The cost of living crisis has highlighted the importance of budgeting and financial planning. Here, we talk to two financial experts about the ‘50/30/20’ budgeting rule. Many will find that it’s not a realistic approach, given the cost of living squeeze, so we also look at some alternative budgeting methods.
What is the 50/30/20 rule?
“A 50/30/20 budget is a simple way of making a plan for your income and allocating your spend,” says financial coach Selina Flavius. “There are clear and distinctive categories - 50% for needs, 30% for wants and 20% to put aside as savings.”
For example, if £1,500 comes into your account each month, £750 would go towards your ‘needs’ - rent, council tax, energy bill, food and transport to and from work. This would leave you with £450 to spend on what you want and £300 to pay down credit card debt, or set aside for an emergency fund, in case something expensive breaks and you urgently need to fix it. Money for trips away or birthday presents for friends can come either from your ‘wants’ money or savings – it’s up to you.