Make a Budget with the 50/30/20 Rule
Budgeting doesn't need spreadsheets with 40 categories. The 50/30/20 rule splits your money three ways and takes ten minutes to set up.
The three buckets
Start with your take-home pay: what lands in your account after tax. Then split it:
| Bucket | Share | What goes in it |
|---|---|---|
| Needs | 50% | Rent or mortgage, utilities, groceries, insurance, transport to work, minimum debt payments |
| Wants | 30% | Eating out, streaming, hobbies, holidays, clothes beyond the basics |
| Savings and debt | 20% | Emergency fund, retirement, investing, paying off debt faster than the minimum |
Needs vs wants
A need is something you'd be in trouble without. A want makes life nicer. The basic version of something can be a need while the upgrade is a want:
- Groceries are a need; takeaway is a want.
- A phone plan is a need; the newest phone is a want.
- Getting to work is a need; a fancier car than you require is partly a want.
Be honest, not harsh. The point isn't to cut every want. It's to choose them on purpose.
Find out where your money goes
- Download the last two or three months of bank and card statements.
- Mark each payment as Need, Want or Savings. Your banking app may already group spending by category.
- Add up each bucket and compare it with 50/30/20.
Pay yourself first. Set up an automatic transfer to savings on payday. What you never see, you don't miss.
Start an emergency fund before anything else in the savings bucket: aim for one month of expenses, building up to three to six.
Make it fit your life
50/30/20 is a starting point, not a law. In an expensive city, needs may take 60% or more; then trim wants to keep saving something. If you have high-interest debt, push extra into the 20%.
General guidance, not financial advice.