How to Use the 50/30/20 Rule for Simple Budgeting

At Financial Penguin, we normally recommend building a budget using our online budgeting tool, which helps you split your money into four clear areas: income, essential bills, spending pots, and financial goals pots. This structured approach makes it easy to plan your money with intention.

But today, we’re taking a different approach.

If you prefer something simpler—or just want some budgeting inspiration—the 50/30/20 rule might be for you. It’s a well-known method that helps you divide your income into just three easy-to-understand categories.

Understanding the 50/30/20 Rule

The 50/30/20 rule is a classic budgeting framework designed to keep things simple while covering all the key areas of your financial life. It works by dividing your after-tax income into three parts:

The 50/30/20 Rule: Simple Steps to Budget Smarter

• 🏠

  Needs 50%

  Your must-haves: rent or mortgage, council tax, groceries, utilities, insurance, and essential transport. These are non-negotiables for day-to-day living.

• 🎉

  Wants 30%

  Life’s little extras: meals out, entertainment, hobbies, gym, subscriptions, new gadgets, and holidays. All the fun stuff that makes life brighter!

• 💰

  Savings & Debt 20%

  Paying yourself first: build your emergency fund, add to savings, invest, or pay off debts faster. This is how you grow future freedom.

The goal? Provide a clear structure for your spending without needing spreadsheets or complex tracking systems.

Lots of people don’t know what proportion of their money they should be spending on discretionary items vs investing in the long term. So the purpose of this framework is to provide you with a really simple guidelines of how much you should be spending in each area. If you follow these rough guidelines you should be setting yourself up well for financial success.

How to follow the 50/30/20 Rule

1

Calculate how much money you bring home each month

Start by determining your after-tax income, which is what remains from your salary after taxes, including income tax, National Insurance contributions, and any other deductions. If you have a regular salary, this step is straightforward. For freelancers or self-employed individuals, estimate your average monthly income after taxes.

2

Categorise Your Expenses

Divide your expenses into the three categories of needs, wants, and savings/debt repayment. This might require tracking your spending for a month or looking back at your bank statements to accurately categorise each expense.

3

Allocate Your Income According to the Rule

Based on your after-tax income, allocate 50% to needs, 30% to wants, and 20% to savings and debt repayment. This might require adjusting your current spending habits. For example, if you're spending too much on non-essential wants, consider cutting back to ensure you can save 20% of your income.

4

Adjust as Necessary

Your financial situation is unique, and the 50/30/20 rule is flexible. Depending on your circumstances, you might need to adjust these percentages. For instance, if you're living in an area with high living costs, your needs might take up more than 50% of your income, requiring you to scale back on wants or find ways to increase your income.

5

Regularly Review Your Budget

Your financial situation can change, so it's important to regularly review and adjust your budget. This might mean reallocating percentages as your income or expenses change or as you pay off debt and have more to save or invest.

Budget	Monthly	%
Salary	3,000
Tax	-950
Pension Contributions	-150
Total Income	1,900
Rent / Mortgage	-740
Council Tax	-90
Broadband	-30
Phone	-10
Water, Gas & Electricity	-80
Total Needs	-950	50%
Food	-270
Travel	-100
Personal Pot	-200
Total Wants	-570	30%
Car	-80
Holiday	-100
Wedding	-50
Emergency Fund	-100
Long term saving	-50
Total Saving	-380	20%
Total	0

Benefits of the 50/30/20 Rule

• Simplicity: The rule is easy to understand and apply, making it accessible for budgeting beginners and those overwhelmed by more detailed budgeting methods.

• Flexibility: It can be adapted to fit various income levels and living situations, accommodating changes in your financial life over time.

• Balance: This approach ensures that you're covering your essential needs while still allowing room for enjoyment and prioritising savings and debt repayment.

Summary

If you’re overwhelmed by budgeting or just starting out, the 50/30/20 rule offers a refreshing, no-fuss way to take control of your finances. While we still recommend using our budgeting tool for a more tailored approach, this rule can be a great stepping stone toward better money habits.

Try it for a month. You might be surprised how freeing it feels to have a simple system—and how powerful small changes can be.