The 50/30/20 rule allocates your after-tax income into three categories: 50% for needs (housing, utilities, groceries, insurance), 30% for wants (dining, entertainment, hobbies), and 20% for savings and debt repayment. It was popularized by Senator Elizabeth Warren in "All Your Worth."

Financial experts recommend saving at least 20% of your income. This includes retirement contributions (10-15%), emergency fund (until you have 3-6 months of expenses), and other goals. If 20% isn't feasible, start with what you can and gradually increase.

Needs: Essential expenses you cannot avoid—housing, utilities, basic groceries, transportation to work, insurance, minimum debt payments. Wants: Non-essential items that improve quality of life—dining out, streaming services, vacations, gym memberships, premium phone plans.

Most experts recommend 3-6 months of essential expenses. If you have variable income, job instability, or are self-employed, aim for 6-12 months. Start with a $1,000 mini emergency fund, then build to your full target. Keep it in a high-yield savings account.

Build a $1,000 emergency fund first to avoid new debt. Then focus on high-interest debt (credit cards) using avalanche (highest interest first) or snowball (smallest balance first) method. Simultaneously contribute enough to get 401(k) match. Once high-interest debt is gone, max out savings.

In high cost-of-living areas, needs often exceed 50%. Options: use 70/20/10 rule, find ways to reduce fixed costs (roommate, cheaper housing, refinance), increase income through side gigs, or temporarily reduce wants category. The key is maintaining some savings rate.

Tips: Automate savings first (pay yourself first), use cash envelopes for discretionary spending, track expenses weekly, set specific spending limits per category, build in small rewards, review and adjust monthly. Use budgeting apps to track in real-time.

Work with after-tax (net) income for simplicity. If self-employed, set aside 25-30% of gross income for taxes before budgeting the rest. Federal, state taxes, and FICA are already deducted from W-2 wages, so use your take-home pay as your baseline.

Weekly: quick 5-minute check on spending. Monthly: full review and adjustment. Quarterly: evaluate progress toward goals. Annually: major review considering life changes, salary changes, and new goals. Adjust whenever major life events occur (job change, marriage, baby).

Zero-based budgeting means every dollar of income is assigned a purpose until you reach $0. Income minus all expenses and savings equals zero. This method provides maximum control and awareness. Popular apps like YNAB (You Need A Budget) use this approach.