Foundations of a Strong Budget: Part 3 – Finding Balance with the 50/30/20 Rule
So far in this series, we’ve thought about what our true needs are (Part 1) and how wants can sneak into our lives disguised as needs (Part 2). We’ve also talked about how temporarily trading luxury and comfort today can give us more financial freedom to enjoy wants later.
What’s next in building a strong foundation for our budget? The answer is balance. Not just any balance, but balance that works with both our money and the timing of our lives.
The 50/30/20 Framework
In their book All Your Worth1, Elizabeth Warren and Amelia Warren-Tyagi introduced a simple but powerful way to think about budgeting: the 50/30/20 rule.
- 50% Needs – Essentials like housing, utilities, groceries, insurance, and transportation.
- 30% Wants – The extras that bring joy, comfort, or entertainment.
- 20% Savings – Building security through retirement accounts, emergency funds, or paying down debt.
This formula has become a popular benchmark because it’s simple, flexible, and realistic. It doesn’t just say “pay the bills and forget fun.” It recognizes that people need room to live and enjoy life, while still planning responsibly for the future.
Even if 50/30/20 feels like an impossible target right now, it’s something to work towards. Having a framework helps us see where our money is going and where small shifts could make a big difference.
When Needs Take Up Too Much Room
Here’s the challenge: sometimes our needs take up more than 50% of our budget. Maybe rent or mortgage costs are high, or transportation eats up a big portion of income.
When that happens, the extra has to come from somewhere. If needs go beyond 50%, they start cutting into wants. And then wants cut into savings. Before long, we’re left without a cushion. That’s when a car repair, medical bill, or unexpected utility spike forces us to rely on credit cards, overdrafts, or loans.
The 50/30/20 breakdown helps us see the chain reaction. If one piece grows too large, it squeezes out the others.
Re-Examining “Needs” to Create Space
So what do we do when needs creep past 50%? This is where the reflection from Part 2 comes in handy. Often, the “need” itself can be met in less costly ways.
- Transportation: Do we need a brand-new car, or would a safe, reliable used one get us where we need to go?
- Housing: Do we need extra space or upgraded features, or would a simpler home free up more money for savings and long-term goals?
- Food: Are we buying groceries that sustain us, or are we letting takeout and treats inflate the food budget beyond what’s necessary?
By trimming the “want” hidden inside a need, we bring expenses back into balance. It’s not about deprivation; it’s about making choices today that set us up for stability and freedom tomorrow.
Why Balance Matters
The 50/30/20 rule gives us more than numbers. It gives us peace of mind. Needs are covered, wants are enjoyed, and savings are growing. Instead of scrambling when life throws a curveball, we’re ready.
A budget that works isn’t one that just pays the bills. It’s one that gives us confidence today and security for tomorrow.