The 50/30/20 rule

With the cost of living on the rise, you might be keeping a close eye on your finances and thinking about effective ways to save.

To help you achieve your savings goals, you might want to consider creating a spending plan — also known as a budget.

And if you’re not sure where to start, there’s one handy budgeting method that’s gained popularity recently: the 50/30/20 rule.

What is the 50/30/20 rule?

The 50/30/20 rule is a percentage-based budgeting method that can help you manage your money on a monthly basis. It’s easy to use, and doesn’t require too much time or effort.

The idea is that you make a basic plan for your income every month. By following the 50/30/20 budget rule, you will aim to:

• Spend 50% of your income (after tax) on essential ‘needs’
• Spend 30% on ‘wants'
• Save the remaining 20%.

Whether you’re wanting to put aside money for the future, saving for something special, or just want to keep better track of your money, you might find this budgeting technique useful.

Of course, everyone’s situation is different and the 50/30/20 calculator may not work for you. If you feel like saving 20% of your income is not realistic, you could try and adjust the percentages and aim to save a smaller amount — 10% or 5%each month, for example.

How to use the 50/30/20 rule to budget your money

One major benefit of the 50/30/20 rule is that your outgoings can be grouped into three simple categories. It means you should hopefully be able to keep track of what you’re spending, and stick to your budget.

You’ll just need to figure out which of your outgoings are classed as ‘needs’ and ‘wants’, and decide where you want to put your savings.

Spend 50% of your income on ‘needs’

Ultimately, ‘needs’ can be classed as outgoings that you cannot avoid, or things that you’d struggle to live without. In line with the 50/30/20 rule, you should put aside 50% of your income (after tax) for your needs.

So for example, if you take home £1,800 each month, £900 should go towards this category.

Needs may include things like:

• Monthly rent or mortgage payments
• Household bills (for example electricity, gas, water, broadband, or Wi-Fi)
• Transport
• Essential food shopping
• Toiletries
• Your mobile phone contract
• Insurance (for example, home insurance or car insurance)
• Minimum repayments for credit cards or loans.

If you find that your needs are costing more than 50% of your income, there may be ways to bring down these expenses. For example, instead of going to one supermarket to do a food shop, you could visit a few supermarkets to make the most of the various offers available. And if your insurance is up for renewal soon, you could shop around or use a comparison website to find a better deal. If you have an expensive phone contract, you might also want to consider switching to a cheaper plan.

Spend 30% of your income on ‘wants’

‘Wants’ can be classed as non-essential expenses — so things you like to spend your money on, but don’t actually need day-to-day. In line with the 50/30/20 rule, you should put aside 30% of your income (after tax) for your wants.

So for example, if you take home £1,800 each month, £540 should go towards this category.

Wants can vary, but may include things like:

• Trips or holidays
• Eating out at restaurants or cafes, or ordering takeaways
• Subscriptions (for example Spotify, Netflix, or Amazon Prime)
• New clothes that you don’t really need
• Gym memberships
• Gifts for things like birthdays and festive celebrations.

When you begin assessing your monthly outgoings, you might find that you’re spending a lot more than 30% of your income on these non-essentials wants. But do not worry — this is probably the easiest category to cut back on.

To reduce your non-essential spending, you could try and get into a habit of questioning whatever it is you’re considering purchasing. Ask yourself “why do I need this?”, “could I get this cheaper if I went elsewhere?”, or “how much use am I realistically going to get out of this?”. Questions like these can stop you from impulse buying, and help you stick to your budget.

Put 20% of your income into savings

By spending 50% of your income on your needs and 30% on your wants, you’ll hopefully be left with 20% to put into your savings.

So for example, if you take home £1,800 each month, you should aim to save £360.

To help you stay on track, it’s always good to have a savings goal — something to aim for. As well as putting money aside for a ‘rainy day’, there are lots of things you could save up for, such as home refurbishments, a holiday, a new car, or even a deposit on your first home.

If you want to put money away regularly, have instant access to savings, or earn tax-free interest on the money you save, we have plenty of accounts to choose from. You can compare all our savings accounts in one place to see which one would be most suited to you.

Other ways to budget and save

The 50/30/20 budgeting rule is just one way to manage your money and save — the most important thing is finding a method that works best for you. We have other money management guides, which you can take a look at below.

How to budget effectively

Managing your money day to day

Managing your finances through tough times

Savings tips to help you plan for the future