The 50/30/20 Rule & Should You Be Using It?

The 50/30/20 Rule & Should You Be Using It?

Today we’re going to talk about something a little bit different and that’s the 50/30/20 rule? Let’s face it, we live in a world where we have to spend money and it’s really up to us to decide if we can or cannot afford something.

So let’s go over everything you need to know about how much money you should really be spending. Throughout every single category from housing, transportation, utilities, coffee, you name it. We’re going to be going over what the experts call the 50/30/20 rule for managing your money. Then after that, I’ll give you my thoughts as to how much money you should be spending for everyday items based on how much money you make.

When it comes to successfully managing your money and building your wealth so that you’re not living month to month, the 50/30/20 rule is probably one of the most widely used rules of thumb out there. The basics of this are extremely simple for anybody to understand in less than a minute. Which is probably why the the 50/30/20 rule is so popular today.

First you take your after tax income, which is obviously the income you have left over after paying your taxes and you divide that up as follows:

50% of that income should be spent on your needs. Or in other words, things you absolutely have to have in order to survive. This is meant to be your mandatory expenses that you need to pay every single month. So right there half your income is already spent on this.

Next, 30% of your income should be spent on your wants. Now these are things you don’t need to have, but they’re nice to have. This could include going out to restaurants, shopping for new clothes etc. These are the things that make life a little bit more fun, but at the end of the day you don’t need to have them.

Finally, the remaining 20% should be spent on savings. Can you spend your savings if you’re saving them? Anyway, let’s go with it. The remaining 20% should be spent maxing out your retirement accounts, paying down debt and coming up with a six-month emergency fund.

But how accurate is this 50/30/20 rule really? Is this actually something you should follow if you want to be wildly rich one day? Or be able to retire early?

I’ll be the first to tell you, if you follow the 50/30/20 rule it’s going to be nearly impossible to get off the hamster wheel of life and be able to retire early.

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Here’s why:

If you save and invest 20% of your income every single year and we assume that your investments are generating a 7% return. With inflation it’s going to take you 37.5 years for your investments to grow to a value where you could retire, from what’s known as the 4% rule. This is the formula that says you could spend 4% of your portfolio every single year for 30 years whilst maintaining the exact same lifestyle.

Although let’s be real, I don’t know about you, but almost 40 years of doing this every single year, just to be able to retire. Doesn’t sound like good money management to me.

The 50/30/20 rule categories get wildly absurd the more money you end up making. All of a sudden the relative cost of buying something becomes a smaller and smaller percentage of how much money you make. For example, let’s take a look at this perspective: if you make £50,000 a year after taxes, spending 10% of your income on food is £5000 a year and that would be reasonable for most people.

But if you make £500,000 a year, spending 10% of your income on food is £50,000 a year and that’s absolutely absurd! So as you can see, even though this might work for some income brackets. The more money you make, the more this becomes very inaccurate.

So let’s go over the actual amounts of what you should be spending in every category. I’ll go over what the experts recommend and then I will go over my own recommendations. So that way you can maximise the value of every pound and budget correctly.

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The Needs Category


Let’s begin with that needs category, and for most of us housing is the first thing that comes to mind. When it comes to this, most experts recommend that housing should not exceed one-third of your income.

So if your rent is £1500 a month, you should be making £4500 a month. Or if you calculate this backwards, for every £3000 a month that you earn, you could spend £1000 of that on housing.

Now this is something I partially agree with. However, I would much rather suggest that for most people, they try to aim for more like 25% of their income on housing at the very most. Or if at all possible more like 20% of their income really, the gist of this is spend as little on housing as you possibly can.

I know this might be really difficult to do depending on where you live, and in places like London it’s pretty much impossible. However, if you can get your housing costs down by potentially living with roommates, moving to a less expensive area or renting out a bedroom or two, I would highly recommend it.

Not to mention you can always spend more money on housing later if you absolutely need to. But saving as much money now up front is going to get you much further ahead.


Now, the conventional wisdom when it comes to this is that your total cost for transportation should not exceed 15% of your income. And the total price you pay for a car should not exceed 35% of your annual salary.

So using this metric, if you make £50 000 a year. The most you should spend on a car is £17,500 and the total cost should not add up to more than £7500 a year for your payments, insurance, fuel, repairs and so on.

I would say for most people who go and buy new cars every few years equivalent to their annual salary, this is pretty good advice.

However, 50/30/20 rule or not. I would still caution people from spending that amount of money on a car. Especially if you don’t absolutely have too.

Instead I much prefer the Dave Ramsey approach when it comes to how much money you should be spending on transportation.

He recommends that your transportation costs should not exceed 10% of your annual income. You should never go and buy a new car unless you have a net worth of more than a million pounds. I would go so far to suggest that if you go and buy a car, the cost of the car should not exceed 25% of your annual income.

So if you’re making £50 000 a year, go and spend £12500 on a new car at the very most. Choose something that won’t go down too much in value.

Again this is a maximum. So if you own your car outright and it’s only costing you £200 a month for fuel, repairs, maintenance and insurance that’s great, keep it that way for as long as you can and just save the difference!

Remember the more money you make, the more ridiculous it becomes to spend 10% of your income on transportation.


The general rule of thumb when it comes to this is that you should not be spending more than 10-15% of your income on food. Which I think overall is pretty reasonable depending on how much money you make.

