50/30/20 rule

In short: The 50/30/20 rule is a rule of thumb: 50 % of net income for needs, 30 % for wants, 20 % for saving and paying off debt.

In more detail: It goes back to US politician Elizabeth Warren. “Needs” are rent, food, insurance, transport and compulsory payments. “Wants” are restaurants, hobbies and streaming. The rule is a yardstick for comparison, not a law: in expensive cities the share of fixed costs is often higher.

Our context: The budget book assigns each category to one of the three groups and shows the deviation graphically.

In Depth

• Example: With €2,400 net that would be €1,200 for needs, €720 for wants, €480 to save.
• Adjusting: If you have a lot of debt, you can temporarily switch to 50/20/30.
• Limit: The rule says nothing about income level or stage of life. With small incomes, 50 % for needs is often too little.
• In practice: First move savings and repayments automatically by standing order on payday, then spend the rest (“pay yourself first”).

See also: Budget book, Emergency fund