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The 50/30/20 Budget Rule as a Guide for Graduates

As recent graduates embark on their journey into the professional world, mastering personal finance becomes crucial to their transition to independence.

One popular budgeting framework that has gained traction, especially among young adults, is The 50/30/20 Budget Rule.

This rule offers a straightforward approach to managing finances, making it an ideal guide for graduates navigating their newfound financial responsibilities.

Where Did The 50/30/20 Rule Come From?

The 50/30/20 rule, also known as the balanced budget rule, was popularized by Senator Elizabeth Warren and her daughter, Amelia Warren, in “All Your Worth: The Ultimate Lifetime Money Plan.”

It simplifies budgeting by allocating income into three categories: needs, wants, and savings/debt repayment.

Why Is the 50/30/20 Rule Easy to Follow?

The beauty of the 50/30/20 rule lies in its simplicity.

It provides a clear framework for budgeting without requiring complex calculations or extensive financial knowledge. Dividing income into broad categories allows for flexibility while ensuring financial stability and future growth.

50%: Needs

Fifty percent of your income should be allocated to essential needs, ensuring you can cover the fundamental aspects of daily living.

These include expenses such as:

    • Housing (rent or mortgage payments)
    • Utilities (electricity, water, gas)
    • Groceries
    • Transportation (public transit or car expenses)
    • Healthcare (insurance premiums, medical bills)
    • Child care
    • Minimum debt payment

Prioritizing these necessities ensures you maintain a stable and comfortable lifestyle while meeting your basic needs.

30%: Wants

Thirty percent of your income can be allocated to discretionary spending or wants, allowing you to enjoy life’s pleasures beyond the essentials.

This category encompasses non-essential expenses that enhance your overall quality of life and contribute to your happiness.

Examples include:

    • Dining out at restaurants
    • Entertainment such as movie nights or concerts
    • Travel for leisure purposes
    • Hobbies
    • Shopping for non-essential items

While these expenditures are not critical for survival, they significantly enrich your life and add fulfillment.

20%: Savings and Debt Repayment

Saving habits in the United States could be improved, with consumers carrying high debt levels. As of December 2023, the average personal savings rate for individuals in the country stood at a mere 3.9 percent.

Twenty percent of your income should be dedicated to savings and debt repayment, laying the groundwork for your financial security and future prosperity.

This category encompasses various financial goals and objectives, including:

    • Building an emergency fund to cover unexpected expenses or financial emergencies
    • Saving for retirement to ensure a comfortable and secure future
    • Investing in assets such as stocks, bonds, or real estate to grow your wealth over time
    • Paying off debt, including student loans, credit card balances, or personal loans, to reduce financial burdens and achieve financial freedom.

By prioritizing savings and debt repayment, you establish a solid financial foundation and work towards achieving long-term financial success and stability.

Benefits of the 50/30/20 Budget Rule

The 50/30/20 budget rule provides numerous advantages for graduates as they navigate their financial journey:

  1. Simplicity

The 50/30/20 rule’s simplicity makes budgeting more accessible and less intimidating for graduates who may be new to managing their finances.

Its straightforward structure divides income into three distinct categories, making it easy to understand and implement without requiring complex calculations or financial expertise.

  1. Flexibility

One of the key strengths of the 50/30/20 rule is its flexibility, allowing graduates to tailor their budgeting approach to suit their circumstances and financial goals.

Whether facing fluctuating income, changing expenses, or evolving priorities, graduates can adjust the allocation percentages within the rule to accommodate their unique needs and aspirations.

  1. Financial Stability

The 50/30/20 rule promotes responsible financial behavior and fosters long-term stability by emphasizing the allocation of income towards essential needs, discretionary spending, and savings.

“Prioritizing needs ensures that graduates can cover essential expenses and maintain a baseline standard of living while allocating a portion of income towards savings cultivates a habit of building financial reserves and preparing for the future,” advises Gary Isler, Senior Vice President, Investments at David Lerner Associates, Inc.

“Additionally, allocating funds towards wants allows for enjoyment and fulfillment without compromising overall financial health.”

How to Adopt the 50/30/20 Budget Rule

To adopt the 50/30/20 rule:

  1. Start by taking a look at your paycheck and calculating your monthly income after taxes
  2. Track your monthly expenses to understand your spending habits better
  3. Allocate 50% to needs, 30% to wants, and 20% to savings and debt repayment
  4. Monitor your spending regularly and adjust as needed to stay within the prescribed percentages

Example of the 50/30/20 Budget Rule

For a graduate earning $3,000 per month after taxes:

  • $1,500 (50%) would go towards needs: Rent, car payments, phone &internet bills, groceries, etc.).
  • $900 (30%) would be allocated to wants: Cable TV & streaming, movies & sporting events, shopping, etc.)
  • $600 (20%) would be dedicated to savings and debt repayment: Emergency fund, student loan payments, etc.)


  1. Is it advisable to factor taxes into the 50/30/20 rule calculation?

A: Taxing into the 50/30/20 rule calculation is generally unnecessary. The rule allocates a percentage of your after-tax income towards different categories, so taxes are implicitly accounted for. However, if taxes significantly impact your take-home pay or if you have specific tax-related goals, you may choose to adjust your budget accordingly.

  1. Can I adjust the percentages in the 50/30/20 rule to suit my situation?

A: The percentages in the 50/30/20 rule can be adjusted to accommodate your circumstances and financial goals. While the rule recommends allocating 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment, these percentages are flexible. You can modify them based on your income level, expenses, savings goals, and lifestyle preferences.

  1. Can the 50/30/20 rule be applied to savings for long-term goals?

A: Yes, the 50/30/20 rule can be applied to savings for long-term goals. The 20% allocation towards savings and debt repayment includes various financial objectives, including building an emergency fund, saving for retirement, investing, and paying off debt. By dedicating a portion of your income to savings, you can steadily progress toward achieving your long-term financial goals while maintaining a balanced budget. Adjustments may be necessary based on your long-term specific nature and timeline.


The 50/30/20 budget rule is a valuable tool for graduates embarking on their financial journey.  It provides a simple yet effective budgeting framework that empowers individuals to take control of their finances, build wealth, and achieve their long-term goals.

Ready to take control of your finances as a recent graduate? Visit David Lerner Associates to learn more about financial planning strategies tailored to your needs and goals.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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