Manage Money

What Is The 50/40/10 Rule Budget?

Budgeting is a habit and process that can enormously help individuals and families work with their finances to make every cent count. There are many people who swear by certain rules and habits and say that it works perfectly for them. However, it is important to look into these budgets and see what they entail.

The 50/40/10 rule in budgeting is a guideline that divides 50 percent of a person’s income into covering basic needs, 40 percent into savings, and 10 percent goes towards want; those fun or unnecessary but enjoyable purchases. This rule in budgeting is meant to help people create large savings quickly.

In theory, this budget has some interesting ideas and concepts. However, it is important to look into more than just the idea. It’s crucial to understand how the 50/40/10 rule works, see if the 50/40/10 budget works, if it is realistic, and its advantages and disadvantages.

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How Does The 50/40/10 Rule Work?

The basics of the 50/40/10 budget are allocating a certain percentage of an income towards different categories and purposes like needs, wants, and savings. In this style of budget, the largest chunk of income, or about 50 percent, goes towards covering the basic needs someone has. 

The 50/40/10 rule is a simple budgeting strategy that works by dividing your after-tax income into three categories:

  • Needs: This category should take up no more than 50% of your after-tax income. It includes expenses that are essential for your basic needs, such as housing, utilities, groceries, transportation, and insurance.
  • Savings: This category should take up about 40% of your after-tax income. It includes saving for emergencies, retirement, or other financial goals
  • Wants: This category should take up no more than 10% of your after-tax income. It includes discretionary expenses like dining out, entertainment, travel, hobbies, and other non-essential items.

To use the 50/40/10 rule, start by calculating your after-tax income, which is your income after taxes and other deductions have been taken out. Then, allocate 50% of your after-tax income to your needs, 40% to your wants, and 10% to your savings.

Once you have your budget set up, track your spending to make sure you are sticking to the 50/40/10 rule. You may need to adjust your spending in each category to stay within the guidelines, especially if unexpected expenses arise.

The 50/40/10 rule is a flexible guideline, and you can adjust the percentages based on your individual circumstances and goals. The important thing is to make sure you are living within your means and saving for the future.


Needs include things like rent, groceries, insurance, utilities, cell phone bills, gas/transportation costs, and other things that need to be purchased to live and function.


The next largest chunk of income (about 40 percent) goes straight into savings. This may seem like a large chunk of money, especially for people used to living paycheck to paycheck. 

However, the reason why it is important is that savings are meant to cover large or unexpected purchases. People often use savings to cover doctor visits, dentist visits, car repairs, education costs, vacations, anniversaries, presents for birthdays or holidays, or to cover emergency purchases. For families, savings often are built to eventually help children with higher education costs, getting married, or important trips or occasions.

Fun Money

The last ten percent of income is designed to allow the person to buy things or experiences that matter at the moment. These usually are wants. This is where people can treat themselves. Some people value different streaming services, so they will use the ten percent to cover that. Others value sports passes, gym passes, getting new makeup, going to see a movie, weekend trips, or even getting new clothes or shoes.

Does The 50/40/10 Budget Work?

This can work if someone has a large enough income and is willing to live within their means. When considering the average salary and living cost for an American, it seems feasible. The average weekly income can be around $900-$2,000 dollars. This equates to about $3,600-$8,000 dollars a month

On the other hand, the average cost of living for an individual in the United States is around $2,112 dollars a month. This number jumps substantially when considering families with two children. A family of four has a living cost of about $4,790 dollars a month.

By doing some basic math, a person who only makes $3,600 dollars a month and has a monthly living cost of $2,112 dollars is spending $58.66 percent of their income on needs. However, if that same individual made $8,000 dollars a month, they would spend 26.4 percent of their income on needs. Ultimately, it is all about doing the math with personal finances to see if it would work.

Another option to consider is doing the math with your personal finances to decide how much you can spend on rent and living costs to start living within this budget. People with a monthly income of $3,600 could at max spend $1,800 dollars max on their needs.

The 50/40/10 budget can work well for some people, but its effectiveness depends on individual circumstances and financial goals. Here are some factors to consider:

  1. Income level: The 50/40/10 rule may work well for people with a steady income that is sufficient to cover their needs, wants, and savings goals. However, those with a lower income may need to allocate a larger percentage to needs and a smaller percentage to savings and wants to make ends meet.
  2. Debt: If you have a significant amount of debt, you may need to adjust the percentages to allocate more money toward paying off your debts, which can help reduce interest charges and improve your financial health.
  3. Savings goals: The 40% savings allocation may be too much for some of us. Depending on your financial goals, you may need to allocate less toward savings to achieve your other goals.
  4. Lifestyle preferences: The 10% allocation for wants may not be enough for people who value experiences and entertainment. In this case, adjusting the percentages may be necessary to accommodate lifestyle preferences.

The 50/40/10 budget can be effective for people with a steady income and manageable expenses. However, it’s important to tailor the budget to your individual circumstances and goals and adjust the percentages as necessary. It’s also crucial to track your spending and adjust your budget as needed to ensure that you’re staying within your means and making progress toward your financial goals.

Is The 50/40/10 Budget Realistic?

The majority of Americans reported living paycheck to paycheck in early 2022. This is one statistic that points out how unrealistic this budget can be for most people. 

The 50/40/10 budget can be a realistic budget for some people, but it’s important to evaluate your individual circumstances and adjust the percentages as necessary to ensure that you’re living within your means and making progress toward your financial goals. 

It’s also important to be flexible and adjust your budget as needed to account for unexpected expenses and changes in your circumstances.

Advantages and Disadvantages of The 50/40/10 Budget

There are some clear advantages and disadvantages. 

Advantages of the 50/40/10 budget:

  • Simple and easy to follow: The 50/40/10 budget is a straightforward budgeting strategy that is easy to understand and implement.
  • Encourages saving: The 40% savings allocation helps individuals prioritize saving and building wealth.
  • Provides flexibility: The 50/40/10 budget is a flexible guideline that can be adjusted to fit individual circumstances and goals.
  • Helps prioritize spending: The budget can help individuals prioritize spending by allocating a specific percentage of their income to needs and wants.

Disadvantages of the 50/40/10 budget:

  • May not be realistic for everyone: The 50/40/10 budget may not work for individuals with a low income or those living in high-cost areas.
  • Does not account for individual circumstances: The budget may not take into account individual circumstances, such as debt or medical expenses.
  • May not accommodate lifestyle preferences: The 10% allocation for wants may not be enough for individuals who value experiences and entertainment.
  • Does not consider inflation: The budget may not account for inflation, which can impact the cost of living and increase expenses over time.

The 50/40/10 budget can be a helpful budgeting strategy for some people, but it’s important to consider individual circumstances and goals. While the budget provides a flexible guideline for prioritizing spending and saving, it may not work for everyone and may need to be adjusted or supplemented with other budgeting strategies.