50 30 20 Budgeting Method
There are lots of different budgeting methods out there whether you’re strict with a budget or hate them. Whether you track every single penny you spend, or you have buckets of money aside for different things. It isn’t always easy. If you’re looking for a pretty simple and easy-to-follow tool then here’s a breakdown of the 50 30 20 budgeting method and how it can help you.
What is the 50 30 20 budgeting method?
The 50 30 20 budgeting method was popularized by Elizabeth Warren and her daughter, Amelia Warren Tyagi. It was first coined in the book All Your Worth: The Ultimate Lifetime Money Plan.1. And it’s a rule to plan your budget by allocating it into three categories: needs, wants, and savings.
50% of your money goes to ‘needs’ so this is your allocated monthly spends that shouldn’t change much/ at all month on month. This section will include rent/ mortgage, household bills, insurance, etc. But should also include your budget for grocery shopping and your general eating (although not the takeaways and meals out).
30% of your money goes on ‘wants’ so these are things you don’t have to spend on but you want to spend on. These will be the fun things or the things that bring you joy. This might be hobbies, holidays, clothes, or subscription services like NetFlix or Disney+.
Then the final 20% of your money is for savings/ debt payments. If you’re repaying debt then this is the most important thing to do, although don’t leave out saving completely. When you’re saving it’s good, to begin with, an emergency fund, but also think about pensions and investments.
How to set up this type of budgeting method?
The first step in setting up the 50 30 20 budgeting method is to calculate your monthly income. Add up how much you get into your bank account each month. If you earn commission or overtime set up your budget on your base salary and then if you get paid more one month you’ll just have more split over the three categories.
Then you need to calculate your spending limit for each category. So divide your salary by 100 and times by the number for that area and you’ll get the figure for that area. For the fixed ‘needs’ category list all of your fixed monthly outgoings which are essential and can’t be cancelled and check the 50% allocate covers it with enough left over for groceries. If not you may need to tweak the split.
Next up is to look at your savings. You may just want to put it all into one savings pot or you may want to split it between different types of accounts like ISA’s, bonds or investments. One thing to always make sure of is that you have enough set aside in an emergency fund that you can instantly access just in case.
Then it’s all about tracking your expenses and budgets each month. Make a note of how much you actually spent in these areas to ensure you’re sticking to the thresholds.
Why you should use the 50 30 20 budgeting method
Most people don’t save enough money in their savings or don’t think about saving as soon as they’re paid. The 50 30 20 budgeting rule of thumb is a way of becoming aware of your financial habits. Knowing that you’ve saved 20% of your wages straight away means you don’t have to think about it. And having a set amount of money to spend on your ‘wants’ means you may think more carefully about purchases.
The end goal is for you to be able to manage your money in the easiest way possible so it doesn’t feel like a chore.
Who is this budgeting method best suited to?
This budgeting method is suited for anyone who has perhaps struggled with budgeting before or doesn’t want to go as far as creating an itemised budget (yet). Maybe you’re a beginner, or you’re just trying to become better with your money.
You can adjust the percentages depending on your circumstances. For example, if your ‘needs’ work out at 60% of your monthly spends then you may adjust to 60/25/15 with your spending. Or if you’re saving for something big like a house deposit you may need to increase your savings section and reduce your needs and wants as much as possible. Maybe you only earn enough to make ends meet so 20% savings is not possible, just do that you can.
Do you adopt the 50 30 20 budgeting method?
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15 responses to “50 30 20 Budgeting Method”
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Rhian Westbury
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I’ve never really tried setting up any budgeting methods. I normally prioritise needs, wants I can only dream, and savings – I always have back up in case of emergencies but don’t have much inthe form of savings as it mostly goes to needs.
If you have something that works for you that’s the mosy important thing x
I don’t currently use this budgeting method but this does sound like a really good way of budgeting – very useful! I will definitely be considering using this method.
I have not heard of the 50 30 20 budgeting system before but it does make sense and great way to ensure consistency in saving money in the long run
It also means if you get a payrise for example you won’t suddenly just spend more, you’ll also save more and have more for neccessities x
This budgeting method was taught to us during economics class. It does work but you need a lot of discipline. I used to have difficulty with this budgeting method until such time that I made arrangements with the bank to automatically deduct and deposit into a different savings account 20% of my monthly paycheck. That worked good for me.
Automating things like savings or putting the 30% of money for you to spend in another account does make things so much easier x
I love the 50-30-20 rule, read the book last year and put it into play and it works really well for me.
This is a great budgeting method, I’ve always put money into savings but never thought of it like this. We are trying to teach my son to put 10% of his money to savings at the moment for something he really wants rather than spending on sweets straight away at the shop, he’s only 6 but he’s starting to understand the benefits of it
It’s so good that you’re teaching your kids about money and saving though, so important x
Hi Rhian! Again, a lovely blog post. I really enjoyed reading it and got a lot of good advice from it! It sounds like it needs discipline, but is a great way to save some money.
I hadn’t heard of this method before but it sounds like quite a useful way to divide and manage your money.
I think this is a good way to get into saving if you are new to it. For me I guess I do something similar almost instinctively.
The 50-30-20 budgeting system doesn’t sound too realistic. Mortgage can be around 40% of income, so only 10% for council tax, heating, road tax, and so on doesn’t seem enough. I think 60-25-15 that you suggested could be a much more realistic figure.
It really depends on the situation. As I own a property with my partner our mortgage is less than 20% of our income for example, so the 50-30-20 is more than doable, but for others it isn’t so. You’ve got to do what works best for your situation x