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What is the 50 30 20 rule and how can it help you save money?

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The 50 30 20 spending rule is similar to the 80 20 healthy eating rule, where you only need to make healthy choices 80% of the time and can use the remaining 20% giving yourself the freedom to enjoy a burger or some squares of chocolate. The goal with both rules is to simplify your lifestyle habits and to make it more realistic to hit a goal without depriving yourself of anything or suffering.

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The good news is that with the 50 30 20 rule,  you don’t have to split your money into lots of different categories, nor do you have to work on a long, complicated spreadsheet. It is an easy way to help you best spend your money, make saving easier, and ensure your bills are paid.

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What is the 50 30 20 rule?

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The 50 30 20 rule is a popular budgeting method to help with money management. It’s an easy rule to understand and simply splits your after-tax income into three categories. 50% for needs, 30% for wants and 20% for savings. This is flexible and can be changed to suit your needs, but applying the 50 30 20 budgeting rule is a good place to start.

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If you consider all the money you take home in a month, using the 50 30 20 rule to divide it would mean you should:

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   Allocate 50% for needs, including all essential payments each month (Housing, Transport, Food, Education, Childcare, Bills)

·   Allocate 30% for wants, including non-essential spending (Treats, Gifts, Restaurants, Fast food, Social events) 

·   Allocate 20% for savings and debt repayment (Emergency fund, Savings goals, Credit cards)

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What are the benefits of the 50 30 20 spending rule?

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The 50 30 20 spending rule is a way to build a structure for your spending and monitor your habits in a way that isn’t too disruptive. If you start using the rule today, you’ll see the many benefits of using the 50 30 20 rule, including:

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Flexibility

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‍Although the rule is 50 30 20, you can tweak it to suit your lifestyle. Everyone has different financial obligations and goals, and the 50 30 20 rule is a flexible budgeting option. If you have less to pay out each month, you can adjust the ratios to save more or treat yourself now and again.

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Living within your means

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‍Living within your means is the only way to be financially stable and secure. When you budget using this rule, you can ensure you are spending below what you earn. This means you can have money left over for savings and emergencies, preventing you from living beyond your means, paying overdraft fees, or getting into unnecessary debt.

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Encourages you to save

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Having savings is a good idea, no matter which percentage you use, you should always save something if you can. By setting aside savings consistently, you build an emergency fund and work towards long-term goals.

You can set up a direct debit for 20% of your earnings to go straight into a savings account, so it’s gone without you realising. This way, you won’t forget to transfer it as it is already taken care of. HyperJar helps you split your savings into jars so you can easily see where you’re at. You can rename the jars whatever you want, and keep everything organised in the app easily. 

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Balance

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The 50 30 20 spending rule encourages a balanced approach to your finances, ensuring you cover necessities while allowing for some fun and prioritising saving for the future.

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How to get started with the 50 30 20 rule?

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If writing a budget fills you with dread, don’t panic. You only need to answer a few questions to get started with the 50 30 20 spending rule.

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1. Determine your income

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‍The first step is to calculate your total income after tax. You should include all of your income streams so you can use the 50 30 20 rule effectively. You should include:‍

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·   Full-time job

·   Part-time job

·   Side hustle

·   Self-employment

·   Benefits or allowances

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2. Calculate your expenses

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Next, you need to calculate all of your expenses. This needs to include everything you would normally spend in an average month. Go through the transactions on your banking app or print off a statement, so your calculations are accurate. You then need to determine which category your transactions fit into. Are they essential, discretionary, or going towards savings or debt payments?

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a) Essential expenses‍

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Essential expenses are everything that is necessary to live. This is sometimes called the cost of living. Essential expenses include:

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·   Housing

·   Food

·   Transport

·   Insurance

·   Childcare

·   Gas, electric and water

·   Mobile phone

·   Internet

·   Debt payment (Student loan, Credit Card, Overdraft fees)

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b)   Discretionary expenses

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Discretionary expenses are basically anything that does not fit into the essential expenses category. It should not be confused with disposable income. It is the items or experiences that you could live without. These are often leisure activities, treats or extras you buy monthly. This can be: 

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·   Socialising

·   Fast food

·   Holidays

·   Clothing

·   Cinema

·   Restaurants

·   Beauty treatments

·   Gym membership

·   Gifts

·   Buying lunch at work

·   Take away coffee

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c) Debt and savings goals

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Each person will have different savings goals and levels of debt. To reach your savings goals, you need to save regularly. The more you save, the quicker you will reach your goals. Simply with debt, the more you pay off, the quicker you will be free of debt.

