The 50/30/20 rule is a popular budgeting method that can help people curb their non-essential spending and save more money – but it may seem out of reach for some households
The acclaimed 50/30/20 budgeting strategy might seem unattainable for households spending over half their income on essential expenses, but a single key adjustment could make it all work.
The 50/30/20 rule is praised as one of the top budgeting methods to curb non-essential spending and is also considered one of the easiest to adhere to for most people. However, numerous households across the nation may mistakenly believe that it’s impossible to apply this budget to their expenses.
This method focuses on allocating 50% of your post-tax income towards necessary expenses and bills such as rent and utilities, 30% towards wants, and the final 20% towards savings each month. For many, this ratio provides the ideal balance between saving and spending, offering immediate gratification without jeopardising future financial objectives.
In the midst of the cost of living crisis, many households may find they are already spending more than 50% of their income on daily life necessities. But this doesn’t mean they have to abandon the method entirely, as the ratios can be adjusted provided all three sections are still included.
For instance, if a household spends 60% of their income on needs, they can maintain the 30% for wants and allocate 10% towards savings. This can also be adjusted based on your priorities. If someone spends 60% on needs but has a goal of saving more, they may allocate the 30% towards savings and reserve the 10% for their wants.
Those in debt can also allocate the savings portion to clear their debts first before accumulating their nest eggs, which might necessitate more than the original 20% ratio. Determining how much to allocate to each segment at the outset requires a thorough examination of your overall finances.
This can be done manually by individuals reviewing their monthly bank and credit card statements to ascertain how much they are currently allocating towards their needs, wants, and savings or debt repayments. This will help them understand how they can transition into this budgeting method. Some budgeting apps may also automatically categorise their spending.
Needs typically encompass essential monthly and daily expenses such as rent, groceries, transport, childcare, insurance, minimum loan payments, and utilities. Wants, conversely, are non-essential expenditures that many may find themselves needing to reduce to achieve the 30% target. These could include dining out, clothing, club memberships, hobbies, and travel.
