The 50/30/20 budget rule: what are the pros and cons?

What is the 50/30/20 budget rule? What are the pros and cons? Is it right for you? Alice Guy takes a closer look at this popular budgeting method.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.

Image source: Getty Images

Is the 50/30/20 budget rule the right budgeting method for you? How can you decide which budget method to use? Here’s what you need to know about the 50/30/20 rule and some of the pros and cons.

The 50/30/20 rule explained

According to the 50/30/20 budget rule, you should spend 50% of your take-home pay on needs, 30% on wants and 20% on savings and investments.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

‘Needs’ includes essentials like your rent, bills and food. ‘Wants’ includes things you have a choice to spend your money on, like clothes and hobbies. ‘Savings and investments’ includes paying off debt, building up cash savings and investing for retirement.

4 pros of following the 50/30/20 budget rule

1. The 50/30/20 rule is simple. You can sit down and quickly work out what you are spending on each category. You can also see whether you’re spending too much in one area and not enough in others. For example, if you are spending more than 30% on wants, it might be the push you need to look at ways to cut costs and boost your savings and investments.

2. It puts savings first. Saving 20% of your take-home pay may sound like a lot, but if you want to build wealth, then it’s no good spending all your money! Using the 50/30/20 rule to put savings first helps you save more money towards future plans including retirement.

3. The 50/30/20 rule frees up money for the fun stuff. You don’t need to feel guilty about buying another dress or eating out with friends as long as you don’t spend more than 30% of your earnings on wants.

4. It can give you a sense of achievement. It’s an amazing feeling to be in control of your money and to see your savings building up with the 50/30/20 rule.

4 cons of following the 50/30/20 budget rule

1. Using the 50/30/20 rule may not be possible for everyone. Some people may need to spend more than 50% on essentials. A family living on a single income, for example, may really struggle to keep their spending to 80% of their income. They may still want to budget carefully, but decide to save less than 20% at the moment.

2. It may not be right for you if you need to save more. For example, someone in their 50s who doesn’t have savings may need to save more than 20% of their income to build up a pension quickly. They might be at a stage of life where they have paid off their mortgage and decide to spend less on essentials, but more on saving.

3. It can be hard for people with variable incomes. Self-employed people may need to put money aside to cover quieter periods. They might sometimes need to save more than 20% and then dip into their savings at other times.

4. The 50/30/20 rule doesn’t mention ice creams! I mean, is an ice cream a want or a need? It’s food, but not completely essential if we’re being honest! The point is that it’s not always simple to split spending between wants and needs.

It’s your money

It’s your money and only you can decide whether the 50/30/20 budget rule is right for you. You may want to use it but adjust the percentages slightly to meet your needs. You may want to look at other budgeting methods before you decide which to use. Budgeting tools, zero-based budgeting and the cash envelope system are all popular methods.

Ultimately, it’s your budget and your decision. Just remember to leave room in your budget for ice creams!

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »