The 50-30-20 rule is a useful guide to help you manage your spending.
How much should you save? How much should you spend on bills? Are you eating out too much? These are all common questions, and the answers will depend on your circumstances.
This guide can help you decide if you’re happy with how you’re spending your money – and where you could make some positive changes.
What is the 50-30-20 rule?
A useful spending guide is the 50-30-20 rule.
The idea is you’d aim to spend:
- 50% of your income on needs: essential living expenses, such as rent/mortgage, bills, food and transport to work
- 30% on wants: discretionary spending, such as eating out, shopping, trips and subscriptions
- 20% on saving or debt – paying off debt beyond minimum payments, or putting money into a savings account, investment or pension fund
So, if your monthly income was £1,500 after tax, you might spend:
- £750 on essentials
- £450 on wants
- £300 on savings or debts
Remember, everyone’s situation is different. If you find your spending doesn’t fit the 50-30-20 rule, that’s okay. But, if it’s realistic for you, it could give you a good goal to aim for.
How to apply the rule
Look at how much money you have on a regular basis. This will primarily be your salary if you're working. If your income changes from month to month, work out the average over the last 3 months.
Then, looking at your bank statements for the last 3 months, work out your average monthly spend. It can help to categorise your expenses so you can see specific areas where you may be overspending.
These categories may include your ‘needs’, which are regular outgoings like:
- rent or mortgage
Plus your ‘wants’, such as:
- eating out
Then note any money you’re putting towards:
- repaying debt
Once you know how much you’re spending in each area, you can work out the percentage:
- Divide the amount you’re spending on needs per month by your monthly income. For example:
£750 ÷ £1,500 = 0.5
- Multiply that number by 100. For example:
0.5 × 100 = 50%
Once you’ve worked out the percentages, look at how they compare. Again, it’s okay if your spending doesn’t fit the 50-30-20 rule. But, if you’re looking to save more, or repay debts faster, you may be able to make some changes. Our budget planning tool can help you break down your spending into different categories to see where you could make changes.
If an unexpected expense has knocked you off track one month, don’t worry. Just try get back on track the following month. It can be helpful to have a safety net to cover unexpected costs.