Budgeting often feels like something only spreadsheet lovers can do. But what if it didn’t have to be complicated? That’s where the 50/30/20 Rule comes in.
It’s a refreshingly simple method and a powerful starting point for anyone who wants to manage their money with clarity, structure and flexibility.
Welcome to part 3 of our budgeting series at HuliaAngélique. Today, we introduce you to one of the most beginner-friendly strategies available.
For the other articles in the series, expand here.
What Is The 50/30/20 Rule?
The 50/30/20 Rule is a budgeting framework that breaks your after-tax income into three simple categories, by percentage:
- 50% for Needs
- 30% for Wants
- 20% for Savings, Investments (and Debt Repayments, if applicable)
This rule was popularised by US Senator Elizabeth Warren and her daughter Amelia in their book All Your Worth: The Ultimate Lifetime Money Plan.
Their goal?
Simplify budgeting by providing a broad and intuitive structure that allows people to maintain a balanced lifestyle while working toward financial security.
If simplicity is the name of the game for you, the 50/30/20 rule might be right up your alley.
Why It Works – The Psychology Behind It
The brilliance of the 50/30/20 rule isn’t just in its simplicity. There’s also a psychological link to it. Not to get too nerdy, but here are a few.
Cognitive Simplicity: Your brain is more likely to engage with and adhere to a system that is easy to understand and follow. Reducing the number of spending categories reduces decision fatigue.
Behavioural Anchors: The 50/30/20 split becomes an anchor – a rule-of-thumb that your brain can fall back on when making decisions.
Reduced Guilt: By allocating some income to your “wants,” the rule doesn’t force you to eliminate enjoyment. Instead, the 50/30/20 rule encourages intentional indulgence.
Momentum Building: Because it’s simple to apply and monitor, the framework highlights your small wins, which promote long-term budgeting confidence and consistency.
If you can ‘trick’ your mind into budgeting, the rewards can be life-changing.
A Deep Dive Into Each Category
The 50/30/20 rule allocates your income into three baskets – needs, wants and savings. Here’s an in-depth breakdown.
Needs
These are your essential expenses, your non-negotiables. They cover everything you require to function and survive. Some common examples include:
- Groceries
- Rent or mortgage payments
- Utility bills like electricity and water
- Health insurance and other medical costs
Important Note: Minimum Debt Repayments
Any minimum monthly payments on debt balances are considered needs – you must pay them. Any additional repayments fall into the 20% savings, investments, and debt repayments section.
Common ‘Needs’ Misconceptions
- Your Netflix subscription? Not a need.
- Your luxury gym membership? In most cases, it’s a want.
- Designer clothes for work? Unless it’s mandatory for the job…want.
Optimisation Tips
- Review your fixed expenses annually and shop around for better deals on insurance, phone contracts and utilities.
- Meal prep: It’ll be a hassle for a day or two, but you’ll be free from cooking for the rest of the week…and your wallet will thank you.
Wants
Wants are the things that make life enjoyable but aren’t necessary for daily function or survival. Examples include:
- Travel
- Shopping
- Eating out
- Hobbies and entertainment
Why You Need This Category
Budgeting without room for enjoyment leads to burnout. If your budget is too restrictive, you are more likely to rebel against it.
Something To Keep In Mind: Lifestyle Inflation
Lifestyle inflation often affects this section of a budget. Just because your income increases doesn’t mean spending must increase, too. Periodical reviews of your wants help avoid this and keep spending in check.
Mindful Spending Techniques
- Joy Per Pound: Before making a “want-related” purchase, ask yourself: “How much satisfaction will I get from this, per pound spent?” This question puts things into perspective, and your answer will determine if you buy the item.
- Post-Purchase Reflection: After buying something, rate your satisfaction, say, after a week. Use this feedback to guide future spending.
Savings, Investments & Debt Repayments
This bucket is for building financial security (savings and investments) and paying down debt more aggressively (debt repayments). How do you go about doing so?
- Saving: For your next big trip or future home.
- Additional Debt Repayments: Gets rid of it faster.
- Building an Emergency Fund: Because life happens.
