The popular 50/30/20 budget is a great way to maximise your money. In it, you spend roughly 50% of your after-tax dollars on necessities, no more than 30% on wants, and at least 20% on savings and debt repayment.
Example 50-20-30 budget for one person
She can spend 50% of her budget ($797.50) on essential items, 20% of her budget ($319) on paying off her student loans and 30% of her budget ($478.50) on entertainment.
The 50-30-20 is a percentage-based budget rule that talks about allocating an individual's monthly net income into three components: 50% on needs, 30% on wants and 20% on savings.
Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment. Find out how this budgeting approach applies to your money. Monthly after-tax income.
The 50/30/20 budgeting rule
With this rule you allocate: 50% on needs, such as your rent or home loan repayments, transportation, your weekly shop, paying off any debt, insurances, education and utility bills. 30% on wants, such as daily coffee, eating out, shopping, entertainment, hobbies, and holidays, etc.
The first step is to track your spending and see where money is going. This is a great google sheet that follows the 50/30/20 rule to help you manage your money effectively and simply. The basic rule of thumb is 50% for needs, 30% for wants, and 20% for savings or paying off debt.
In general, most people advise the 50/30/20 approach to saving. Basically, 50% of your spending should go towards needs (rent, food, bills, etc.), 30% towards wants (entertainment, travel, dining out), and 20% towards savings.
One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
Some Experts Say the 50/30/20 Is Not a Good Rule at All. “This budget is restrictive and does not take into consideration your values, lifestyle and money goals.
The basic rule of thumb is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt. By regularly keeping your expenses balanced across these main spending areas, you can put your money to work more efficiently.
Try the 50/30/20 rule as a simple budgeting framework. Allow up to 50% of your income for needs. Leave 30% of your income for wants. Commit 20% of your income to savings and debt repayment.
Spend 50% of your after-tax pay on needs —like housing, utilities, health care expenses, minimum debt payments, and other essentials. Use 30% to pay for wants — such as clothing, entertainment, social outings, vacations, and dining out. Set aside 20% for financial goals — like building your savings or paying off debt.
Budget. Does anyone like that word? How about this instead—the 50/15/5 rule? It's our simple guideline for saving and spending: Aim to allocate no more than 50% of take-home pay to essential expenses, save 15% of pretax income for retirement savings, and keep 5% of take-home pay for short-term savings.
Consider an individual who takes home $5,000 a month. Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000.
60/40. Allocate 60% of your income for fixed expenses like your rent or mortgage and 40% for variable expenses like groceries, entertainment and travel.
Incremental budgeting
It is the most common type of budget because it is simple and easy to understand. Incremental budgeting is appropriate to use if the primary cost drivers do not change from year to year.
"By the age of 35, you should have saved at least twice your annual salary," he says. "So, for example, if you're earning $50,000 per year, you should aim to have at least $100,000 in savings by the age of 35."
Enter Your Monthly Income
50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).
A common rule of thumb is to have at least three months and ideally six months worth of living expenses in your savings at a minimum. This is to ensure you can manage if you were to suddenly be out of a job, if a health problem emerges or a change in personal circumstances occurs.
Small amounts will add up over time and compounding interest will help your money grow. $20 per week may not seem like much, but it's more than $1,000 per year. Saving this much year after year can make a substantial difference as it can help keep your financial goal on your mind and keep you motivated.
Let's break it down. If you need to save $10,000 a year, that means saving $833.33 a month. Breaking it down even further, this means you'll have to save $192.31 each week or $27.40 every day. If you're sharing this with a spouse – cut these numbers in two.
Finally, 20 percent of your income goes toward investments and savings. As a result, it's recommended to have at least 20 percent of your income left after paying bills, which will allow you to save for a comfortable retirement.