While major things like rent or mortgage, car payments, and groceries often have the biggest impact on wallets, creating a comprehensive budget can help you gain more control over your spending and, hopefully, achieve your financial goals. So how do you choose the right budgeting approach for you and your family? One strategy you might want to consider is the 50-30-20 budget. This percentage-based budgeting approach is designed to be intuitive and easy to stick to by allocating specific percentages of income into buckets:

3 main expense categories 

With the 50-30-20 budget, you split your household income to one of three main spending categories:

1. Needs — The 50-30-20 rule dictates that you devote 50% of your income to this category. Needs are things like housing, utilities, food, clothing, insurance, and transportation.
2. Wants —You’ll devote 30% of your income to this category. Wants are things like entertainment, restaurants, vacations, recreation and hobbies, and non-essential items such as big-screen TVs, audio systems, boats and motorcycles.
3. Savings — You’ll devote the remaining 20% of your income to savings. This includes savings to meet both short- and long-term goals. It may also include debt repayment (other than a home mortgage, which should be considered housing and included in the needs category).

Distinguishing between wants and needs

While these expense categories may seem clear, there are some expenses that can bleed over from one category to another. Take clothing, for example. There’s clearly a big difference between buying basic clothes and designer clothing at a high-end boutique. The former would be considered a need while the latter would be considered a want.

Cars are another example. Unless you live in an area where you can reasonably get around via public transportation, you probably need a vehicle. A practical, dependable car could be considered a need, while a luxury, high-end vehicle could be considered a want.

Don’t get too hung up on these kinds of distinctions. Decide in which category each of your household expenses fits best and go with that. You can always make adjustments later.

The savings buckets

One of the biggest advantages of using a percentage-based budget like the 50-30-20 rule is that it devotes a fixed percentage of your income to savings. Other budgeting systems can tend to just make “savings” whatever is left after you’ve met your needs and wants.

With the 50-30-20 method, savings can be further divided into two distinct sub-buckets: Short-term savings and long-term savings.

Short-term savings

Short-term savings may include an emergency fund, a planned surgery or medical procedure, or saving for a down payment on a car in the near-term. Conventional wisdom suggests having between three to six months of expenses set aside for an emergency fund.

Emergency funds are meant to serve as a safety net to pay for unexpected expenses like a major car or home repair, or to carry you over during an unexpected time of unemployment. Building an emergency savings account is considered a fundamental pillar of a successful financial plan.

Long-term savings

Conversely, saving for retirement or your children’s college education is usually considered a long-term savings and investing goal. You might use tax-advantaged accounts such as a Roth IRA, 401(k), or 529 plan to help you meet these objectives. The amount you allocate to long-term saving and investing depends on personal circumstances and goals.

If you can’t devote 20% of your household income to savings right away, don’t let that stop you from adopting a percentage-based budget like the 50-30-20 budget.

Start off with a savings percentage that’s realistic for you and adjust the formula accordingly. For example, a 60-30-10 budget might work better for you now, with the goal of gradually building your savings to 20%.

Getting started

Resources like Empower’s free online tools can help you implement a 50-30-20 budget.  by offering a holistic view of your overall household finances in one central location. This is the first step to creating any kind of budget. From there, you can start allocating income to the 50-30-20 expense categories and make adjustments as necessary to work toward the right percentages for your circumstances.