What is the 50/30/20 Rule? Steps to Financial Success

We are often advised to work diligently in tracking our income, expenses, and debt every month to achieve financial success. But for some, budgeting is overwhelming and restrictive. Thankfully, the 50/30/20 budgeting strategy makes personal finance more manageable.

In a nutshell, the 50/30/20 rule of thumb, popularized in part by Senator Elizabeth Warren, involves dividing your post-tax income into three categories: 50% for needs, 30% for wants, and 20% for monthly savings. Although it is not a strict rule, it will serve as a simple guideline to help you get started in managing your money more effectively.

It is a simple strategy that ensures you are properly allocating different types of expenses. Ready to get started?

The Three Categories

The 50/30/20 budgeting rule allocates your money into three major spending areas: needs, wants, and savings. Keeping the categories straightforward can avoid the stress of nitty-gritty details every time you spend. You can build a manageable spending habit to help you reach your financial goals.

Needs Category (50%)

This category includes items and expenditures that are absolutely necessary for your survival. Items involving food, shelter, and transportation will go into this category. Basically, these are expenditures that will be difficult to live without.

Here are common examples of essential expenses include:

  • Rent
  • Utility expenses, such as electricity bills and water bills
  • Basic groceries
  • Transportation costs, such as fuel costs if you have a car
  • Car expenses
  • Medical fees
  • Insurance premiums, such as annual life insurance or car insurance
  • Loan repayments

With this rule, this category will have the biggest allocation. If you find that your essential expenses exceed 50% of your post-tax income, you may need to adjust your lifestyle to achieve your financial goals.

For example, you can purchase more affordable alternatives when buying groceries. Or if the fuel prices are too high, you can look into alternative modes of transportation like using the MRT or ride-hailing services.

Wants Category (30%)

This category is for items that you can live without. Discretionary spending is for non-essential expenses and activities that you enjoy. To keep your spending under control, make sure that you do not classify your “wants” as “needs”.

Here are common examples of discretionary spending:

  • Dining out
  • Traveling
  • Gym membership
  • Entertainment expenses, such as subscriptions to Netflix and other streaming sites
  • Hobby expenditures
  • Buying the latest gadgets, such as an iPhone, iPad, smart TV, and more.
  • Gift costs

With this budgeting rule, you don’t have to deprive yourself of activities that bring you joy. However, there are “wants” that could seep into the necessities. This typically happens when you are presented with different options at different price points.

Take for example a laptop. You may classify owning a laptop as a necessity, especially when you work from home. However, it can become a “want” if you choose a much more expensive laptop when a more affordable one can perform the same job.

That said, it is crucial to strike a good balance between your wants and needs. As a tip, keep track of how much of your monthly expenses go towards these discretionary spending areas.

Savings (20%)

The last but surely not the least category is savings. The aim is to grow your wealth. With the money you set aside, you will have:

  • Emergency funds of at least 3 to 6 months’ salary.
  • You can use the money to start investing in financial instruments, such as SSB, stocks, mutual funds, and more.
  • This portion can also be used for debt repayment
  •  You can achieve long-term financial goals, such as children’s education, retirement, etc.

It is also crucial to start investing your money but make sure that these investment schemes are appropriate for your skills and knowledge. There are low-risk investments, such as investing in Singapore Savings Bond (SSB), if you want to start small.

Applying the Rule: Case Study

Emma, a 29-year-old Singaporean, is a full-time employee who works as an advertising and promotions manager for 3 years. Her monthly income is approximately S$4,500, and now she wants to start curving her spending habits to achieve her savings goals.

How can the 50/30/20 budget rule help her? 

Step 1: Determine Income After Taxes

Using an income tax calculator, Emma determined that her monthly after-tax income is around S$4,000.

