What is the 50 30 20 rule?

29 July 2021 | Posted by Frankie Jones
Weighing scales

Tired of trying and failing to save money? If you’re looking for a simple budgeting method, the 50 30 20 rule could be the one for you.

With the 50 30 20 rule, you should aim to spend:

  1. 50% of your income on your ‘needs’ (such as rent, food and bills)
  2. 30% on your ‘wants’ (e.g. holidays, new clothes and socialising)
  3. 20% on saving (or paying off debts, if you have them. Paying off high-interest debts, like credit cards or payday loans, should be your priority.)

Let’s use an example. If you take home £1,000 each month, you could break it down into:

  1. £500 on the essentials
  2. £300 on the nice-to-haves
  3. £200 on saving or paying off debt

Following this rule to the T might not work for you, depending on your salary, where you live, and your monthly outgoings. But it’s a good outline to work towards if possible.

How to follow the 50 30 20 rule

Take a look at your bank account and see how much comes in each month. If your monthly salary varies, take an average. This is your monthly income.

Next, look at what you’re spending each month.

Start with your ‘needs’. For example, your mortgage or rent, your energy and water bills, your food bills, and anything else you consider necessary to live. The ‘needs’ category is personal and will be different for everyone. 

Then look at how much you’ve saved or used to pay off debts. This should be fairly easy to spot in your bank statements – look for transfers into savings accounts or direct debits to credit cards or loans. 

Finally, you’re left with everything else you’ve spent that month. These are your ‘wants’. 

Once you’ve got an amount for your needs, wants and savings, you can change them into percentages to see how closely they match the 50 30 20 rule.

If you’re spending significantly more than 50% of your income on your needs, it could be time to think of ways to cut your bills. For example, could you switch mortgage deals, or energy providers? Could you change where you shop? You could even look at downsizing your home, or renting out a room. If you need some inspiration, check out our roundup of the best ways to save when you’re low on funds.

Equally, if you’re spending vastly more on the things you want and you’re not saving anything, you might want to rethink your budget to factor this in.

Download Claro’s free budget planner if you want a hand reorganising your spending to save you money. The planner will work out the 50 30 20 calculation for you. 

Financial coaching could help you budget better

Do you regularly find yourself going into your overdraft or struggling to make ends meet in the lead up to payday? Tweaking your budget could be a simple solution, by reconsidering how much of your income should go towards different areas of your life.

Our in-house Financial Coaches are specially trained to help you build a financial plan that works for you, no matter what your income. In just 45 minutes, they can explain your options and answer any questions you have to set you on the path to financial freedom.

To book a call, just download the Claro app and create your account now.

Please note, this is not financial advice.

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