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.
A worked month on 4,000
| Item | Type | Monthly |
|---|---|---|
| Rent | Need | 1,400 |
| Groceries | Need | 350 |
| Utilities and phone | Need | 180 |
| Transport and insurance | Need | 70 |
| Eating out, subscriptions, hobbies | Want | 1,200 |
| Emergency fund and retirement | Savings | 800 |
Needs come to 2,000, which is exactly 50%.
Bills that do not come every month
Annual and occasional costs break most budgets: car insurance, a yearly subscription, gifts, car repairs. Add them up for the year and divide by 12. A 900 car insurance bill becomes 75 a month, set aside each month so the money is there when the bill arrives.
Common mistakes
- Budgeting from gross pay. Tax and deductions are not yours to spend. Start from what actually reaches your account.
- An income that changes. If your pay varies, budget on your lowest month of the past year and save the extra in good months.
- Leaving no room for fun. A budget with nothing for wants is usually abandoned within weeks. A small, fixed amount for spending freely makes it last.