What is the 50/30/20 budgeting rule?

The 50/30/20 rule is a simple way to budget your money. It breaks down your income into three categories: needs (50%), wants (30%) and savings (20%).

This easy-to-follow framework helps you take control of your finances by showing you how to balance your spending and saving. It covers what matters most, without feeling too restrictive.

In this guide, we’ll walk you through how the rule works and show you how it can help you build a more secure and confident financial future.

Needs (50%)

These are the must-haves that keep things running smoothly in your day-to-day life. They tend to be your largest expenses, so they get the biggest portion of your budget. Examples of needs include:

• Mortgage or rent payments
• Minimum loan repayments
• Insurance
• Utilities
• Basic groceries
• Commuting costs

Wants (30%)

Wants are the things you like to spend your money on, but you could manage without them if needed. Realistic budgeting is all about finding a balance that works for you, so the 50/30/20 rule has you allocate around 30% of your income towards things like:

• Days out
• Non-essential groceries
• Subscriptions
• Dining out
• Gigs or festivals
• Holidays

Savings (20%)

Your savings make up a smaller part of your budget under the 50/30/20 rule, but they can make a big difference. With the 20% you put aside each month, you can:

• Build up an emergency fund for unexpected bills or those rainy days
• Pay extra towards your credit cards or loans, helping reduce debt and lower future interest
• Invest in stocks and shares for your longer-term goals
• Save for a specific goal, like a mortgage deposit or even a wedding
• Put money aside for your pension, securing your future

Creating a 50/30/20 budget is a simple way to take control of your finances and set yourself up for financial success. Here’s how it can help:

Keeping it simple

The 50/30/20 rule is straightforward, making it easy to understand and put into practice. You don’t need to be an expert to start. With just a few simple steps, you can budget your income and start managing your finances without complicated calculations.

Focusing on what’s important

A 50/30/20 budget helps you prioritise your most important needs. By setting aside half of your budget for essentials, it’s easier to make sure you’re covering the things that matter most without overspending or falling into debt.

Balancing your budget

By following the 50/30/20 rule, you can manage your money in a balanced and achievable way. It ensures your essential expenses are covered, while still allowing room for fun and saving for the future.

Saving for the future

Allocating 20% of your income to savings helps you build a solid financial foundation. Whether you’re setting up an emergency fund, paying off debt or saving for retirement, you’re setting yourself up to achieve your future goals.

1) Work out your income

Start by looking at how much money you have coming in regularly. This is usually your salary if you’re working. If your income changes from month to month, you can take an average over the last three months. This gives you a clearer picture of what you can plan for.

2) Categorise your spending

Next, take a look at your bank statements for the last three months and work out your average monthly spend. The key is to split your expenses into needs, wants and savings. This makes it easier to see where you might be spending more than you’d like and where you could make adjustments.

3) Compare percentages

Once you know what you’re spending in each area, you can work out the percentage, as follows.

• Divide the amount you spend on needs per month by your monthly income. For example, if you spent £900 on needs: £900 ÷ £1,500 = 0.6
• Multiply that number by 100. For example: 0.6 × 100 = 60%

Then compare your percentages to the 50/30/20 rule targets. In the example above, you’d be slightly over the ‘needs’ target of 50%.

If you’re a little over in one area, that’s fine – the goal isn’t perfection. It’s about having a useful guide to manage your money.

4) Make some adjustments

It’s okay if your spending doesn’t perfectly fit the 50/30/20 rule. But you may be able to make some changes, like cutting back on wants or automating your savings to make sure you hit your goals.

And if an unexpected expense throws off your budget one month, don’t worry. Just aim to get back on track the next month – progress matters more than perfection.

5) Tailor to your situation

Remember, the 50/30/20 rule is a guideline, not a strict rule. You can adjust the percentages based on your circumstances and priorities.

For example, if you live somewhere with higher living costs or want to save more for retirement, it makes sense to tweak the numbers so they work better for you.