50/30/20 Rule: A Budgeting Guideline

At CU Money Sense, we strongly encourage students to create a budget (or a spending plan).  A budget is essential to managing your money; it helps you to know where your money is going and keeps you responsible. However, there are many different ways to create a budget—this blog post will focus on the concept of the 50/20/30 Rule.

budget options

The 50/20/30 Rule is easy because it tells you where you should be spending your money across only three categories: Essential Expenses, Financial Priorities, and Lifestyle Choices.

1. Essential Expenses

According to the rule, no more than 50% of your take-home pay should go toward your essential expenses.  These expenses include housing, utilities, transportation, and groceries.

2. Financial Priorities

Your financial priorities include debt repayments (credit cards, student loans), savings contributions, and retirement savings. Only 20% of your take-home pay should got towards these priorities.

3. Lifestyle Choices

Lifestyle choices can vary greatly and is often the easiest category to blow your budget. This category includes all of your discretionary spending, such as: hobbies, entertainment, travel, gym fees, personal care, eating out, shopping, etc. By allocating 30% of your income, you won’t have to worry or feel guilty about spending this money because it was already budgeted for after you took care of your essential expenses and your financial priorities.

How the 50/30/30 Rule Works in Real Life

Often times as a student, you’re dispersed your financial aid in one lump sum at the beginning of the semester—and that’s all you get. Being able to spread your money out over the semester is crucial for managing your budget. Confused on how to apply this rule to your life? Let’s take a look at a couple of examples:

George, college sophomore, living on-campus

His monthly income (from grants, scholarships, loans, parents): $5800

Monthly Essential Expenses

Tuition and books: $1495

Housing: $1532

Groceries: $0 (meal plan included with housing)

Transportation: $0 (free bus pass)

Total: $3027, which is 52% of monthly income

Monthly Financial Priorities

Credit card payment: $150

Cell phone: $100

Travel Savings Fund: $125

New Car Savings Fund: $100

Club fees: $25

Health insurance: $200

Roth IRA (retirement savings): $200

Total: $900, which is 15.5% of monthly income

Monthly Lifestyle Choices

Total: $1873, which is 32% of monthly income.

Because George is a student, his Essential Expenses are high with tuition and housing, accounting for 52% of his monthly income. Additionally, he doesn’t have very expensive Financial Priorities yet, so that category is lower allowing for a more money to be allocated toward Essential Expenses and Lifestyle Choices. He was still able to use the 50/20/30 Rule by making slight adjustments.


Laura, college senior, living off-campus

Her monthly income (part-time job, grant, loans): $4000

Essential Expenses

Tuition and books: $1495

Rent (shared with two roommates) $350

Utilities: $30

Groceries: $160

Total: $2035, which is 50% of monthly income

Financial Responsibilities

Credit Card Payment #1: $100

Credit Card #2: $150

Cell Phone: $80

Loan payment to parents: $75

Emergency Fund: $100

Travel Savings Fund: $100

Retirement Fund: $200

Total: $805, which is 21% of monthly income

Lifestyle Choices

Total: $1160, which is 29% of monthly income.

Laura came very close to matching her spending according to the rule.

While the 50/30/20 rule might not work for everyone’s budget, the goal for this type of budgeting is to get your spending as close to the rule as you can. For more information about using this budgeting guideline, visit www.learnvest.com.


–Niomi Williams, Financial Literacy Educator

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