50/30/20 Budget Allocation

How It Works

The 50/30/20 rule divides your after-tax income into three categories:

• 50% for Needs: Housing, utilities, groceries, insurance, minimum debt payments
• 30% for Wants: Entertainment, dining out, hobbies, subscriptions
• 20% for Savings: Emergency fund, retirement, investments, extra debt payments

Formulas

Needs:    =Income * 0.50
Wants:    =Income * 0.30
Savings:  =Income * 0.20

Example

Monthly After-Tax Income: $5,000

Category	Percentage	Formula	Amount
Needs	50%	=5000*0.50	$2,500
Wants	30%	=5000*0.30	$1,500
Savings	20%	=5000*0.20	$1,000

Variations

Dynamic Calculation from Cell

If income is in cell B1:

Needs:    =B1 * 0.50
Wants:    =B1 * 0.30
Savings:  =B1 * 0.20

Check Your Actual Allocation

Compare actual spending to the rule:

=SUMIF(Categories, "Needs", Amounts) / Income

This shows what percentage of income actually went to needs.

Customizable Percentages

Some prefer 60/20/20 or 70/20/10 based on cost of living:

=Income * B2

Where B2 contains your custom percentage (e.g., 0.60).

Implementation in a Budget Sheet

A	B	C	D
Income	$5,000
	Target %	Target $	Actual $
Needs	50%	=B1*B3	=SUMIF(…)
Wants	30%	=B1*B4	=SUMIF(…)
Savings	20%	=B1*B5	=SUMIF(…)

Pro Tips

1. Create a variance check: =IF(Actual_Needs <= Target_Needs, "Good", "Review spending")

2. Visualize with a pie chart using the three category totals

3. Adjust for your situation - high cost-of-living areas may need 60% for needs

When 50/30/20 Doesn’t Fit

• High housing costs: Consider 60/20/20 temporarily
• Aggressive debt payoff: Try 50/20/30 (30% to debt)
• High income: Can often increase savings to 30-40%