50/30/20 Rule Calculator
Welcome to the Omni 50/30/20 rule calculator, a convenient and straightforward tool that helps you ration your disposable income (income that you receive after deduction of taxes) into three categories: needs, wants, and savings.
Are you having trouble portioning your after-tax income? Or instead, have you ever thought about what the ultimate budget allocation is for you? Composing a budget plan can be challenging but don't worry, read on to get answers to the following questions:
- What is the 50/30/20 rule, and where does it come from;
- How much of your salary you should save;
- How much of your salary you should spend on needs vs. wants; and more!
What is the 50/30/20 rule? How to make a budget
The 50/30/20 rule is a budgeting plan designed to help you manage your finances. The concept first emerged in Elizabeth Warren (the US Senator) and her daughter's book, "All Your Worth: The Ultimate Lifetime Money Plan." According to this personal finance guide, you have to balance your income into three categories:
- Your must-haves: 50% of your income should go to monthly, almost always unavoidable expenses. These expenses include bills, monthly groceries, rent or mortgage, insurance, and transportation.
- Your wants: 30% of your income should go to expenses that are not necessary but may increase the quality of your life by simply helping you relax and enjoy yourself. These expenses include shopping for clothing, cable TV, going to the theater, getting a new haircut, booking a spa day, and subscribing to movie or music streaming sites. Remember that some wants vs. needs can vary from person to person and often be interchangeable.
- Your savings: 20% of your income should go to your savings account, as well as paying off your debt, if applicable.
Keep reading to find out how the 50/30/20 rule calculator works!
How does the 50/30/20 rule calculator work?
Using the 50/30/20 rule calculator is entirely easy; all you need to do is enter your monthly after-tax income. Then, the calculator will tell you how to distribute your salary according to the 50/30/20 budgeting rule.
You can use the 50/30/20 calculator backward as well. Suppose you have a predetermined limited budget for necessities, and you're just now looking for a source of income. In that case, you can determine the minimum amount of salary that would be fit for implementing the rule! Just enter the amount in the field "Necessities," and the calculator will tell you the monthly after-tax income that's suitable for your minimum standard of living.
If you're wondering how much of your disposable income you spend on goods and services, how to create a precise savings plan, or plan your savings and expenses efficiently, check Omni APC calculator, savings calculator and budget calculator respectively.
An example of the 50/30/20 budgeting rule
Now that you know what the 50/30/20 rule is, we can discuss an example. Suppose your monthly after-tax income is $4500. According to the rule, you should allocate your salary as follows:
- 50% of $4500 to your necessities, which is
(4500 × 50) / 100 = $2250;
- 30% of $4500 to your wants, which is
(4500 × 30) / 100 = $1350; and
- 20% of $4500 to your savings, which is
(4500 × 20) / 100 = $900.
How do I make a budget for a month according to 50/30/20 rule?
To make a budget for a month according to the 50/30/20 rule, you need to allocate your after-tax salary to the following three categories:
- Spend 50% on necessities (things that you need).
- Spend 30% on wants (entertainment, shopping).
- Allocate 20% of your income for saving or making a loan payment.
How much of my salary should I spend according to 50/30/20 rule?
The 50/30/20 rule does not specify the amount of money you should spend each month from your salary. If you have a loan payment that you're trying to get rid of, your spending will naturally be higher; however, if your goal is to increase the amount in your savings account, your spending will be lower.
What is an ideal budget allocation?
There is no ideal budget allocation that would be suitable for everyone, although the 50/30/20 rule can be an excellent money managing technique to ration your finances.
Is the 50/30/20 budget rule suitable for me?
Although the 50/30/20 budgeting rule can become a lifetime strategy for some, there isn't a one-size-fits-all budget allocation, and the rule has its limitations. For example, those with low income may have to spend more than 50% on necessities, and very high-income individuals may be encouraged to engage in wasteful spending.