The 50/30/20 rule

Looking for a straightforward way to manage your money and save for the future? The 50/30/20 rule is a popular budgeting method that allows you to balance your necessities, wants, and savings. By following the framework, you’ll be able to manage your finances in the present while saving for long-term goals.

So, if you’ve got questions about how much disposable income you should have, or how much you should save a month, we’ve got you covered with the answers. Learn more about how the 50/30/20 rule can help with our guide.

What is the 50/30/20 rule?

The 50/30/20 rule is a simple budgeting approach where you divide your monthly income (after taxes) into three areas: 50% towards needs, 30% towards wants, and 20% towards savings.

Compared to some of the more complex budgeting plans out there, it’s a simple formula that can help you to strike a balance between essential funds, your disposable income, and preparing for the future.

Needs: 50%

When following the 50/30/20 budgeting rule, you’ll need to dedicate 50% of your income towards your necessities. These are your main expenses, such as:

• Rent or mortgage payments

• Utility bills

• Loan payments

• Food shopping

• Car or home insurance payments

• Essential transportation

Your needs are typically your biggest monthly expenses, which is why they’re allocated the largest portion of your budget.

Wants: 30%

Your wants are the things you choose to spend money on that aren’t essential, but make life more enjoyable. These may include:

• Subscriptions to streaming services and gyms

• Eating out and days out

• Entertainment such as concerts or shows

• Travel and holidays

While it’s important to factor in funds for enjoyment, this category is one of the easiest to cut back on if you find that you’re going over the 30%. Simple fixes include finding and cancelling subscriptions you don't use or dining in more regularly.

Savings: 20%

So, how much should you save a month? After considering your needs and wants, the remaining 20% will go towards your savings. You can put this money towards things such as:

• Emergency funds to cover unexpected expenses

• Retirement funds

• Pension pots

• Saving for a mortgage deposit

• Saving for a specific life goal, such as a wedding

• Investments

Having clear savings goals is a great way to motivate yourself to stay on track. So, take some time to think about your objectives, whether it’s a rainy-day fund or cash for a big milestone.

How to implement the 50/30/20 rule

Now that you know what the 50/30/20 rule is, how can you put it into practice? Well, let’s start by reviewing your monthly paycheck, then split this up according to the framework.

How much disposable income should I have?

A 50/30/20 budget can vary at different pay points. To demonstrate, here’s a quick breakdown to show you how much you might set aside for essentials, savings, and disposable income:

So, for example, if you had a monthly income of £1,800 after tax, you might have £540 of disposable income to spend on non-essentials. However, you could always amend this rule to save even more if you wanted to.

There are various online budget calculators (like this one provided by MoneyHelper) that are handy for splitting up your income. And remember, everyone has different necessities, wants, and savings goals. You may have hefty commuting costs, whereas someone else might have multiple scheduled loan repayments. So, you’ll need to write down your expenses to help create a clear picture of where your money is going.

How much should I save each month?

Following the 50/30/20 rule, you should aim to save 20% of your monthly income after tax. This might be for your pension, emergency fund, house deposit, or a combination of all three.

It can be tempting to add less into your savings, putting the money towards necessities and wants instead. However, if you stay committed, you’ll be doing something your future self will thank you for. Just think, if your car fails its MOT or your boiler breaks down in the winter, your savings will come in extremely handy.

If you’re looking for more advice on this, we’ve got an in-depth guide on simple ways to save money which is filled with actionable tips.

The benefits of the 50/30/20 rule

While we’ve outlined many of the potential benefits already, here are a few additional reasons why implementing the 50/30/20 rule is a great idea:

• Simple and effective: It provides a straightforward framework, meaning you can budget your income without the need for complicated calculations.

• Clear priorities: The framework allows you to prioritise your key expenses, making sure you have the funds to make minimum payments and cover the essentials.

• Better money management: Following the set percentages helps you to avoid overspending in the present while also preparing for the future.

• Meet long-term savings goals: Consistently saving 20% of your monthly salary will help lead to a healthy savings buffer. This can then be used for unexpected expenses and longer-term goals.

Monitoring 50/30/20 budgeting

While it’s a good idea to stick to the 50/30/20 breakdown where possible, we know that life isn’t always plain sailing. Luckily, the framework is flexible, and it can be easily adapted to fit your unique needs. Don’t be too hard on yourself if you can’t stick to the percentages exactly. For instance, you can’t stretch to 20% and saving 5% sounds more reasonable, go for it! It’s always best to put away a little than nothing at all.

Priorities can shift throughout the year, which can also have an impact on your budget. In the run-up to Christmas, you might need to dedicate a little more money towards your food shop and everyday expenses.

In this case, it’s understandable to slightly readjust the percentages, perhaps saving 10% in December and then going back up to 20% in January. You could also prepare for the festive period by increasing your savings budget in the months running up to it.

There are other occasions where readjustments might be necessary. For instance, if your MOT is booked for April, you might want to pay more into your savings to prepare for it in March. Or maybe you’re moving to an area with a higher cost of living? If so, review and adjust your budget accordingly.

Moneyboat are here to help you stay afloat

If you’ve just started out on your budgeting journey and you’re yet to build an emergency fund, we might be able to help in the case of an unexpected expense. Here at Moneyboat, we offer fair and flexible short-term loans, providing customers with the cash to temporarily tide them over.

We carefully assess each application, carrying out thorough affordability checks to ensure you’re a good fit and that you’ll be able to comfortably make the repayments. If you’re accepted, you’ll then be able to cover the expense, paying the funds back later in manageable instalments.

While convenient, loans certainly aren’t a long-term solution, and using the 50/30/20 rule can help you build up a savings pot for any future surprises.

And remember, while the 50/30/20 framework is handy, it’s just one of the many methods out there, and a different one might better suit you. In this case, just head over to the Moneyboat blog where we’ve got plenty more monthly budgeting tips.