The 50/30/20 rule
Split your monthly take-home pay, what arrives after tax, into three parts:
- 50% needs: rent or mortgage, utilities, groceries, insurance, transport to work and minimum debt payments.
- 30% wants: eating out, subscriptions, holidays, hobbies.
- 20% savings: the emergency fund, retirement and paying debt off faster.
On 4,000 a month that is 2,000 for needs, 1,200 for wants and 800 for savings.
Making it fit
- List a normal month of spending from your bank statements.
- Mark each item as a need or a want. Be honest: the basic phone plan is a need, the upgrade is a want.
- Compare the totals with the targets and adjust. Where housing is expensive, 60/20/20 or 70/20/10 may be more realistic.
- Move the savings out on payday, before you can spend it.
What to save for first
A common order is a small emergency buffer, then high-interest debt, then a full emergency fund of three to six months of essential expenses, then longer-term goals.
Calculators
The Budget Calculator splits your pay by 50/30/20 or your own percentages. The Emergency Fund Calculator sets the fund target, the Savings Goal Calculator shows the monthly amount for any goal, and the Net Worth Calculator tracks the whole picture.