Were you aware that, as per the FCA, 34% of adults in the UK either lack savings entirely or have less than £1000 in their savings account? Budgeting and saving don’t have to be complex endeavors. The 50-30-20 rule offers a simple and effective method to manage your finances each month. Keep reading to discover how this rule operates and the potential benefits it could offer you.

WHAT IS THE 50-30-20 RULE?

The 50-30-20 rule serves as a helpful budgeting tool to assist you in effectively managing your spending. According to this rule, you divide your monthly income into three categories: needs, wants, and savings. By determining the appropriate allocation for each category, you can better adhere to your budget and maintain control over your expenses.

Needs – 50% of your income towards essential living expenses such as bills, food, rent/mortgage, and transportation.

Wants – 30% of your income on non-essential expenses such as eating out, shopping, holidays, and subscriptions.

Savings – 20% of your income towards putting money into a savings account, paying any outstanding debts, or a pension fund.

Certainly, everyone’s budget will vary based on their individual needs and spending preferences. Adhering to the 50-30-20 rule depends on what you personally deem essential. If you find that your spending doesn’t align with this rule, especially if your needs surpass 50% of your budget, that’s perfectly acceptable. It may be possible to make adjustments to reduce these expenses, such as switching energy providers or seeking more affordable grocery options. However, trimming down needs can present challenges.

Instead, it’s beneficial to scrutinize your “wants” and question whether they are truly necessary. This could include expenses like unused gym memberships, entertainment subscriptions, or impulse purchases. By cutting back on discretionary spending, you can allocate more funds towards meeting your needs or achieving your savings goals.

For instance, let’s consider John and Lisa, who have two children and a mortgage with a combined monthly income of £4,000. Following the 50-30-20 rule, they allocate:

– £2000 for needs
– £1,200 for wants
– £800 for savings

To bolster their savings for a family vacation, they decide to make some adjustments. They cut down on takeaways, saving £100 per month, cancel John’s gym membership, saving £30 per month, and reduce Lisa’s online shopping expenditure, saving another £70 per month. These changes amount to £200 in monthly savings from reducing their discretionary spending.

It’s important to recognize that even small changes can accumulate and have a significant impact. Reviewing your direct debits, subscriptions, and discretionary spending on dining out or takeaways can reveal opportunities to save money and improve your financial situation.


To use the 50-30-20 rule, you must calculate the 50:30:20 ratio based on your income each month. Here’s how it works:

1.) Calculate your after-tax income for the month.

Add up how much you receive to your bank account each month by looking at your payslip if you are employed, if this varies month to month then work out an average for the past 3 months.

2.) Categorize your spending.

Next, multiply your take-home pay by 0.50 (50% for needs), then multiply by 0.30 (30% for wants) and 0.20 (20% for savings). This will show you ideally how much you should spend in each category.

3.) Plan your budget around these numbers and stick to it!

Now that you know how much of your money will be going towards your needs, wants, and savings, you can start adjusting your budget where needed to help stick to the 50-30-20 rule going forward


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