Monthly budget calculator: 50/30/20

A budget calculator helps you understand how much of your spending should be allocated to three different areas: needs, wants and savings. Use this free tool to gain clarity on your cash flow, and you’ll have a leg up on the nearly 75% of households that don’t follow a budget. 

The 50/30/20 budget calculator 

Plug in your monthly income, after taxes, and our calculator will let you know how much you should spend on needs (50%), wants (30%) and savings (20%). 

The 50/30/20 budget rule: explained

The 50/30/20 rule, which was popularized by Massachusetts U.S. Sen. Elizabeth Warren, recommends distributing your spending in a way that helps you live within your means. It’s not the strictest personal finance rule out there, since you’ll still be able to allocate a good portion of your spending towards pleasurable ends. 

Instead, it gives you the ability to find a balance between fun purchases and your longer-term obligations, which includes your retirement. 

How to use the 50/30/20 budget calculator

Type in your net income, which is your pay after taxes. If you have automatic deductions to employer-sponsored healthcare and retirement, add those amounts back in for the purposes of the calculator. After all, your health care (necessity) and retirement (savings) need to be accounted for.   

Hit “calculate” and you’ll see how much you can spend on needs, wants and savings. 

Of course, the next question is: what exactly counts as a necessity, want and saving? 

What counts as a necessity?

Here are some common items in the necessity category: 

• Housing. Rent, mortgage, property insurance, property taxes, homeowners association fees. 
• Utilities. Electricity, water, gas, sewer, phone, internet.
• Transportation. Car loan, insurance, gas, public transportation. 
• Health. Insurance payments, copays, out-of-pocket costs.
• Dependent care. Childcare, elderly care.
• Food. Groceries, pet food.
• Household maintenance. Cleaning, repairs, replacements, lawn care.

These are the things that you can’t live without. If you discover that you are typically spending too much on necessities, you’re probably living in a home you can’t afford and you may want to consider downsizing. 

What counts as a want?

• Leisure activities. Dining out, concerts, sporting events, vacations. 
• Gifts and donations. Charitable donations and presents for birthdays, anniversaries, holidays. 
• Personal care. Gym memberships, hobbies, grooming, clothing.

These are the items that give you joy, but are essentially luxuries. If you’re spending more than 30% of your after-tax income in this category, you’re living beyond your means. Cutting back, of course, is easier said than done; lifestyle creep is real. Nevertheless, you need to develop a bit of discipline in order to meet your long term goals. 

What counts as savings and debt repayment?

• Cash (and cash equivalents). Your checking and savings account.
• Investments. Brokerage account funds, bonds, retirement.
• Debt repayment. Unsecured debt, credit cards, student loans, payday loans.

Allocating more than 20% of your after-tax income to this category can be a good sign, or an ominous development. 

In an ideal world, all of this “spending” would go towards building up your emergency, saving for a big purchase and your retirement. In the real world, though, debt exists and you have to service it. 

If you’re spending more than 20% in this category, and it’s not all on savings, then you need to work down your debt. Start by attacking the lowest balance account, or the one charging the highest interest rate. Either way, stick to your plan to build up momentum. That will help you refocus on the “savings” part.  

Different real-life scenarios where a budget calculator can help

When your income increases

When you make more money, resist the urge to increase your “wants” spending accordingly. Add in the new income to your budget calculator and look for the best way to allocate it. If you’re low on “savings,” for instance, start there. One rule of thumb to consider, per financial planner Michael Kitces, is to save half of every raise. That way you don’t get used to living on a higher income now, and reduce how much you need to save for retirement. 

When your paycheck decreases

Don’t panic if your income drops. Rather, now is the time to inspect your budget in detail to see where you can cut back. 

• Wants. Here, you should do things you know you need to, but don’t necessarily want to. That is, dining in instead of eating out. Fewer trips to the movies, delayed vacations and the like. 
• Savings and debt repayment. Contact your lenders to determine if there are available hardship programs, such as student loan deferment. As a last resort, pause your savings but be sure to restart them as soon as you’re back on your feet.  
• Necessities. Decreasing these costs can be the most difficult as they’re typically the largest and usually involve contracts like apartment leases and car loans. However, because they’re large, decreasing one of these costs can have a big effect. There are temporary ways to cut costs here, such as getting a roommate, and longer-lasting ones like downgrading your car. 

When a new recurring expense comes up

If you take out a new loan or have a large, recurring expense, like a medical bill or a new baby, a budget calculator can help you account for the new cost and build a financial structure that doesn’t forget about things like savings. If you know the cost is coming up, the calculator can help you plan for it and, after the cost is added, you can use the calculator to help you keep on track by checking your actual cash flow against the recommended 50/30/20 goal. 

What other calculators can help with financial planning?  

Savings calculator

Whether you want to build up your rainy-day fund with a high-yield savings account or you have a dream home in mind, a savings calculator can help you figure out several things, including:

• How much you need to save each month to reach a savings goal by a set time.
• The impact different APYs have on your savings. 
• The amount of savings you’ll build over time.

CD calculator

A cousin to traditional savings accounts, certificates of deposit (CDs) are one of the safest types of investments you can make. But they’re not liquid; your money is tied up for however long the CD term is.  

A CD calculator will show how much interest you’ll earn over the term so you can compare various terms and APYs, and decide if it’s right for you.