The 50/30/20 Rule: A Simple Budgeting Strategy

There are many ways your finances can be affected within your life, so it’s important to have a good budgeting strategy in place. The 50/30/20 rule is a simple budgeting strategy that can help you make confident decisions with your money and save more. This strategy splits your expenses into three categories to help you prioritise where your money goes.

This budgeting rule is rather simple: 50% of your budget should go to your needs, 30% to your wants and 20% to your savings. This will give you the best chance to not only save money but also purchase everything you need to both survive and thrive. Knowing what goes into each of these categories is essential in helping you have a financially stable life.

Learn more about the 50/30/20 rule to help you with your budgeting, as we explore it throughout this article. Continue reading to find out more.

The 50/30/20 Categories

50% – Needs

These expenses should cover things that you can’t live without and must be met no matter what. Half of your monthly expenses will usually go on these types of expenses, as they will carry you over month-to-month. The main types of expenses that this category covers include:

• Rent payments
• Utility bills
• Health care
• Groceries
• Transportation
• Tax
• Toiletries

If you think you are unable to live without something, it will be part of this 50% category. You can also include any insurance that you pay for, including credit or bad debt insurance. If you’re making large regular payments for luxury items like a large house or fancy car, you might need to downsize on these so that your expenditure keeps up with this percentage rule.

30% – Wants

This category covers anything that you could live without, but you want to spend money on anyway for any particular reason. A lot of people will put things into this category that they enjoy or they know will improve their mental wellbeing. This categories expenses include:

• Restaurant meals
• Nights out
• Vacations
• Subscriptions
• Streaming services
• Clothes shopping
• Electronics
• Luxury items

Any upgrades you make to existing items that you pay for should be included in this category, such as going to a more expensive restaurant or going for a new model of car. Purchasing for your wants provides you with more fun opportunities and helps you enjoy life. This can be very beneficial for your mental wellbeing, which is why it is recommended that 30% of your budget goes towards this.

20% – Savings

Leaving 20% of your monthly income for savings will help you keep a healthy financial balance. This amount each month will add up and help you build towards your future. This money can be great if you need an emergency fund, contribute to your retirement or save towards a financial goal.

You can also include paying off any outstanding debt within this category, as the best way to start saving money is by eliminating debt in your life. Maintaining this 50/30/20 rule should help you maintain a healthy budget and prevent you from any potential debt that you could suffer from in the future.

Benefits of the 50/30/20 Rule

Easy to Use

One of the main benefits of the 50/30/20 rule is that it’s a straightforward framework that is easy to incorporate into your life. There’s no need for intricate calculations for your budget, as you can simply split your balance up into three categories. If you’re not financially savvy and usually struggle with saving money, this rule gives you a better way to improve your money management.

Better Prioritisation

Many people will go over budget with their spending when it comes to fundamental needs, as you can better prioritise your outgoings. With 50% of your budget being dedicated to essential expenses, you will know beforehand how much money you can spend on these and how much you can then use for more fun expenditures.

Reach Saving Goals

Saving money is very important for both your current and future life, as you can set up an emergency fund, build up money for retirement and reach specific financial goals. Keeping 20% of your income and putting it towards your savings can provide you with a steady amount of savings. Without the 50/30/20 rule, you might end up spending too much and not having any leftovers to save.

Financial Security

Long-term financial security provides you with a safety net for emergencies and unexpected costs. You can gain a sense of freedom with your money that will help you make choices that align with your life goals, which can then enable you to pursue things in life that you would otherwise be unable to. The 50/30/20 rule helps you with your finances so that you can feel secure.