Is the 50-30-20 rule good
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In 2006, when Elizabeth Warren published her book, All Your Worth – The Ultimate Lifetime Money Plan, she obviously could not have foreseen the impact she was about to make in the world of finance. Today, some 16 years later, the world is still talking about the 50-30-20 rule. What is the 50-30-20 rule? Is it a good investment plan?

Let us see!


Put simply, it means you should budget your income in this order of priority:

50% to needs

30% to wants

20% to savings.

 At the core, the 50-30-20 rule is a budget masterpiece. It aims to divide your income in order of priority.

To explain it further, let’s say your income is $2000 monthly. The rule says that you should budget:

  • 50%, that is $1000, to your needs. This should include paying bills, mortgage, rent, foodstuff, children’s tuition fees and other basic needs.
  • 30%, $600, to your wants. This should take care of vacation, anniversaries, gifts, trips to the cinema, etc.
  • 20%, $400, to your savings account. This should be kept for future plans. Emergencies that arise from time to time. Debt payment. Investment.

IS THE THE 50-30-20 GOOD?

Yes it is. It addresses the two biggest hindrances to budgeting at its core.

  1. Spending too much on basic needs.
  2. Spending too much on recreation and fun.

On the one hand, many people spend so much on their needs and leave no space for enjoying the good things of life. Over time, they get overwhelmed with the loads of life and the monotony of working their lives to solve “problems” or issues (if that’s a better word). For these people, life is a production factory boss. All you do is work, work, work and work, and when you get old (prematurely I guess), you die. No fun.

On the other end. Some spend so much on the fun things in life. Party going, bingeing, vacation to Ibiza, Rome and back to… ‘well, it appears we don’t have enough. Alright, maybe we’ll use a loan. For these people, life is a coming-of-age movie producer. Party, party party till you grow older. And then you realise, your income cannot take care of your needs. And savings is practically dead.

With this rule, you can find the perfect balance. If you don’t like saving, the 50 30 20 rule is for you.

MortgageCinemaInvestment and Savings
FeedingRecreationDebt Payment
TransportationHairdoEmergency Funds
Health CareVacationRetirement


Is the 50-30-20 rule good
  1. It increases your savings: Assigning a fixed amount to savings, helps increase your stored asset. This is a fertile ground for investment.
  1. It improves the overall quality of life: It gives attention to balance and caring for the fun part of life.  Fun and recreation helps ease the pressure of work and the demands of life. You’re able to factor spending time with family and the expenses that come with it. This increases overall being. This is fitting for the busy life of the 21st century employee.
  1. This rule provides a soft landing to those who are new to saving and budgeting: Knowing that budgeting will not debris you of the joys of life to save is an incentive to begin budgeting.
  2. It teaches self discipline: Assigning a fixed amount to your expenses allows you to set a limit. As with most things in life, unless you set a limit, expenses can never be truly satisfied. Having this control over your life can improve self-worth.


So, is the 50-30-20 rule good? All depends on your savings need on the one hand, and your desire for for budgeting on the other.

For those with a passion for frugality, the 50-30-20 rule is weak. They argue that 50% is not enough to take care of emergencies and investments. Those with low income and high expenditure might argue that 50% is way too, big to save.

If you’re new to budgeting, this rule is an good way to ease in to the concept of budgeting.

Do you think the 50-30-20 is a good rule of thumb? Let’s hear you say in the comment section below.

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