The 50/30/20 rule is a simple budgeting method that helps Canadians divide after‑tax income into three easy categories: 50% needs, 30% wants, and 20% savings/debt repayment. This quick framework is helpful for chequing-to-chequing households, those new to budgeting, and anyone who wants a straightforward starting plan.
What the 50/30/20 rule means
50% Needs — essential costs you must pay: rent or mortgage, groceries, utilities, basic transportation, minimum loan payments, and required insurance.
30% Wants — non‑essentials that improve quality of life: dining out, streaming subscriptions, travel, hobbies, and premium cable or cell plans.
20% Savings & Debt Repayment — building financial security: emergency savings, RRSP/TFSA contributions, extra mortgage or consumer debt payments.
Why it works in Canada
The rule uses after‑tax income, which makes it practical for Canadians since personal tax, CPP, and EI affect take‑home pay.
It's flexible: you can adapt the percentages if housing in your city is expensive (Toronto, Vancouver) or if you have irregular income.
It pairs well with Canadian accounts like RRSPs, TFSAs, RESPs and government benefits planning (CPP/OAS).
Step‑by‑step: how to set up the 50/30/20 budget
Calculate monthly after‑tax income. Use your net pay or average monthly deposits if self‑employed. Check totals in CRA My Account or recent pay stubs.
List and total your monthly expenses. Track two to three months of bank and card statements to capture typical spending.
Allocate to 50/30/20 buckets. Apply the percentages to your after‑tax income to get dollar targets.
Compare actual spending to targets. Move expenses into categories and see where you're off.
Adjust and automate. Set up pre-authorized transfers to TFSA/RRSP or automatic bill payments from your chequing account.
Practical examples (rounded, Canada)
After‑tax income: $4,000/month
Needs (50%): $2,000 — rent, transit pass, utilities, groceries.
Wants (30%): $1,200 — restaurants, subscriptions, gym.
Savings/debt (20%): $800 — TFSA contributions, extra credit card payments.
After‑tax income: $3,000/month (high rent city)
Needs may exceed 50%; you can reduce Wants to 15–20% and shift 10–15% to Needs and/or Savings depending on goals.
Adapting the rule for Canadian realities
Taxes and deductions: Use net income. For self‑employed people, consider setting aside a portion of gross for taxes.
Housing crunch: In high‑cost markets, follow a flexible split (e.g., 60/20/20 or 55/25/20) or prioritise reducing housing costs (co‑housing, roommates) to protect savings.
Debt types: Prioritise high‑interest consumer debt (credit cards, payday loans) within the 20% savings/debt bucket.
Saving vehicles: Use the 20% to fund a TFSA (tax‑free growth), RRSP (income tax shelter), or RESP (for children). See CRA - TFSA information and CRA - RRSP basics.
Tips for irregular income or gig workers
Find an average monthly net income by reviewing the last 12 months.
Build a larger emergency fund (3–6 months or more) because income variability raises risk.
Prioritise a tax reserve — hold back ~25–30% of freelance receipts, or a percentage based on past tax bills.
Use tiers: During high‑income months, funnel excess into savings; during lean months, draw from the emergency fund.
Common mistakes and how to avoid them
Categorising incorrectly. (Is internet a need or a want? If you work from home, consider it a need.)
Not accounting for irregular bills. Create a monthly "sinking fund" for yearly insurance, taxes, or vehicle registration.
Ignoring inflation and cost increases. Revisit your budget every 6–12 months and update allocations.
Quick checklist before you start
Track 2–3 months of spending.
Confirm after‑tax monthly income in CRA My Account.
Set automatic transfers to TFSA/RRSP and bills.
Use the FCAC Budget Planner to visualise categories.
Final thoughts
The 50/30/20 rule is a simple budgeting method Canada‑friendly and fast to implement. It won't be perfect for every household, but it creates discipline and clarity. Start with the rule, measure results, and tweak percentages to match your goals — whether that's buying a home with CMHC guidance (CMHC — homebuying resources) or building TFSA savings for the long term.