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·   Transfer a regular amount into a separate savings account

·   Reaching financial goals

·   Saving for a special occasion such as a wedding

·   Paying off debt quicker

·   Pay off student loan

·   Emergency fund

·   Saving for retirement

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3. Amend your budget

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When you have a clear picture of your incoming and outgoing expenses, you can amend your budget to suit your financial position. If you’re spending more than you earn and living above your means, you need to change your spending habits to get your budget under control. You can amend your budget to create the perfect balance for you. For example, if you’re saving for a house deposit, you’ll need to amend your budget so you have more left over to save each month.

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4. Review and reflect

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‍The 50 30 20 budgeting method is flexible. You can change the ratios to work for you. If the cost of living crisis has hit you hard, a 2023 HyperJar survey suggested that a  70 20 10 spending  rule might be more realistic. With high inflation and steeply rising food and energy prices — and stagnating salaries — we had a hunch that 50 30 20 just wasn’t as feasible for most UK families anymore. So we asked 1,000 of our customers whether they could practise the 50 30 20 rule and asked what ratio did fit their finances. Overall, we found that allocating a higher proportion to needs, raising 50 to 70, and spending less on wants and savings, was an overall consensus when we did that research in February 2023.

However, the 50 30 20 ratio is a great place to start if you are new to budgeting. You could start by giving it a go this way, look at how you are spending after month one, and change it if it doesn’t feel realistic.‍

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Spending smarter with the 50/30/20 rule

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Whether you’re doing the 50 30 20 rule or the 70 20 10 rule, the biggest expense will always be your needs. That should come as no surprise, right? We need to eat and we need a place to live and along with that comes a great deal of costs that add up - supermarket shopping, rent or mortgage payments, fuel bills, a mobile phone contract and more. But would you like to reduce how much you spend on your needs, giving you more to save? At HyperJar, we’re experts in smart spending.

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We researched how much money it was possible to save by making smarter spending choices. Using a mix of Office of National Statistics data and our own customer surveys, we found it was possible to save £350 a year by haggling on household expenses. If you remember when your broadband, TV, phone and electricity packages are up for renewal and negotiate for a better deal, you won’t be automatically moved up to the standard subscription package, which is often higher than the one you originally took out. If you put this £350 into a savings account that paid 5% interest and did the same for 25 years in a row, you’d have saved £16,704 in 25 years, just by haggling.

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Switching from branded food, drinks and loo roll to supermarket own brands could save you even more. Using readily available prices, we calculated that you’d save £500 a year by giving up the brands. Put £500 a year into  5% savings account and you’ll have £23,864 after 25 years. 

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On top of that, you can save more on food shopping by using HyperJar cashback vouchers. Every time you buy a voucher to use at the retailer of your choice, you’ll get instant cashback. Is going to the cinema or eating out in your wants category? You can use HyperJar cashback vouchers to save on those and other wants. Look at the cashback tap in the HyperJar app to see what savings you could make.

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How HyperJar can help you stick to the 50/30/20 budget rule

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As well as helping you make smarter spending choices, the HyperJar app can help keep you on track with the 50 30 20 rule by making it easy to divide your money into digital Jars and spend directly from them.

All you need to do is create three jars. These should be:

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50%: Needs

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This jar will cover  Rent, Bills, Groceries, Car, Insurance, etc. Roughly 70% of your take-home pay should go into this jar. If your needs take up more than that, remember this is just a guide.

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30%: Wants

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The fun things in life. Holiday, Christmas, Pocket Money, Takeaway, Movies...whatever you look forward to. Roughly 30% of your pay should go here.

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20%: Savings

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You should aim to have a Rainy Day or Emergency Jar, and a Savings Jar, making up 10% of your total. Again, these percentages are simply goals to aim for.

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Set up Auto Payments

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You can set up automatic transfers from your main account to your Jars. This ensures you consistently contribute towards your savings goals without needing to manually transfer each time.

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Link those Jars

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After you’ve filled your Jars, you’ll want to link them to shops. That way, when you spend at Tesco or M&S, for example, the money will come out of your Needs Jar automatically. To link a shop, find it on the Shops tab, tap Link, and choose a Jar.

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After a few weeks of spending from your Jars, you should get a good idea of what your spending and saving ratio should realistically be. Whether it’s the 50 30 20 spending rule or the  70 2010 rule or something else, you’ll be on your way to a more secure financial future, and saving should become less of a struggle. Why not give it a go? There’s nothing to lose and everything to gain!

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If you want to get your budget under control and get a handle on your spending, you need to know where your money is going. The 50-30-20 rule is a great budgeting method that will do just that. if splitting your money into lots of different categories doesn’t work for you, you can simplify budgeting with the 50-30-20 method. If you want a simple way to budget that will keep you on track, help you save, and ensure your bills are paid, try this method on for size.

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