What is the 50/30/20 budget rule and will it help you save?

The 50/30/20 budget rule may change the way you think about money.

There comes a time when you realise that you have to start saving. There's only so much spending on frivolous things you can do, really, before you end up in an abyss of regret, surrounded by clothes from Penneys and coat tickets from Leggs. You've got to be an adult, dammit. Luckily, no matter how badly you're paid or how high your rent is, your finances are controllable, when you know how to control them. (Finding out how to snare a life partner and have a kid before you're 45 can be figured out later.)

You probably don't know where to start, though, and that's where the 50/30/20 budget rule can come in handy. Elizabeth Warren, a bankruptcy expert at Harvard and a US Senator to boot, coined the phrase. It became well-known in 2005 when her book, co-authored with her daughter was published. All Your Worth: The Ultimate Lifetime Money Plan was a bestseller and inspired many the person young and old to reevaluate their finances.

See how to cut down on how much you spend on clothes here.

What is the 50/30/20 budget rule?


The rule splits your finances into thirds: 50% of your income represents your 'needs'; 30% represents your 'wants', and the last 20% represents your (no need for inverted commas) savings.

Your needs are basic things you kinda have to spend money on: rent/mortgage, household spends like food and toilet paper, car payments, dental, doctor etc.

Your wants could be considered 'luxuries': eating out, shopping, cinema, theatre, hobbies, etc.

Savings can go towards a rainy day fund or for big purchases like a wedding or house. It should also count towards repaying loans and your credit card.

Your 'income' in this case is your payment after tax and other contributions like a pension. When you examine your take-home income, see if you can limit your 'needs' to 50% of that number. But first, maybe reconsider what you recognise as 'needs' and 'wants'. Does your Netflix subscription really constitute as a want? Is a bi-annual dental check-up only just a 'need'?


If you're ready to give yourself an audit and try to tackle your financial situation, this simplified version of the 50/30/20 could be a good starting point, if only because it will force you to look at the way you spend. For an in-depth look at your budget, you could do with contacting a financial advisor.

Do you struggle to save? Do you have any tricks that could encourage spendthrifts to tighten up their spendy ways?

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