Spending your income

How much should you be saving? What’s an okay amount to spend on your rent or mortgage? Are you spending too much on eating out? Should you be putting money into your pension?

These are all common (and reasonable) questions and the answers will vary depending on your specific situation.

However, there are some general guidelines you can use to help decide whether you’re happy with how much of your income you’re spending, where you’re spending it and also whether you’d like to make changes.

50-30-20 rule

One commonly used spending guide is the ’50-30-20 rule’. It categorises your spending like this:

  • 50% on essential living expenses/ needs (rent/mortgage, bills, food etc)
  • 30% discretionary spending/ wants (eating out, shopping etc)
  • 20% savings and/or pension

How to apply the rule

Everyone’s situation is different and if you find your spending doesn’t fit the 50-30-20 model, that’s okay. But if your spending is very different – perhaps you’re not currently saving and would like to – this guide can give you a good goal to aim for.

You may find your fixed costs such as rent/mortgage are too high, or perhaps you’re spending a little more than you think you should eating out. Alternatively, maybe you’re in better shape than you thought and can relax a little. Whatever insight you gain from this can help you when it comes to building a budget.

What next?