There is a really easy way to work out how to pay the bills, spend and save each month. Even if you don’t want to do a spreadsheet, you can learn how to budget with the 50 30 20 rule.

It’s pretty simple. You take your whole income and divide it up according to what you are going to do with the money.

  • 50% goes on needs
  • 30% goes on wants
  • 20% goes on saving

If all this sounds cool but actually you’d like a bit more background about budgeting, check out The Ultimate Guide to Budgeting here.

What counts as needs?

Well, I NEED a coffee in the morning! But technically I can manage without (don’t worry you don’t have to – see next section).
Needs are things that pretty much every household pays for. Stuff you need to live.

This will include the rent or mortgage, bills to heat your home, water, internet and phone. Your transport to get to work is a need, plus taxes if you pay them yourself. If you need childcare in order to work, that counts too.

Minimum repayments on debts are a need. You have to pay that to stay out of trouble. (Overpayments can go into your 20% savings wedge).

Your groceries are a need, but with caveats – I’ll come back to that.

What counts as wants?

Ohhh 30 whole percent for wants! Dreamy!

Your wants are your fun stuff, your entertainment and your treats.

Netflix, gym membership, barista made coffee, eating out, clothes shopping above and beyond your basic needs, gigs, concerts, theatre, season ticket, golf clubs, a sesh down the pub. All of these are wants.

You will have lots of wants big and small.

In fact if you’ve never listed them out before it can be quite staggering how many wants there are!

If they total up to more than 30% of your income, see if you can scale them back to get them down to that level.

Tips to reduce your wants

Eating out really does eat up your spending money. Perhaps have a dinner party instead once in a while.

Or look out for special offers when you book through booking websites or apps like Opentable.

If you go out to bars, try taking cash and calling it a night when the money runs out.

Do you need more than one TV content provider? Some people have Sky, Netflix, Now TV etc. Perhaps you can just live with one?

If shopping is your thing, perhaps you can “recon”. Take a trip, note down the things you like and then wait for the sales. Sometimes a little pause between trying and buying makes you realise you’re not that bothered about it after all.

If you get your wants down to 30% then congratulations! You are nearly there.

A word about groceries and how to budget with the 50 30 20 rule

Groceries are a funny one. Obviously you need to eat. But there’s a reason why a lot of frugal living websites bang on about saving money on your groceries, meal planning and dining on a few dollars or pounds.

Cooking and eating straddles a very broad spectrum. You can cook and eat basic but healthy food at reasonably little cost. But often a grocery shop also means buying treats – an expensive cut of meat, some nice wine, maybe some treat ingredients like a bottle of really good olive oil.

Or it could be crisps and snacks or bottles of coke.

The basic grocery list of the foods you need to have a balanced diet are needs.

The treat foods or the upgrades are the wants.

You alone can judge where you draw the line exactly. Once person may feel that having a portion of meat or fish daily is a need.

For our household, meat is not a daily need but when we do eat it we try and buy the highest animal welfare meat we can. Plenty of veg is a need, posh cheese is an upgrade.

You don’t have to go through your entire groceries to work out the exact split, but if you are a glutton who likes their treats (hello! me!) then do a rough split of what you think you spend on the need bit and what you think you spend on the treats.

What counts as “saving” other than a savings account?

The last 20% goes on saving. This could be any sensible money goal and is not just limited to putting money in a savings account.

Things that could be part of the 20% are:

  • Putting money into a pension
  • Building up an emergency fund
  • Overpaying on debts
  • Investing in a fund or stocks and shares

If you don’t already take steps towards your financial goals, this is a fantastic new habit to start. 20% of your income may seem like a lot, but if you can do this, you will be well on your way to achieving Good Things.

What if I can’t get my “needs” under 50%?

There are quite a few instances of when the 50% rule is hard to stick to.

If you want to budget with the 50 30 20 rule but your income is very low, it can be virtually impossible.

Earn more money

Sometimes cuts or changes can be made, but otherwise, perhaps it’s worth considering a side hustle or a change of job.

Save as much as you can

If that’s not a go-er either, try to set aside what you can. Consider getting an app that invests your spare change for you like Acorns or Moneybox.

Look at your housing needs

Often housing is one need that takes up a huge chunk of income and it’s not something that can be changed overnight.
Even people on higher incomes can get caught in the property trap.

Particularly in England where most of the population is obsessed with property.

A couple of years ago, a friend of mine who owned a house but was on a low income moved into a gorgeous rented house in a friendly village. It was a beautiful home but hugely expensive. In order to pay for it she relied on steady work, income from renting out her old home, and child maintenance. There is no way she could budget with the 50 30 20 rule and was constantly worried about money.

Her solution is to downsize to a more affordable property, which she now plans to do. Once she has done this, she will be able to start putting money aside into her pension.

Other ideas to get the costs of your “needs” down

  • Shop around for cheaper utilities
  • Turn down the heating by a degree – it can make a big difference
  • Just heat the rooms you are using – not the whole house.
  • Haggle down the price of your internet, or switch companies.
  • Where possible, make sure your debts are 0% interest. If this is not possible, move around your loan or credit card debt so that it is on the lowest possible rate of interest.
  • Consider sharing childcare if it works for you e.g. a nanny share, or asking family to help out

Some of these may just not be realistic – maybe you have some creative solutions of your own.

So that’s how to budget with the 50 30 20 rule.

Have you ever tried this? If so, I’d love to hear if it worked for you in the comments below and if you liked this article, please share it and spread the word. 🙂

If you want to go even deeper in to budgeting read all about the zero based budget system here.

How to budget like a pro with the 50 30 20 rule