If you’ve ever looked at your financial goals and wondered how you were going to achieve them all — save for retirement, pay off student loans, cover the mortgage, and go on that much-needed vacation — then you are in good company.

Most of our financial and life goals involve saving up money, and yet, according to the Bureau of Economic Analysis, the average American saves just over 6% of their annual income.In addition, nearly half of all non-retired Americans believe they won’t have enough money to enjoy their golden years.2

Sound familiar? If so, a budgeting rule-of-thumb introduced by Harvard bankruptcy expert (and Massachusetts Senator) Elizabeth Warren and her daughter Amelia Warren Tyagi in their 2005 book, “All Your Worth: The Ultimate Life Money Plan” may very well set you up for life.

In fact, the mother-daughter team’s 50/20/30 Rule is now often widely touted by experts as an optimal way to slice your financial pie.

So, how does it work? Read on to take a look at the breakdown and pick up tips on putting it into practice.

Simplify Your Savings Strategy with the 50/20/30 Budget

50%: Your Needs

Half of your paycheck is set aside for living expenses and necessities.

This includes items such as:

  • Housing (rent and mortgage)
  • Utilities
  • Groceries
  • Prescription medications
  • Transportation
  • Minimum payment on your credit card

20%: Your Savings and Debt

The next 20% of your paycheck is for short- and long-term financial goals. Simply put, paying off the past and investing in the future. Consider this portion your safety net —a cushion in case expenses unexpectedly rise or an emergency happens.

In particular, you’ll want to allot portions of these funds to:

  • Saving for retirement
  • Financial planning products in the event of the unexpected (such as life insurance)
  • Investments
  • Debt repayments (student loans and credit card payments)

30%: Your Wants

The remaining 30% is for flexible spending. That is, all the stuff you don’t actually need — say, for example, dinners out or a trip to the Tetons—but would like to have.

The list may also include:

  • Vacations
  • Shopping sprees
  • Entertainment and dining out
  • Discretionary spending

Working the Numbers

These numbers aren’t set in stone. It’s a baseline. For example, instead of allocating 20% of your income toward the repayment of your credit cards, you may choose to bump that number to 25%. You’ll pay those cards off faster, which will make more space for the attainment of other, loftier financial goals. The same goes for the down payment on a home, a child’s tuition, or a long-term retirement goal.

Here’s how to do it:

Step 1: Start with the end in mind.

Take the time to codify your financial goals. Do you want to travel to Spain? Send a child to college? Retire early? Knowing your goals — including the cost of each — can set your budget in a way that helps increase your chances of success.

Pro tip: Put your goals in writing and create a timeline for the completion of each. The timeline will give you the power to measure progress as you work toward what can often be a long-term financial commitment.  

Step 2: Make the 50/20/30 Rule work for you.

If you have aggressive financial goals, you may want to save more of your income. If you expect to have access to a pension, Social Security benefits, or another type of annuitized pay-out, you may need less. Think about your specific situation and allocate your funds in a way that’s personalized for you.

Pro tip: Not sure what life stage you’re in? Learn more about major financial milestones. A financial professional can also help you understand what’s best for your particular situation.

Step 1: Make a habit.

Once you establish your financial goals, set up an automated savings plan to help keep you on track. According to a 2013 study conducted by the Center for Retirement Research, 85% of us are “passive savers” — that is, those who spend based on what’s available in their bank account .3 Make less money available and most savers will automatically spend less, increasing the likelihood that you reach your goals.

Pro tip: Your 401k is a great option for long-term retirement saving; but for shorter-term goals, your bank may be more useful. You can ask your bank to automatically move a specified amount from your checking to savings account each payday. The perks are two-fold: You’ll automatically boost your savings while decreasing the likelihood you’ll dip into easily accessible funds.

The 50/20/30 Rule can help a saver meet their current financial commitments while setting aside what’s needed for the future — and even earmark funds for a little fun now and then. You can increase your chances of success by using our tips: know the timeline and the cost of your goals, personalize it for your specific needs and automate your saving to help you stay the course.


This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only. 


Bureau of Economic Analysis. (2019, March 1). Personal saving rate. Retrieved from https://www.bea.gov/data/income-saving/personal-saving-rate

2 Newport, F. (2018, May 9). Update: Americans' concerns about retirement persist. Gallup.com. Retrieved from https://news.gallup.com/poll/233861/update-americans-concerns-retirement-persist.aspx

3 Chetty, R., Friedman, J.N., Leth-Petersen, S. et al. (2013). Subsidies vs. nudges: Which policies increase saving the most? Center for Retirement Research of Boston College. 13-3. Retrieved from http://crr.bc.edu/wp-content/uploads/2013/03/IB_13-3-508.pdf