How the rule works
You take your monthly take-home pay and split it into three pots: half for needs such as rent, groceries, insurance and transportation. 30% for wants such as restaurants, hobbies and streaming. 20% for savings and paying down debt.
Worked example
With $4,000 take-home pay per month, the split looks like this:
| Pot | Share | Amount |
|---|---|---|
| Needs | 50% | $2,000 |
| Wants | 30% | $1,200 |
| Savings and debt payments | 20% | $800 |
When the numbers do not add up
In expensive cities, rent often takes more than half. Then you shift the shares – for example 60/20/20 – and look for room in your wants. What matters is that the savings share does not simply disappear.