The 50/30/20 method will change your life

What is this rule?

• 50% of your income on needs
• 30% of your income on wants
• 20% of your income on savings/ debt repayments

Lets say you earn £30,000 a year, after tax this is around £2,000 a month

• £1,000 on needs
• £600 on wants
• £400 on saving/ debt repayments

Everyone’s circumstances are different but this is a good rule of thumb you should work your budgeting around. Small changes can make a huge difference over time and can make you feel in control of your finances.

How to start using the rule

Combine all your income for the month, for the majority of you, this will be your salary. If your earnings differ month to month, get an average of the last 3 months.

Next, pull up your statements for the last few months and separate each item into needs and wants

Needs include:

• Rent/ mortgage
• Bills (utilities, council tax, internet, insurance)
• Food
• Car (maintenance, fuel, insurance, tax)

Wants include:

• Eating out
• Drinking
• Clothes
• Activities/ sports
• Subscriptions

Savings / debt repayments

And then any leftover money should go towards paying off debts, savings or starting an investment portfolio. If some months’ unexpected costs occur and you cannot stick to the 50/30/20 method then that’s okay just try to get back on track next month. Something is better than nothing.

Why is saving important?

The modern world is notoriously bad at putting money away. Global debt reached $303 trillion in 2021, and the personal saving rate reached 6.5%, meaning on average people save 6.5% of their income. Not having an emergency fund can make people very anxious about unexpected costs and job loss. Having a sum to fall back on can massively reduce the levels of financial stress on families. Hence the reason we advocate the 50/30/20 rule.