What is the 50 30 20 rule of budgeting?

Key Points. The 50-30-20 rule is a simple guideline (not a hard-and-fast rule) for building a budget. The plan allocates 50% of your income to necessities, 30% toward entertainment and “fun,” and 20% toward savings and debt reduction .

What is the simplest budgeting method ever?

1. The zero-based budget . The concept of a zero-based budgeting method is simple: Income minus expenses equals zero. This budgeting method is best for people who have a set income each month or can reasonably estimate their monthly income.

What is the 40 40 20 budget?

The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20% .

What is the budget rule of thumb?

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings . The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.

What is the number one rule of budgeting?

The 50/30/20 rule is a streamlined plan for anyone looking to spend and save responsibly. This rule recommends that you spend 50% of your post-tax income on necessities (housing, food, utilities, transportation, insurance, childcare); and 30% on wants (travel, gym memberships, cable, dining out, etc.).

What is the golden rule budgeting?

Key Takeaways. The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do . The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.

What is the simple formula for budgeting?

One popular budgeting option is to follow the 50/30/20 rule , which requires you to allot a designated portion of your earnings to savings, wants, and needs. This method is also called “the balanced money formula,” as it can help you strike a healthy balance between saving and spending.

Can you live on $1000 a month after bills?

Getting by on $1,000 a month may not be easy, especially when inflation seems to make everything more expensive. But it is possible to live well even on a small amount of money . Surviving on $1,000 a month requires careful budgeting, prioritizing essential expenses, and finding ways to save money.

Can you live with $5,000 dollars a month?

Outside the most expensive parts of the United States, $5,000 per month is typically enough to cover rent or mortgage payments and other lifestyle expenses if you're mindful of your budget .

What is the 60 20 20 rule?

Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings . Once you've been able to pay down your debt, consider revising your budget to put that extra 10% towards savings.

What is one negative thing about the 50 30 20 rule of budgeting?

Cons. Percentage guidelines don't work for everyone : For some people, the 50/30/20 budget just isn't realistic — especially with today's rising cost of living. If, for example, debt alone takes up 20% of your budget and your needs far exceed 50%, you may need to take a different approach.

Is the 50/30/20 rule realistic?

“ It's unrealistic for most people ,” Musson says. “It might have made sense to save 20% of your income when housing took up half the percentage of a budget that it does today. Now, both rent and mortgage payments demand so much more from each paycheck.”

Is 50/30/20 gross or net?

Key Takeaways. The 50-30-20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should dedicate 20% to savings, leaving 30% to be spent on things you want but don't necessarily need.

A simple guide to budgeting - Times Money Mentor (2024)

From making a budget to sticking to it, our step-by-step guide explains how to get to grips with your spending.

Knowing where your money is going is the first step to managing your finances better.

Budgeting can allow you to pay off your debts faster and achieve your future goals by being aware of exactly what you have coming in and going out of your bank account.

In this article, we explain:

How can I create a budget?
What are some ways that I can I cut out unnecessary spending?
How can I stick to a budget?
What are the best budgeting apps?

Related content: Guide to a financial detox

*This article may contain affiliate links that earn us revenue

How can I create a budget?

Creating a budget might sound a bit tedious but, once you have got perspective on how much you can save, it can leave you with a sense of excitement about the future.

1. Go back over your bank statements

If you use online banking, you might want to print off your bank and credit card statements for the past three months (or more) so that you have all the transactions to hand.

It’s a good idea to set aside a couple of hours to create a decent budget. You could:

Stick to pen and paper
Set up a spreadsheet
Use budgeting tools such as apps or software

Now you’ve got to work out your earnings and outgoings as we explain below.

2. Work out what’s coming in

The first step is to tot up all your income. Possible sources include:

Your take-home pay, that is salary after tax and any deductions
Freelance earnings, part-time work or side hustles
Benefits such as child benefit, child tax credit and pension credit
Maintenance or child support
Savings interest
Investment income
Pension income
Rent from property

If your income shows up as a monthly pay packet, that makes life much easier. But if it varies, look back over the past few months, and work out the monthly average.

Keep it realistic, rather than rely on a mega bonus that might never materialise.

3. Work out what’s going out

Now you need to transform yourself into a spending detective. Scour your bank statements to discover exactly where your money goes. The checklist below also works well for a student budget.

Regular bills

Start with regular monthly outgoings, as it’s easier to track down direct debits and identify payments you make frequently.

