The 50/30/20 Rule

The 50/30/20 rule is a simple, practical rule of thumb for individuals who want a budget that is easy, yet effective to implement. It offers guidelines for enjoying your income while putting savings on autopilot. The 50/30/20 rule states that your after-tax income should be roughly divided three ways:

• 50% to needs
• 30% to wants
• 20% to long-term savings

Examples of needs

Housing: Rent, mortgage, homeowners insurance, property taxes

Transportation: Car payment, insurance, gas, car maintenance, parking

Health care: Insurance premums, deductibles, prescriptions

Insurance: Auto, life, home, health

Utlities: Water, electricity, internet, cell phone

Loan Payments: Credit card debt, student loans

Examples of wants

Gym membership, cable, clothing, online subscriptions, vacations, hobbies, eating out

Savings

Make the decision today to save a portion of your income for Rainy days and Retirement. For emergencies or rainy day, set aside a portion in a savings account. A savings account will earmark your money, making it less likely you'll withdraw it for other purposes. Some employers who provide direct deposit, will allow you to split your paycheck between accounts. This method is an easy way to put money into a savings account automatically.

Source: Federal Reserve Bank of Dallas | dallasfed.org