How to use the 50/30/20 rule
Looking for a way to feel more in control of your money without getting lost in complicated spreadsheets? One refreshingly straightforward approach is the 50/30/20 rule. We’ll break down what this popular budgeting rule is all about and answer some common questions to help you decide if it’s the right fit for you.
What exactly is the 50/30/20 rule?
The 50/30/20 rule is a popular budgeting method where you divide up your income into three broad categories:
50% goes towards needs: these are your essential expenses – the things you absolutely must pay for. Like your rent or mortgage, bills, groceries and travel costs (like petrol or train fares).
30% goes towards wants: the line between needs and wants can be a bit blurry at times, but basically this category covers any ‘non-essential’ spending – the things you’d like to have, but could technically live without. This might include stuff like your morning coffee and croissant, eating out at restaurants and going on holiday.
20% goes towards savings, investments and debt repayment: generally, the idea here is to prioritise paying off your debt over saving and investing if you don’t have space for both.
How does the 50/30/20 rule work in practice?
The best thing about this budgeting method is it’s super simple to do. You take your monthly income after tax and deductions (your take home pay), and divide it into the three categories. So for example, if your take-home pay is £2,000 a month:
£1,000 would be allocated to your needs (50%)
£600 would go towards your wants (30%)
£400 would go towards savings, investments and debt repayment (20%)
But remember that these percentages are just guidelines – you can adjust them based on your personal circumstances. For instance, if you live in an area with a high cost of living, like London, you may find that your ‘needs’ category requires a bigger chunk of your income. So you could try splitting it up another way, like 75/15/10.
Benefits of using the 50/30/20 rule
It’s a good starting point: if you’re new to budgeting, it’s a simple way to start.
Encourages saving and debt repayment: by allocating a specific portion of your income to these three categories, it helps you prioritise what’s important, as soon as you get paid.
It’s flexible: the percentages aren’t a hard and fast rule – you can tweak them to fit your lifestyle and priorities. For example, if your income varies from month to month, it might work better for you to change the figures depending on how much you’ve made that month.
Can a banking app help me?
Banking apps are a handy way to help you keep track of your spending. With Monzo, you can see spending categories that give you a clearer picture of where your money’s going. This can give you a really valuable insight into your financial habits, and help you see if you’re overspending in any areas.
To stay on track, you could set up Monzo Pots for each budget category and separate your money into them right at the start of the month, then only spend what’s in each one.
Is the 50/30/20 rule right for you?
The 50/30/20 rule is a great starting point for anyone looking to gain more control over their money without getting bogged down by overly complicated budgeting methods. But just remember, as life changes, your budget should too. So take a moment now and then to look over three categories, and make tweaks as often as you need.
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