Step 2: Start Allocating Funds to The Three Categories

  • Needs (50%): S$2,000
  • Wants (30%): S$1,000
  • Savings / Debt Repayment (20%): S$800

Step 3: Identify Monthly Expenses

Emma takes a look at her monthly expenses for the past six months and categorized them:

  • Needs:
    • Rent: S$1,200
    • Utilities: S$150
    • Groceries: S$300
    • Transportation: S$200
    • Health insurance: S$150
  • Total Needs Expenses: S$2,000
  • Wants:
    • Dining out: S$400
    • Entertainment: S$300
    • Shopping: S$500
  • Total Needs Expenses: S$1,200
  • Savings:
    • Emergency Fund: S$300
    •   Retirement Savings: S$200
    • Credit Card Payment: S$300
  • Total Needs Expenses: S$800

Step 4: Adjust Spending

From the monthly tabulation above, Emma discovered that she exceeded 30% of the budget allocated for her discretionary spending. As such, she took the necessary steps to lower her expenditure by eating out less and reducing her shopping expenses:

  • Dining Out: From S$400 to S$200
  • Shopping: From S$300 to S$400

Now, her total discretionary spending amounts to only S$900.

Step 5: Tips for Financial Success

To ensure that Emma stays on track, she uses these easy-to-follow techniques:

  • Regularly track her monthly expenses so she can avoid overspending.
  • Emma also automated her savings and debt repayments. In doing so, she can be sure that the payments are taken care of and that she will not be able to touch them.
  • Actively find ways to lower her monthly expenses. For instance, instead of dining out or ordering from the food app, she cooks at home.

With the 50/30/20 budgeting rule, Emma can come up with a feasible and manageable financial plan; thus, she can stay on track to achieve her goals. She follows a well-balanced technique and can prioritize her savings and debt repayments while still being able to enjoy activities she loves.

Alternatives to the 50/30/20 rule 

The 50/30/20 rule is not a one-size-fits-all solution to your budgeting needs. If this strategy doesn’t work for you, there are plenty of alternatives you can consider:

  • 70/20/10 rule: This is similar to the 50/30/20 except it follows a different allocation percentage:
    • 70% for living expenses
    • 20% for debt payments
    • 10% to savings
  • 80/20 rule: With this strategy, you will allocate 20% of your after-tax income to your savings and the other 80% will go towards whatever expenses you want – no tracking involved. This is best for individuals who usually blur the line between “wants” and “needs”.
  • Zero-Based budgeting: With this strategy, the goal is to have zero at the end of the month. Consider this formula: income minus your total expenditures = zero.  All your money will be used to pay off your needs and wants – including short- and long-term savings and debt payments.
  • Pay Yourself First: This method focuses on ensuring that you save a chunk of your income first.  This means you need to decide on your savings goals. It uses the formula income – savings = expenses.
  • Envelope budgeting: This strategy involves preparing different envelopes for different spending categories. For instance, you can have an envelope for “Groceries”, “Monthly Bills”, and “Clothing and Misc.”. You are only allowed to spend the total amount that is inside the envelope each month.

Financial Help While Following the 50/30/20 Rule

While following the 50/30/20 rule, you may encounter situations where bridging loans can help cover immediate financial needs. Bridging loans provide short-term financing, ideal for buying a new home before selling the current one. 

By strategically using a bridging loan, you can meet essential expenses while adhering to the rule. Remember, bridging loans require a repayment plan, and allocating a portion of your savings category for repayment is important. 

Consult a financial advisor and explore loan options that align with your needs and budget. Incorporating bridging loans helps balance short-term requirements with long-term financial goals.


Budgeting doesn’t have to be complicated and intimidating. With the 50/30/20 rule, you have a starting point in identifying your expenses and cutting back on unnecessary spending habits. Whether you follow this rule or create your own budgeting strategy, it is important to be consistent and track your spending. Your future self will thank you.

Key Takeaways:

  • The 50/30/20 rule divides your post-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings.
  • The needs category includes items and expenses that are essential to your living.
  • Wants category includes discretionary expenses you can live without but are nice to have.
  • Your savings must include an emergency fund of at least 3 to 6 months’ salary.
  • Bridging loans provide a short-term financing solution for immediate financial needs, allowing you to meet essential expenses while following the 50/30/20 rule.
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