We recently conducted a survey and discovered that 52% of respondents do not currently budget. But the New Year approaches, we often begin by setting ourselves new financial goals. These goals may include focusing on saving more of your income or aiming to pay off your loan or credit card debt. Regardless of your financial goals, creating a budget can help you control your spending habits to achieve these targets. If you’ve found your budgeting technique hasn’t worked in the past, why not try the 50/30/20 rule?

The 50/30/20 budget rule is a way to distribute your money accordingly, focusing on your wants, needs and financial goals. Let’s breakdown how you can create a 50/30/20 budget in 2021.


What Is The 50/30/20 Budget Rule?


Suppose you’re searching for a way to budget without having to track each of your transactions in detailed categories. If this sounds like you, the 50/30/20 budgeting rule is your answer. The 50/30/20 budget requires you to divide and track your expenses using three main categories: needs, wants, and financial goals – which could be saving or debt reduction. Using these three categories will help you decide the importance of certain expenses and the flexibility of others. In time, this technique will help you reduce the amount of time you spend detailing your finances and allow you to concentrate on reaching your financial goals.

But how do you decide which expense goes in what category? First, you’ll need to calculate your after-tax income – your net income should be on your paystub. Your net income may include deductions such as your health insurance and retirement contributions. You can add these deductions back into your net income when creating your budget to help you keep track of what you’re contributing.

Once you’ve figured out your after-tax income, you’ll need to begin allocating 50% of your income for your needs, 30% for your wants, and 20% for debt payments or savings expenditures. Let’s learn what each category means.


50/30/20 budget rule

50% Income – “I need..”

Needs are bills that you must pay and are necessary for survival. These bills generally are fixed expenses and don’t change too much month-to-month. These include rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities. These are all items you couldn’t live without and are essential for your life. Half of your income should go towards these needs. If you find yourself spending more than 50%, you should consider cutting down your wants or flexible expenses.

Even though we all “need” to relax with Netflix, listen to music on Spotify, or go out for a meal every so often, these are not necessities. Here’s a list of some examples of what expenses fall into the “needs” category:

  • Rent / Mortgage Payment
  • Food and Grocery Shopping
  • Electricity Bill
  • Water Bill


30% Income – “I want..”

Wants are all those things that you tend to spend money on but are not essential for survival. For example, this could be going out for dinner, vacations, tickets to sporting events, new gadgets, or that new pair of shoes. Everything in this category is optional and personal to your lifestyle. Basically, wants are extra things that make your life more entertaining or more enjoyable.

But these can always be cut down and replaced with a more budget-friendly option. For example, you could reduce your dining out budget and eat your evening meals at home instead. You could also swap your gym membership for a cheaper alternative, such as a smartphone workout app. Why not even try doing your daily HIIT or Yoga from a free YouTube video? Here are some examples of “wants”:

  • Gym Membership (Yoga, HIIT, Barre, Pilates, Boxing)
  • Staycations and Vacations
  • Dining Out or Movie Theatre Trips
  • Spotify, Netflix, Hulu, Crave or any other streaming service.


20% Income – Savings

Lastly, you should assign 20% of your net income to savings or investing. This category is essential and often overlooked. Saving 20% of your income can help you put money towards an emergency fund in a bank savings account, saving towards RRSP or RESP, or even investing in the stock market. Having a savings account can help ensure you stay prepared for anything that life throws your way in these uncertain times.

You should have at least three months of emergency savings on hand if you lose your job or an unforeseen event occurs. After that, focus on retirement and meeting other financial goals down the road. Some of the financial goals may include:

  • Making extra debt payments (not including your minimum payment, that would be a “need”)
  • Saving for your emergency fund
  • Saving for a rainy day or vacation fund
  • Tip: If you have a side gig, you can also put this towards your savings too!


Why Should You Allocate Income for Savings?


One of those most overlooked, and important categories to consider when creating a budget, is saving. In a recent Marble survey, we discovered that 68% of Canadians were not prepared financially for COVID-19. This means many people didn’t have savings set aside when the COVID-19 pandemic hit. To avoid being unprepared for unexpected and unprecedented times, it’s vital to actively add money to your savings account to ensure you’re not left stressed. 

Allocating income towards your savings will also help if sudden job loss occurs, car mechanical problems, an unexpected house maintenance issue, or any general family emergency. Having savings aside can also help if you need to quickly clear an overdraft or pay extra off your loan and credit card debt payments.


Budget Template: 50/30/20

If you’re ready to begin budgeting using the 50/30/20 technique, it’s essential to be prepared and do your calculations correctly. Firstly, it’s crucial to write down exactly how much money you have allocated for each category based on your income. If you live with a partner and share the expenses, you can combine your income here, too. From here, you can then decide how much money goes towards your needs, wants and savings collectively.

Here is a quick template for you to use to help calculate your budget:

Total Monthly Income $3000 
Needs: $3000 X 0.50 $1500
Wants: $3000 X 0.30 $900
Savings: $3000 X 0.20 $600


How To Keep Track Of Your Spending While On A Budget

You’re one step closer to having a budget that functions like clockwork. But you’re probably wondering, how do you keep track of your spending and ensure you’re staying on course? Well, there are many ways you can make sure you’re not going overboard on your spending. Firstly, you can track your expenses on your phone or an excel sheet. These two ways stand the test of time (alongside the traditional pen and paper method). But suppose you’re looking for a way to track your spending habits and trends. In that case, Marble offers a free personal finance software that connects to your bank account and shows you your monthly reports. You can find out more about MyMarble here.


The Bottom Line

If you want to create a budget but prefer a simple approach to keep your financial fitness in check, the 50/30/20 budget is for you. Since there are only three main categories for you to track, it helps you avoid breaking down every category as you would in an average budget.

It’s important to note that sometimes the 50/30/20 budget may not suit you. For example, in areas where the cost of living is high, these categories may not serve you well.

Keep in mind, though, that you can adjust the rule for your particular needs by changing the percentages to match your situation and financial goals. For example, you could try a 70/20/10 budget by applying the same principles with different percentages of your total income. Otherwise, if this is still not working for you, there are plenty of great budgeting techniques available to help you keep your financial health in check.