getty Images)

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