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Daily Banking

What is the 50/30/20 rule?

July 21, 2023
min read

How can you tell if you’re spending too much or saving enough? The 50/30/20 rule makes budgeting more approachable.

Woman reviewing financial statements

When you think about budgeting, you probably picture a long list of expenses and a calculator. Maybe you imagine an Excel sheet that takes hours to fill out.

It sounds like a chore, doesn’t it? What if we told you that budgeting could be painless, easy, and quick?

That’s where the 50/30/20 budgeting rule comes into play. It’s budgeting made simple.

The 50/30/20 budgeting rule, popularized by Elizabeth Warren, breaks down like this:

  • 50% of your income goes towards your needs.
  • 30% is used for your wants.
  • And the remaining 20% is put a savings account or used to pay off debt.

Here’s how it works:

Getting started

First, figure out your monthly after-tax income by adding up how much money goes into your chequing account each month.

If you receive 2 paycheques a month, add up the totals of each one.

Then, calculate what 50%, 30%, and 20% of that number is.

Your monthly take-home pay after taxes is $3000.

50% of that is $1500. You can spend $1500 on needs.

30% of that is $600. You can spend $900 on wants.

20% of that is $600. You can use $600 for savings and debt repayments.

50% needs

This is where you budget for the non-negotiable costs of living. Think of it as everything you can’t live without. For example:

  • Housing. Your monthly rent or mortgage payments.
  • Food. Factor in your grocery costs for the month—and remember that takeout food falls within the “wants” category.
  • Insurance. Car insurance, home or tenant insurance, life insurance—all the protection you need for peace of mind.
  • Transportation. How do you get around? Factor in the costs of maintaining your car or using public transportation.
  • Minimum loan payments. If you don’t make the minimum payments on your debts, you could wind up in financial trouble. Anything beyond the minimum falls within the 20% category, which we’ll touch on later.

By spending 50% of your income on needs, you can ensure the essentials are taken care of—and that you have enough money left over for other things, too.

What if your needs exceed 50% of your income?

Consider this: Even if you have to pay for things like utilities or insurance, are there ways you can pay less for them?

Take banking fees for instance. It’s true that you need a bank account—but you don’t need to pay for it every month.

With Unfee, you can bank for free. Just set up a monthly direct deposit, and your fees will be refunded on the first of every month. Open your Cambrian chequing account today!

What’s the difference between a need and a want?

It comes up with any kind of budget: Trying to separate your wants from your needs.

If you’re having trouble telling them apart, try asking yourself: “If I didn’t pay for this, how would it affect my life?”.

There’s no easy answer—sometimes, you need to make tough decisions about what to buy in order to meet your saving goals.

30% wants

It’s important to treat yourself once in a while. But how do you measure whether you’re spending too much on these kinds of purchases?

This is where the 30% part comes in. It’s a way to gauge how much you can spend on “fun” purchases while ensuring you have enough left for essentials and savings.

For reference, some examples of your wants might be…

  • Travel
  • Eating out
  • Entertainment
  • Shopping

If it’s not essential to your life, it probably falls in the wants category.

This is where budgeting gets tricky. It’s hard to turn down something you want—a late night pizza, a brand-new video game, the latest iPhone. But if your wants start exceeding what you spend on needs, you know it’s time to make adjustments.

20% savings & debt

Last but not least: savings & debt.

With this budgeting method, you use the remaining 20% of your income for savings and debt repayment.

This is how you build a better future for yourself—one with less debt and more savings.

A few ways to use your savings include:

  • Emergency fund. An emergency fund ensures that if something goes wrong, you won’t need to borrow money to cover the costs (and then pay interest on the money you borrowed). Instead, you aim to have a readily available sum of money that could cover a few months of expenses.
  • Open a GIC. Curious about our GIC rates? To see how much you could earn, try our GIC Compound Interest Calculator!
  • Paying off loans or credit cards. Every month, you can work your way to a debt-free life. Anything beyond the minimum debt repayments falls within this category.
  • Contribute to your TFSA or RRSP. Save money and save on taxes? That’s what you get when you open a TFSA or RRSP. Use it to save, invest, and grow your money. Learn more about the different types of registered savings plans.

Want to free up more of your budget for savings rather than debt payments? With debt consolidation, you can take out a loan with a lower interest rate. Check out our PayOff Loans.

Is the 50/30/20 rule realistic?

This rule won’t always be a perfect fit—everyone’s financial situation is unique.

At the end of the day, the 50/30/20 rule is a great way to get started with budgeting. You can quickly get your spending in line without taking too much of your time.

If you want to take a more detailed approach, you can use a budgeting app that gives you a more in-depth look at your spending.

What if your needs are more than 50% of your budget? In that case, you can simply shift the other percentages so that it balances out.


Your rent, groceries, utility bills, and minimum debt repayments take up 60% of your monthly income.

In that case, you can still allocate 30% for your wants, and put aside 10% for savings and debt repayment.

When your financial situation changes, you can re-balance your budget to increase your savings.

Navigating your budget

Throw out your pre-conceived notions of what budgeting looks like—we can make it easy! Contact us if you want to get your spending and saving on track. At Cambrian Credit Union, we’re proudly local and member focused.

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