What's the 50 30 20 budget rule?
When it comes to calculating your monthly spending budget, there can be a lot to consider, for example: paying off existing debt, whilst also paying for monthly essentials such as rent/mortgage, utility bills, groceries, car insurance, fuel, and paying your phone bill on time.
But managing your money doesn't have to be confusing. Below, we take a closer look at the 50 30 20 rule and how it could benefit your financial goals. We'll also offer some simple ways to start saving money right away, so you can plan for the future.
What is the 50 30 20 rule?
The 50 30 20 rule can make budgeting simple. Broken down into three categories, it makes identifying where your money goes quick and easy:
50% for needs: Living expenses, such as your rent/mortgage, bills, food and transport
30% for wants: Shopping, trips, subscriptions or eating out
20% for savings or debt: Putting money aside into your savings account, or paying off debt beyond minimum payments
What does this look like in action for a UK salary?
For example, according to the Office for National Statistics (ONS), the UK national average wage is approximately £33,000. After tax, this would give you roughly £26,400 annually which results in around £2,200 per month.
Broken down into the 50 30 20 rule this would give you:
50: £1,100 for your living expenses (rent, mortgage, fuel, utility bills, and any minimum payments on debts)
30: £660 for your wants (phone bill, gym membership, take out)
20: £440 for your savings and debts (savings accounts, investments and paying over the minimum payment for debt)
It's important to remember that everybody's financial goals and situation are different. If you find that the 50 30 20 rule doesn't quite fit your spending, that's okay.
However, small changes can make a big difference. Whether it's cutting down on takeaways, or being mindful about your weekly shopping, it all adds up. By breaking your outgoings into spending categories, it's a lot easier to see where you may be able to save money.
Many of us struggle with money management. Whether it's credit card debt or an unexpected expense (such as a vet bill), setting monthly targets can help you prepare for the unexpected.
What are 5 tips for saving money?
We all want to save money for the greater things in life. Whether you're looking to become a homeowner, go on a vacation or buy a new car - taking a closer look at your spending can help you achieve your financial goals.
But how can you save money? Here are our top 5 tips for saving money the right way.
1. Get to grips with your outgoings
The 50 30 20 rule can be a great way to get to grips with your spending. Once you know your take home pay, you can quickly break down your outgoings into spending categories, helping you to prioritise where your money goes.
From adding to your pension fund, to those lazy Friday night takeouts, the 50 30 20 rule will help you to identify exactly what you're spending your money on.
Here are a few ways to cut down your spending:
Switch away from expensive branded products when shopping for groceries.
Pay off credit cards to avoid charges and interest.
Turn off appliances and unnecessary switches to reduce utility bills.
Be strict with yourself about subscriptions, such as streaming services.
2. Work out your financial priorities
Many of us are paying for streaming services we rarely, or never use. Much like a magazine subscription that's easily forgotten about, take some time to check on any direct debits you have to see outgoings you can potentially reduce.
3. Set savings goals
While it may vary slightly from one month to the next, setting savings goals can help you stay on track with your spending. Start by thinking about what you might want to save for - both in the short and long term.
Whether you're looking to book a well deserved holiday or take your first step on the property ladder, having a goal to aim for can help you estimate two important factors:
How much money you'll need.
How long it will take you to save it.
Of course, it's always smart to plan for the unexpected. Having an emergency fund can help you manage any surprises that may occur, such as repairs to your home or car.
4. Work out where to save money
If you don't have a savings account already, it could be a good idea to find one with the best interest rate. As you build up your savings, keeping them separate from your income and spending is important to avoid the temptation to spend.
Plus, it can be a real confidence boost to see your savings build up!
5. Track your progress
While the 50 30 20 rule certainly makes it easier to see where your money is going, it can be difficult to stick to your spending and savings goals.
Don't forget to check in with yourself and track your progress, so you can see how far you've come and how much you've saved.
How do I calculate my budget?
We know things are really tough right now. If anything, the cost of living crisis has highlighted the importance of budgeting and financial planning. From managing monthly expenses, to putting money aside into a savings account whenever possible, knowing the best way to calculate your budget will help you prepare for the future.
The Equifax Budget Planner does everything for you. Simply fill in your monthly after-tax income, debt payments and other living expenses and we'll do the rest.
You can also download our Family Budget Planner, which is split into multiple categories to make it easier to see where your monthly income goes. Managing your household budget just got a lot easier.
What are the benefits of setting up a budget with the 50 30 20 rule?
The 50 30 20 rule can be the first step to taking control of your finances. Once you have your monthly income to hand, understanding where your take-home pay goes is a lot easier.
Seeing where your money goes, from savings, debt repayments to general living expenses, will help you make tweaks to your spending.
By breaking down your outgoings into three categories, the 50 30 20 rule can benefit you in a number of ways, including:
Help you to manage your money more effectively, allowing you to see, at a glance, where your money is going.
Give you more confidence in your finances, especially as you see opportunities to save money.
Examine what requires attention in your finances, helping you to save more money for the future.
Common money-saving questions
We understand that managing your money can feel confusing, especially when you first start calculating your budget. The 50 30 20 rule will help you break your spending down into three categories, so you can get to grips with exactly where your money is going.
However, we also know that it's common to have a lot of questions about the best ways to save money, especially when you're in a rush to do so.
How can I save £1000 fast?
Saving £1,000 fast may vary depending on your circumstances. The 50 30 20 rule will certainly help you to keep your spending in check and if you're eager to save money quickly, here are a few tips:
Cancel unused subscriptions, such as magazines, streaming services and software you no longer use.
Pay off credit card debt to avoid interest charges.
Limit dining out and sporadic buying, especially when travelling. Instead, take food/drink with you and be prepared.
Pay with cash to avoid accidentally overspending on your credit or debit card.
Make a weekly menu and shop for groceries to a budget, buying only the food you need. When you know what you're cooking at home, you're less likely to order takeout.
Where can I put my money to earn the most interest?
It's always worth shopping around for the right savings account. Look for ones with a high-interest rate and keep an eye on your 50 30 20 rule budgeting plan, to see your savings increase.
Ready to start budgeting?
If you prefer a more detailed view than the 50 30 20 rule may offer, why not take a look at our interactive Budget Planner? All you have to do is fill in your income and outgoings, and we'll take care of the rest.
Be sure to allow yourself enough time to input all of your spending, across debt repayments, household spending, entertainment, health and other spending categories.
You can also get an even greater look at your finances with our Family Budget Planner, which you can download here.
It's easy to keep on track of your spending, and your credit score, with Equifax.
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