What is the 50-30-20 budgeting rule and how to calculate it?

Looking to get your finances in order? The 50-30-20 budget rule is a great place to start! Find out how to calculate it, its benefits and more - read now.
Colby Brin
October 19, 2022
min read

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.

This guide will cover:

 What is the 50-30-20 budget rule? 

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 rule is a good place to start. The rule splits your money into three simple categories:

·   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)

Benefits of using the 50-30-20 rule

The 50-30-20 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, including:


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.

Living within your means

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.

Encourages you to save

Having savings is a good idea, no matter which percentage you use, you should always save something if you can. 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.

Provides clear guidelines

This budgeting method is simple. With a few easy calculations, you can work out how much of your after-tax income will be spent on needs, wants and savings. It’s a clear guideline that works for any income type or amount.

No financial uncertainty

Money can cause lots of stress and worry. Budgeting means you can take control of your spending and your financial life. When you know how much you have to spend, you can apply it to your life straight away. You’ll have peace of mind that all your essential bills are taken care of, and you won’t have to worry about saving money for a rainy day.

Limitations of the 50-30-20 rule

Although this rule is universal, there are some limitations to the 50-30-20 rule. The main limitation is that although the rule is flexible, it does not account for individual situations such as:

●  Does not account for different income levels or expenses
●  Does not account for different financial goals
●  Does not account for different levels of debt
●  It may not work well for very low or very high-income individuals
●  It splits your money into just three categories, which can be too basic for some people. 

50-30-20 rule calculator

If you’ve decided to try out the 50-30-20 rule but don’t know how to get started, this section provides guidance on the 50-30-20 rule calculator. Firstly, work out your total income after tax, including all regular income streams. Then get your maths brain switched on (or just get a calculator as we do) and work out each percentage.

For example, if you earn £1,800 per month after tax

50% of £1,800 = £900 for needs

30% of £1,800 =£540 for wants

20% of £1,800 = £360 for savings

With this example, you can see exactly how much to allocate to each category. This can be used as a guide to personalising your budget. You must amend this to suit your goals, essential payments, and debt commitments.

How can you get started with the 50-30-20 rule?

If you don’t want a detailed budget with lots of different categories, try the 50-30-20 rule. All you need to know to get started is your total income and your outgoings. It’s easy to get your head around it and see the benefits immediately. Here’s how to get started:

1. Determine your income

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:

·   Full-time job

·   Part-time job

·   Side hustle

·   Self-employment

·   Benefits or allowances

2. Calculate your expenses

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?

a) Essential expenses

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

·   Housing
·   Food
·   Transport
·   Insurance
·   Childcare
·   Gas, electric and water
·   Mobile phone
·   Internet
·   Debt payment (Student loan, Credit Card, Overdraft fees)

b)   Discretionary expenses

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: 

·   Socialising
·   Fast food
·   Holidays
·   Clothing
·   Cinema
·   Restaurants
·   Beauty treatments
·   Gym membership
·   Gifts
·   Buying lunch at work
·   Take away coffee

c) Debt and savings goals

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.

·   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

3. Amend your budget

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.

4. Review and reflect

The 50-30-20 budgeting method can work for everyone as it’s flexible. You can change the ratios to work for you. If you want to save more and spend less on non-essentials, you could try a The 50-30-20 budgeting method can work for everyone as it’s flexible. You can change the ratios to work for you. If you want to save more and spend less on non-essentials, you could try a 50-20-30 ratio. Or, if you live at home and have fewer outgoings, you can lower the essential spending ratio to the new 70-20-10 money rule to suit your lifestyle and goals. It’s important to review your budget regularly to keep on top of your finances if anything changes.

The 50-30-20 rule is a great place to start if you are new to budgeting. It works well for people who want to simplify the budgeting process and ensure they are savings regularly too. By splitting your money into three categories, you can clearly see where your money is going and prioritise where you spend it. The 50-30-20 rule provides a basic framework for getting your finances on track.

Colby Brin

Head of Copy

Colby Brin is Head of Copy at HyperJar. With over 17 years of professional writing experience, Colby’s been a journalist, ghostwriter, language consultant, and writing trainer. Having previously served as Head of Copy at Wise, he’s worked in fintech for over six years. A native of New York City, Colby graduated from the University of Michigan, and has lived in London for two years.

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