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The 50 30 20 rule is one budgeting method to help you plan your spending.
The rise in the cost of living has made managing finances more important than ever. Times are hard for many, and it might not be easy to think about savings. You can stick to these percentages strictly if that works for you, or take a more flexible approach depending on your needs and circumstances.
The key is making sure you can cover your essential costs, buy some of the things you want, and try to put some money into savings regularly.
To make the 50 30 20 rule work for you, it’s important to know what category your spending falls into – needs, wants or savings.
These are the essentials. The expenses you can’t avoid or manage without. They include:
Wants are non-essential expenses. These are the things you choose to spend money on, but you could manage without if you had to. For example:
Savings are handy for unexpected expenses and to cover needs that happen annually, including:
Also, while minimum repayments are considered ‘needs’, extra repayments on loans or credit cards are considered savings because they reduce existing debt and future interest.
So, how do you stick to the 50 30 20 rule? It can be tricky, especially if you’re on a lower budget. And the cost of living crisis is only going to make it harder.
Don’t be hard on yourself if you struggle to stick to 50 30 20 exactly – just do what works for you, as long as it means you’re able to save a little on a consistent basis.
Here are some ideas to make life easier and keep within the 50 30 20 rule.
It might be tempting to spend more on wants when you have a saving pot behind you, but savings are useful for so many reasons.
Savings are also useful to cover time lags. For example:
If possible, it’s good to aim for at least a few months of rent or mortgage repayments in savings, in case the unexpected happens. Hopefully, you’ll never need it, but having some savings could be reassuring as a financial buffer.
With price rises, think about saving a little extra when you can. Our savings calculator could help.