How to Budget Your Money Using the 50 30 20 Rule

If you’ve decided it’s time to get your personal finances into shape, but you aren’t entirely sure where to start, then the 50 30 20 rule of budgeting is a good place to begin. It’s perfect for anyone looking to introduce budgeting to their everyday life, seamlessly. In this guide, I’ll introduce you to the rules of this simple budgeting method, show you how to get started and the tools you’re going to need.


1. What is 50 30 20 Rule of Budgeting?

The 50 30 20 rule of budgeting is an easy way to manage your finances because all you do is divide your post tax income into 3 categories to control how much you spend:

  1. 50% of your post-tax income goes on needs
  2. 30% of your post-tax income goes on your wants
  3. 20% of your post-tax income goes into savings


50 30 20 Rule of Budgeting

2. 50 30 20 Budget Categories

If you are new to budgeting, then you’ll need to look at your spending and establish what gets included in each of the 3 categories:

2.1 50% Necessities

We all have things we have to pay to keep a roof over our heads, food in the fridge and protect our ability to get to work. This category includes non-negotiable necessities that fulfil your basic needs like:

  • Mortgage payments
  • Rent
  • Debt payments such as loans and credit cards
  • Food
  • Travel to work
  • Childcare

2.2 30% Wants

The next category is all about the fun-stuff. This includes all the non-essential, nice to have things like:

  • Subscriptions
  • Holidays
  • Restaurants
  • Luxury items
  • Shopping for non essentials

2.3 20% Savings

Your remaining post-tax funds will go into savings, a pot where you can build up a lump sum of money so you can achieve your financial goals:

  • Pension planning
  • Emergency funds
  • Paying off debt like loans, mortgages and credit card debts

3. How To Get Started with 50 30 20 Budgeting

3.1 Calculate Your Post-Tax Income

Post-tax income means your take-home pay. If you are employed, then you’ll need to take a look at your payslips to see how much you get paid after deductions like income tax and national insurance (it’s also the amount that you get paid into your bank account).

If you are self-employed, you’ll need to look at what income you have left after deducting your expenses and the amount you set aside for tax. Your personal budgeting is easier if you pay yourself a ‘salary‘ from your business each month, as though you were employed and it’ll help with managing your business finances.

How to Pay Yourself as a Sole Trader

If you have a partner or have more than one form of income, you can add these in to come up with a total post-tax income for your household.

3.2 Divide Your Take Home Pay Between the 50 30 20 Categories

Once you have your total household income, you’ll need to divide it between the 3 categories. Let’s suppose your total household income is £4,000, you’ll divide it as follows:

  1. Needs £2,000 (50% x £4,000)
  2. Wants £1,200 (30% x £4,000)
  3. Savings £800 (20% x £4,000)

3.3 Categorise Your Spending

Next, you’ll need to analyse and categorise your spending. This is the toughest part, especially if you are new to budgeting and personal finances.

Start by grabbing your bank statements for the last two months for all the bank accounts that you are using so you can see all the things you spend money on. Then start categorising your spending into needs, wants and savings.

3.4 Check How Your Spending Fits into the 50 30 20 Rule

Do your basic needs exceed 50% of your income? Or are they less than 50% of your post-tax income? If they exceed 50%, you might want to see where you could save money – for example, looking at ways to switch to a cheaper energy supplier (take a look at uSwitch), cheaper modes of travel, or reducing the cost of groceries.

Also, be warned if you live in a high cost of living area like London, it is quite possible that your basic bills and necessities will surpass 50% of your income – and it might be tough to bring down those bills. In this case, you will have to lower the percentages that you spend on your wants (30%) and savings (20%).

It’s important to remember that these percentages are simply a guideline, and they can be adjusted to suit your lifestyle and current financial situation. If you are repaying debt, your savings might be a little lower than 20% whilst you look to pay down that debt – that’s ok! You’ll just be adjusting your percentages slightly to allow for the debt to be paid off.

By the same token, you might currently be prioritising saving over spending – and so you can adjust to perhaps saving 30% of your income, and spending 20% on your wants. For example, are you spending on takeaway food every Friday, and you’d like to change that? Are you spending on subscriptions or memberships which you don’t use enough? Take a look at what you could change in the future to ensure you are spending your money in a way that aligns with your values.

4. Tools to Help You Stick to the 50 30 20 rule

There are lots of things that you can do to help you stick to the 50 30 20 rule of budgeting, and work out the percentages quickly. You could use an Excel spreadsheet to analyse your spending and how much you are spending in each category to get a better idea of how much you have available to spend in each of these categories each month.

I’ve put together a separate guide 11 Ways to Stick to Your Budget which will help keep you motivated too!

Wrapping Up

The 50 30 20 rule is a brilliant way to start budgeting – you can keep it simple, or break down each percentage into further categories should you wish to. That is the beauty of this method – it is down to you how complex you’d like to make it!

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek and money nerd helping financial DIY-ers organise their money so they can hit their goals quicker.