- Long-Term Investments: Benefit from compound interest.
Some Tips For Success
- Automate Your Savings: Less thinking, more saving!
- Set SMART (Specific, Measurable, Attainable, Relevant, Time-Bound) goals: E.g., pay down £1,000 of debt in 6 months.
- Use Visuals: Progress charts make your goals feel real.
Who The 50/30/20 Rule Works Best For (And Doesn’t)
The 50/30/20 rule works best for (1) beginners, (2) people with consistent monthly incomes and expenses, and (3) anyone looking to gain financial control without the stress and complexities of micromanaging every penny.
But it’s not one-size-fits-all.
What To Do When The 50/30/20 Rule Doesn’t Fit?
If you want the simplicity of the 50/30/20 rule but need to tailor it, that’s fine. People often adjust the percentage splits to suit their lives.
Here are some alternatives that still reflect the core principle – simplicity.
- The 70/20/10 Rule: Often used by lower earners whose needs take up most of their income.
- The 40/20/40 Rule: Usually used by aggressive savers and investors who want to accelerate their journey to financial independence.
- The 50/20/30 Rule: Best for individuals who want to prioritise faster debt payments without compromising their ability to meet their needs.
Frankly, any percentage split is possible – once your needs are met.
Applying The 50/30/20 Rule (Step-by-Step w/ Examples)
Creating a 50/30/20 budget only takes five simple steps.
Step 1: Calculate Your After-Tax Income
Gather and total all your income sources – your monthly paycheque, income from side hustles, and any other monthly earnings.
For example, if Sammy works a 9-5 job at Tesco and earns £2,000 per month, has a side hustle that earns him £1,000, and receives £200 in monthly dividends, his total income would be £3,200.
Step 2: Categorise Your Current Spending
Use your bank statements to group and understand your current spending. It will make the next step easier.
If Sammy consistently spends 50% of his income on needs, 30% on wants and 20% on savings/investments, he knows what percentage split to use…a 50/30/20 split. If he regularly spends 40% of his income on needs, 20% on wants, and saves/invests the other 40%, he can use a 40/20/40 split.
Step 3: Set Your Percentages, Allocate Your Income
You can now set the percentages based on your current spending or an allocation you want to achieve.
That’s why step 2 is crucial. You don’t want to force your life into a budget – you want to use the budget to enhance your life. Once you’ve set your percentages, multiply your income by each.
So, if Sammy uses a 40/20/40 split, his monthly allocation by category would look something like this:
- Needs = £1,280 (£3,200 x 40%)
- Wants = £640 (£3,200 x 20%)
- Savings & Investments = £1,280 (£3,200 x 40%)
On the conventional 50/30/20 split, it would look like this:
- Needs = £1,600 (£3,200 x 50%)
- Wants = £960 (£3,200 x 30%)
- Savings & Investments = £640 (£3,200 x 20%)
Step 4: Adjust As Necessary
Your budget should be altered when your financial situation changes. For example, if Sammy gets a promotion at work, he may be able to allocate a higher percentage to savings and investments, assuming his needs and wants remain relatively unchanged.
On the other hand, if he suddenly finds himself in a tough spot, he can:
- Introduce spending limits on wants to get things back under control
- Increase needs and reduce savings and investments to course correct in the short term
Budgets should be flexible – a flexible budget is a lasting budget.
Step 5: Set Monthly Goals
The last step is turning your insights into action.
These “mini” monthly goals can be as simple as setting up an automatic savings transfer to a high-yield savings account or paying down an additional £50 of debt. They only have to align with your goals, values and priorities.
Rounding It All Up!!
The 50/30/20 rule is a simple yet powerful gateway into budgeting and intentional spending. It offers structure without rigidity and flexibility without chaos by dividing your income into three broad categories: needs, wants, and savings.
The framework removes the stress of micromanaging every penny while giving you meaningful control over your finances. It’s ideal for beginners and anyone looking to build healthier money habits without overwhelm.
Whether you’re starting fresh or seeking clarity, the 50/30/20 rule provides a balanced, stress-free way to manage your money. It allows you to enjoy today while planning wisely for tomorrow.
