Deep Dive

The 50/30/20 rule

Emma Nunes-Vaz
January 16, 2024

The 50/30/20 rule might look like a complicated, math-type equation, but don’t worry, there’s no need to act like Pythagerous today. The 50/30/20 budgeting rule is a method used by people when managing their money. It is designed in a way where money is assigned to certain areas of your life in order to maintain control of your money. It is simple, but effective and splits everything into three categories: Needs, wants and savings which we will break down further so that you gain a better understanding of why it might benefit you and the way you handle your money.

A need, a want or a long-term thought?

A need is considered to be your essential purchases. The guaranteed, basic necessities you will be spending each month such as rent, utilities and food which can’t be cut down or forgotten about. A want is the luxuries that you choose to spend your money on, although sometimes it feels necessary to treat yourself to a meal out once a week 👀. Some wants might include purchasing clothes, entertainment such as going to the cinema and as mentioned before, eating out. Finally, the last category, savings, corresponds to money you will put aside for future you. Some examples might include a rainy day fund, your retirement or even payments towards your mortgage for your future dream home.

So how is it broken down?

The general rule of thumb is:

50% to needs

30% to wants

20% to savings

Whilst this doesn’t need to be set in stone, it’s a good foundation to have when trying to figure out your budget. Similarly, you can tailor the percentages to suit your spending habits, such as allocating a larger percentage to your savings or a larger amount to your wants (if you’re in the mood to treat yourself some months). If you are in a position where you have a lot of debt, you may want to consider a separate category for debt repayments, that you allocate 10% of your income to. The aim of this method is to ensure you are staying on top of your bills, saving for your future self whilst also allowing yourself to live a little by enjoying the finer things in life.

How to get things in order

To best prepare yourself for this new style of budgeting, you should monitor your spending over a month-long period. This enables you to see what you spend your money on and highlights areas where you can cut back.

With a better understanding of your spending, you can now allocate your income according to the 50/30/20 rule. Some months you might not stay within the allocated percentage and might go over budget. Don’t punish yourself, that happens sometimes and as long as you attempt to get back on track the following month, there’s no need to dwell on any miscalculations.

Similarly, when you first implement this method into your lifestyle, make sure you are reviewing and adjusting your budget regularly. It’s super important to make sure your budget is still working for you.