That means that the person making £40,000 a year after taxes, is spending anywhere from £330 to £500 a month on groceries, restaurants, food and so on.

Which again, is reasonable. However, I personally believe that your food budget should not necessarily go up relative to how much money you make. Like, if you’re earning £100,000 a year, spending £1250 on food is absolutely ridiculous. Why would you do that? I would say a better guide here is to spend 10% or £600 a month on food, whichever is less.

Oh sure, if you’re making £250,000 a month. Going out for dinner once a week is not gonna break the bank. Especially if you just barely go over that £600 mark. But just use common sense and don’t get carried away on food just because you make more money.


When it comes to this most professional budgets recommend that you spend another 10-15%. Which sounds reasonable depending on how much money you make.

However, just like the food budget, your utility budget should not be going up the more money you make.

So here’s what I think is reasonable as far as utilities go. Generally for most people you’re going to be spending anywhere from £50 to £250 a month depending on where you live and how hot or cold you like to keep your house. 3% of your income or £500 to £600 a month at the very most for most people in most circumstances, again no more than that.

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The Wants Category

That now leaves you with 52% of your income at the very minimum leftover to do what you want with and this is where things get good.

To start I would allocate 10% of your income to literally do whatever you want with.The 50/30/20 Rule & Should You Be Using It?

Yes, seriously spend 10% of your income on whatever you want. Whatever you see fit, as long as it’s within reason, it makes you happy and you’re not an idiot about it.

If this is money you want to put towards getting a slightly nicer house, then go for it. If this is you going and getting a slightly faster car, then go for it. As long as it does not involve spending money at Starbucks, I think it’s important that you’re able to spend some money on things that you enjoy. 10% of your income is enough to get it out of your system without totally breaking the bank.

I have a feeling the psychological aspect of this is going to make budgeting, planning and saving that much more enjoyable. Without feeling like you’re depriving yourself just for the sake of saving more money. Think of this one a little bit like your cheat meal. So that you don’t just continuously save money and then all of a sudden go and blow it in one go.

The Savings Category

Now that means you have 42% left over to do something really special with and you guys know me, you know what I’m gonna say. Save and invest the difference? That’s right! 42% of your income should go right to investments in this order.

First if you have any high interest rate debt above 5%. You should use some of this money towards paying that down, but assuming now you don’t have any debt. Or any debt you do have is under 5% interest, then here’s what I would do with your money.

The first thing I would do is build up a six-month emergency fund in cash, held within a high interest savings account.  This one is pretty self-explanatory. But it’s always a good idea to have some cash sitting on the sidelines in case of an emergency or something unexpected coming up.

Once you’ve done that. The next step should be maxing out your pension contributions.

From there, whatever remaining money you have left over should go towards any sort of taxable account or any investment that will just grow in value over time.

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That might include using the link above and getting a free stock when you deposit £1. Because one of those stocks could potentially be worth all the way up to £100. So if you haven’t done that yet go and get your free share and let me know which free stock you got in the comments below.

The 50/30/20 Rule & Should You Be Using It?Seriously, investing money like this into stocks, property or index funds is going to be a very good strategy for you to use with anything that’s left over.

Using the 4% rule means if you start doing this at 20 years old, you would be able to retire by the age of 40 if that’s something you want to do. Just by following this a 20-year time frame for retirement is absolutely possible with this budgeting technique. And it’s still going to give you a lot of flexibility just in case something goes wrong.

However i’m not quite done yet! Even though we’ve now budgeted 100%, this spending is not treated equally. See, just like the 50/30/20 rule, what most people do is they cover all of their expenses first and then whatever is left over, is saved.

Although for this budget to work we have to reorganise it straight away. So that 40% of your after-tax income is going to be saved without even thinking about it. Right from the very beginning.

Really once you do this the hardest part is over, and then the rest of the money could be budgeted appropriately. You might also be wondering about that missing 2%? Well, realistically no one ever budgets down exactly to the dot each and every month. Most people are going to naturally fluctuate about 5-10% month over the month. Depending on what expenses come up. So just go ahead and take that 2% as a buffer if you need it. Some people will need more than this, other people less than this. This is just meant to be a rough guideline.

It’s also really important to acknowledge and mention that the more money you make, the more these percentages just get out of whack. So once you begin hitting some of these maximums you should just get in the habit of investing and saving the difference consistently.

Also I get it, 40% is a lot of your income to save! I don’t expect this to be an overnight transition for anyone. Especially if you’re already spending a lot of money.

However I strongly recommend you begin tracking your expenses, saving your money and cutting back as needed. Whilst still working at the same time to increase your income. So that that way you’re able to save more money.

Then over time a 40% savings rate is going to be a lot more achievable, and by following the 40/10/50 rule. It’s going to be a lot easier to save money long term. You’ll be able to achieve financial independence so much faster.

Do you want to get a free stock share worth up to ‎£⁠100?

Like I mentioned, if you want a free stock use the link above and you’ll get a free share when you deposit £1. With that stock potentially being worth all the way up to £100. Let me know which free stock you get.

Do you use the 50/30/20 rule? If not, what’s the best advice you’ve received for managing your money? Feel free to share in the comments below.

Welcome to Vivre Le Rêve, an online lifestyle magazine for all those who are or who want to be living the dream! I’m Rose, the lifestyle editor here at Vivre Le Rêve.