The formula
50% needs · 30% wants · 20% savings and debt repayment
Where it comes from
The rule splits take-home pay into three buckets so you never have to track every individual expense. Needs are what you cannot skip: rent, food, transport, insurance. Wants are everything you choose. The last fifth goes to savings or to paying down debt faster than required.
How to work it out by hand
- Start from take-home pay, not gross
- Take half of it for needs
- Take 30% for wants
- Put the remaining 20% into savings or extra debt payments
What is worth knowing
The rule works because it is coarse enough to keep to. Its weak point is housing: in expensive cities rent alone eats the whole 50%, and then the honest move is to admit the split does not fit rather than reclassify things as wants. Two details that decide whether it works. The 20% goes first, on payday, not with whatever survives the month. And debt above roughly 7% interest belongs in that 20% before any saving does, because paying it off is a guaranteed return you will not beat elsewhere.