The 50/30/20 Rule Explained — And Whether It Actually Works

If you've spent any time reading about budgeting, you've probably seen the 50/30/20 rule. It's one of those pieces of financial advice that gets repeated so often it starts to feel like gospel.

The idea is simple: spend 50% of your after-tax income on needs, 30% on wants, and 20% on savings and debt payoff. Clean. Tidy. Easy to remember.

But here's the thing — I live in Denver, and "50% on needs" stopped being realistic around 2021.

How the 50/30/20 Rule Works

Let me break it down with real numbers. Say your take-home pay is $4,000 per month:

• Needs (50% = $2,000): Rent, utilities, groceries, insurance, minimum debt payments, transportation
• Wants (30% = $1,200): Dining out, entertainment, subscriptions, hobbies, that oat milk latte habit
• Savings & Debt (20% = $800): Emergency fund, retirement contributions, extra debt payments

On paper, this is great. In practice, it depends a lot on where you live and what your life looks like.

Where It Falls Apart

If you're renting a one-bedroom apartment in Denver right now, you're probably paying somewhere between $1,500 and $2,000. That's already 37-50% of a $4,000 take-home — and that's just rent, before utilities, groceries, insurance, or anything else.

For a lot of people — especially in higher cost-of-living cities — the "50% on needs" bucket is more like 60-70% by the time you add it all up. That doesn't mean you're bad with money. It means the math was designed for a different cost structure.

Why It's Still Useful as a Starting Point

Despite its limitations, I think the 50/30/20 rule is valuable as a framework — not as a strict target.

Here's what it gets right:

It forces you to categorize. Just the act of dividing your spending into needs, wants, and savings makes you more aware of where your money goes. That awareness matters more than hitting exact percentages.

It gives you a benchmark. Even if you can't hit 50/30/20 exactly, knowing how far off you are tells you something useful. If your needs are eating 70% of your income, that's important information — it might mean it's time to look at housing, insurance, or other big fixed costs.

It's a conversation starter with yourself. The first time I categorized my spending this way, I realized I was spending way more on "wants" than I thought — and way less on savings. That realization started the whole process for me.

My Adjusted Version

After trying the classic 50/30/20 and finding it didn't fit my Denver budget, I adjusted:

• Needs: 60% — Realistic for my rent and cost of living
• Wants: 20% — Trimmed but not eliminated (between hiking season and ski season, my discretionary spending fluctuates more than I'd like)
• Savings & Debt: 20% — Kept this the same because it's non-negotiable for me

Is it perfect? No. But it's honest, and it actually matches my real life. A budget that reflects reality is infinitely more useful than one that makes you feel like you're failing every month.

Should You Use It?

The 50/30/20 rule is a solid starting point if you've never budgeted before. It gives you structure without being overwhelming. Use it as a starting line, not a finish line.

If the numbers don't work for your situation, adjust them. The percentages aren't sacred — the habit of thinking about your money in categories is what matters.

And if you want to go deeper than percentages, a budgeting app like YNAB takes this concept and gives you much more granular control. I cover that and other options on my resources page.