As you list the amounts, divide them into four types:

Essential bills: fixed expenses such as rent or mortgage, council tax, water, gas, electricity, broadband, landline, mobile and insurance payments.
Nice-to-have items: TV subscription services (it is actually possible to live without Netflix), gym membership, magazine and music subscriptions, charitable donations.
Debts: student loans, car financing, credit card repayments, other loans, bank charges.
Savings: any standing orders or direct debits to savings accounts, investments and private pension payments.

Looking for a TV package? Discover how to get the best deal and save money

Variable spending

Variable spending is trickier, so look back over several months, tot up totals and work out how much you spend on average each month.

Again, divide between essentials and nice-to-have:

Essentials: groceries, clothing, basic toiletries, medicine, childcare, commuting costs.
Nice-to-have: takeaways, eating out, entertainment, sports, hobbies, cleaning, gardening.

Find out how to get cheap train tickets.

Infrequent spending

Christmas and birthdays can be surprisingly costly but you know that they come round every year. Budgeting can help you plan for presents, parties and festive food, so your finances survive the fun.

Add in figures for annual expenditure on items such as holidays, car MoT, servicing and breakdown cover, eye care, dental care and, for the self-employed, tax bills. Then divide by 12 to work out monthly costs.

Looking for breakdown cover? Discover our top picks.

4. Compare money going out with money coming in

Budgeting lays bare whether you can afford what you spend. Once you have identified all your income and expenses, you can add up the monthly totals and compare the two.

If your income covers your spending, you’re off to a great start, even if you might want to improve your finances in future.

If not, budgeting can help you stop draining your savings and tackle any debts.

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What are some ways to cut back on unnecessary spending?

If you need to cut spending, think shrink, swap, borrow or cancel:

Shrink – essential bills by checking you are on the best deal. If tackling them all at once is overwhelming, deal with each account as it comes up for renewal to see where you can cut costs.
Check the interest rates on any debts, too, to see if you could shrink payments by negotiating lower rates or switching to another provider. Discover our best balance transfer credit cards.
Swap – for cheaper alternatives. Do you need the latest mobile handset, or could you keep your existing phone and swap to a SIM-only deal? Could you shop at a cheaper supermarket and downshift from branded to own-brand food?
Borrow – rather than buy. Need a new laptop? Maybe you can borrow an old one. Friends and family who are on board to support you while you get financially fit may be able to help here.
Cancel – direct debits for anything you no longer use. Zap payments to the gym you don’t visit, the monthly magazine you never read and the “trial” subscription you forgot to ditch.

Read more: Recipes that can save you £25 a meal compared to takeaways

How can I stick to a budget?

Creating a budget is all very well. What matters is whether you can stick to it. Here are some tips to keep you on track:

Build in a buffer. Allow a little extra for essentials in case your planned spending overshoots
Set realistic targets. Don’t, for example, assume you can halve your food bill all at once. You may need to cut back more gradually
Focus on your financial goals. Think about what you really want to achieve. Clear savings goals will keep you on track
Tackle the biggest costs. Focus on food, housing and transport first
Keep a planner. Writing down everything you spend will show exactly where your money goes
Embrace automation. Organise your direct debits to go out a couple of days after payday, so the essentials are covered and you know exactly how much you have left to see you to the end of the month
Treat saving like a bill. Set up a standing order to a savings account to go out at the same time as your other bills
Open different accounts. Consider setting up separate accounts for bills, holiday savings and an emergency fund, or use a bank account where you can set up different savings “pots”
Build emergency savings. Experts recommend stashing away three to six months’ living expenses, but £1,000 is a good start. Find the highest paying rates on savings accounts
Seek help. If you are struggling, get support from one of the free debt charities. StepChange, National Debtline or Citizens Advice can all give guidance on debt repayment

If you are looking for more inspiration on ways to save then here are 20 simple ways to save money.

What are the best budgeting apps?

When it comes to budgeting, you can save time and money using your smartphone. Budgeting apps such as Yolt, Money Dashboard and Emma all help manage your money by allowing you to see different bank accounts and cards in one place.

These apps will split your spending into different categories, allow you to set spending targets and flag up pending payments. Check out our round-up of the best budgeting apps.

You can also get free budgeting help from your bank account. The new breed of challenger banks such as Starling* and Monzo offer whizzy apps that send real-time notifications when you spend, add up your outgoings in different categories and allow you to create different savings goals or “pots”.

If you’d like to save, but worry about committing to regular monthly payments, check out automatic saving apps such as Chip* and Plum*. These examine your bank balance and spending habits to work out what you can afford to save, and then transfer small amounts across to a savings account every few days.

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