Build a monthly budget by category and see your surplus against the 50/30/20 rule.
The 50/30/20 rule provides a quick benchmark: 50% of after-tax income to needs (housing, food, transportation, insurance, minimum debt payments), 30% to wants (dining, entertainment, hobbies), and 20% to saving and debt repayment above minimums. It's a guideline, not a law — high-cost-of-living cities may require different splits. The key output is the monthly surplus: if it's positive, you have room to accelerate savings; if negative, you need to cut spending.
50/30/20 targets
Needs ≤ 50% of income, Wants ≤ 30%, Savings ≥ 20%
Monthly surplus
Surplus = Income − (Needs + Wants + Savings)
Needs are non-negotiable expenses required to live and work: rent/mortgage, utilities, basic food, health insurance, minimum debt payments, and transportation to your job. Wants are lifestyle choices you could reduce if necessary: dining out, subscriptions, travel, hobbies. The line isn't always clear — a car can be a need in some cities and a want in others.
In high-cost cities (San Francisco, NYC, London), housing alone can exceed 40% of income. Many financial planners adapt the rule to 60/20/20 or 65/20/15 when costs force it. The key is still to track all three buckets and maximise savings within your constraints.
First: build 3–6 months of expenses as an emergency fund. Second: maximise employer 401(k) match (it's an instant 50–100% return). Third: pay off high-interest debt (above ~6% APR). Then invest in tax-advantaged accounts (Roth IRA, maxing 401k). Only after those should you invest in taxable accounts.
Net (after-tax) income. The 50/30/20 rule is meant to be applied to take-home pay — money you can actually spend. Gross income includes taxes you never see. Enter the amount deposited to your bank account each month.