Method
The 50/30/20 rule, explained simply
Three numbers instead of a thirty-row spreadsheet. That is what makes it strong, and also what makes it wrong for a lot of people.
The rule in one sentence
On what actually lands in your account each month: 50% for needs, 30% for wants, 20% for savings and paying down debt.
It was popularised in 2005 by Elizabeth Warren, then a law professor at Harvard, in a book written with her daughter Amelia Warren Tyagi. Their observation: detailed budgets fail because nobody keeps them. Three numbers, on the other hand, stick in your head.
What goes in each share
50% — needs
What you would still pay if you never went out again: rent, bills, health cover, basic groceries, the commute to work.
30% — wants
Restaurants, nights out, clothes, subscriptions, travel. Everything that makes life pleasant and that you could cut without putting yourself at risk.
20% — savings
The emergency fund first, then projects and your pension. Paying off debt beyond the minimum counts here, not under needs.
The classic trap
Filing a gym membership under « needs » because you care about it. The test: does it carry on if you lose your job tomorrow?
On which income?
On your take-home pay — what actually reaches the account once contributions and tax are gone. Applied to your gross salary, the rule promises savings that do not exist.
If you pay your tax separately, take it out first and apply the rule to what is left. Otherwise the 20% goes straight to the tax bill.
An example, in numbers
A take-home income of 4,200 CHF a month:
| Needs (50%) | 2,100.— |
| Wants (30%) | 1,260.— |
| Savings (20%) | 840.— |
| Total | 4,200.— |
With rent at 1,600 CHF and 380 CHF of health cover, needs are already at 1,980 CHF before the first food shop. That leaves 120 CHF for every other need of the month. This is where the rule cracks.
Why it doesn't hold everywhere
The rule was written for the United States of the early 2000s. Three situations break it:
- High rents. In London, Dublin or Zurich, 50% on needs is out of reach for a lot of people. The honest figure is closer to 60 or 70%.
- Irregular income. A percentage of an amount that changes every month gives you no stable reference point.
- Very low incomes. Below a certain threshold, needs eat everything and the percentages become a joke.
The right way to use it: as a direction, not a law. 65/20/15 kept for a year is worth infinitely more than 50/30/20 abandoned in three weeks. What matters is that the savings share exists and that it leaves first.
50/30/20 or kakeibo?
The two methods do different jobs. The rule sets a frame: three proportions, decided once. The kakeibo builds a habit: every month you decide what to set aside, and you write your spending down by hand.
The rule tells you where to aim. The kakeibo makes you stick to it. Nothing stops you doing both: aim for 20% saved, and check it every Sunday.
Common questions
Gross or net?
Net. What actually reaches your account, once contributions and tax are gone.
Does rent go in the 50%?
Yes, along with bills, health cover, basic groceries and the commute to work.
What if my needs already exceed 50%?
That is the case for a lot of people in expensive cities. Keep the proportions as a direction and adjust: what matters is that the savings share exists.
Is paying off a loan a need or savings?
The minimum monthly payment is a need. Anything you repay beyond that counts as savings: it is debt removed.
Where does this rule come from?
From a book by Elizabeth Warren and Amelia Warren Tyagi, published in 2005. The idea: replace thirty-row budgets with three numbers you can remember.
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Method
Kakeibo: the Japanese method for keeping a budget
A notebook, four questions, and the habit of looking your money in the eye. Invented in 1904, and still valid.
Aim for 20%, and actually see it
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