What’s the 50/30/20 rule for budgeting and how to do it

The 50/30/20 rule for budgeting suggests dividing your monthly income into three spending categories. We explain everything you need to know - and consider how a 70/20/10 model may be better suited to the cost of living crisis

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(Image credit: Getty images)

The 50/30/20 rule is an easy budgeting method that can help you to manage your money simply and effectively.

The idea is that you split your monthly income into three categories: 50% on needs, such as rent, mortgage and household bills, 30% on wants, such as nights out, clothes and hobbies, and 20% on financial goals, such as saving, investing or paying off any debt.

It means that if you earn the UK average salary of around £27,500, your monthly income of £1,731 after tax (allowing for an 8% pension contribution) would be divided:

  • £865.50 on needs
  • £519.30 on wants
  • £346.20 on financial goals

If it’s realistic for you, the 50/30/20 rule could give you a good goal to aim for.

Kalpana Fitzpatrick, senior digital editor of Money Week (opens in new tab), says: “The 50/30/20 rule is a nifty budgeting trick. It’s a brilliant, empowering tool that will ensure your finances stay healthy, you can spend with peace of mind, make positive decisions and even save enough to build financial resilience.”

Budgeting with the 50/30/20 rule 

How to use the 50/30/20 budgeting rule

Look at how much money you have coming in each month. This will most likely be your salary if you're working, though you may have income from investments or state benefits. If your earnings change from month to month, look at your bank statements for the last 3 months to calculate your average monthly income.

Based on your income, calculate how much you should ideally allocate for each of the three categories. 

Say you earn £35,000 a year, for example, your monthly income of £2,109 after tax (allowing for an 8% pension contribution) would be divided:

  • £1,054.50 on needs
  • £632.70 on wants
  • £421.80 on financial goals

You can set your own rules in some ways: should the money for things like holidays come from your ‘wants’ category or ‘financial goals’ category? It’s up to you.

The 50/30/20 rule is very much just a guide, so if you do need to adjust the percentages slightly to make sure your financial priorities are dealt with then that's totally fine.

Sammie Ellard-King, founder of money website UpThe Gains (opens in new tab) says: "In terms of tweaking the percentages, a lot of costs can be saved through cutting down the 'wants' in the 30% section. This means whatever's saved here can then be added to the ‘needs’ in the 50% section. 

Your budgeting may end up looking more like 55/25/20 or 60/20/20 rather than the standard 50/30/20 process.

Ellard-King suggests sticking to 20% for financial goals if possible. “I'd recommend cutting down the 30% ‘wants’ bracket, rather than reducing the 20% dedicated to your financial goals. This will ensure you come out of the cost of living crisis with any saving, investing or plan to pay off debt intact - or definitely in a better position than if you had continued to spend a full 30% on ‘wants’."

Reviewing and overhauling your spending across the three categories could also prove useful - essential, even, if you are determined to strictly stick to 50/30/20.

This will include boring but easy wins such as shopping around for the best deals in regards to broadband, insurance, petrol prices and food. Food shopping is one of our biggest weekly expenses, for example, so from meal planning and shopping at certain times of the day, there's a range of things you can do to cut your spending.

You may want to consider turbo-charging your budgeting: tactics like cutting out holidays for a year, sharing lifts to work or selling unused clothes may allow you to stick to the 50/30/20 rule.

The 50/30/20 rule: is it realistic in a cost of living crisis?

Some of us will find that it’s simply not possible to get all our ‘needs’ into the 50% bracket, especially with rising rents and mortgage rates as well as the increased cost of energy.

Those on low incomes are particularly vulnerable: disposable income for the poorest in the UK fell by 3.8% in 2022, according to the ONS. 

Founder of money-management app HyperJar (opens in new tab), Mat Megens says adopting a 70/20/10 model of managing your finances is the way to go during the cost-of-living-crisis.

"That means 70% on needs, such as living expenses, 20% on wants, such as non-essential and luxury spending, and 10% on financial goals, such as savings and debt repayments," explains Megens. "There is no magic wand, unfortunately. But we can all drill down into our budgets to understand where our money is going, to save and cut costs where we can."

It’s all the more reason to ensure you’re getting all the financial help available. From accessing the £15bn of state benefits that go unclaimed to getting a cheaper ‘social’ tariff for your broadband to save up to £250 a year, to applying to energy suppliers’ hardship funds to receiving help with your mortgage payments, we explain what financial support is available and how to get it

There are other ways to budget: the cash-stuffing’ trend on Tik Tok may make more sense to you. Check to see if it’s for you.

Meanwhile, Money Edit reader Natasha Evita explains how she got herself into the budgeting mindset by bingeing on money shows, podcasts and newsletters before saving £20,000 in 18 months.

Katie Binns

Katie is staff writer at The Money Edit. She was the former staff writer at The Times and The Sunday Times. Her experience includes writing about personal finance, culture, travel and interviews celebrities.  Her investigative work on financial abuse resulted in a number of mortgage prisoners being set free - and a nomination for the Best Personal Finance Story of the Year in the Headlinemoney awards 2021.