Personal Finance

The 50 / 20 / 30 Budgeting Rule In The UK

These days there are just as many ways to budget your money as there are diets.

In this case, it’s the 50 / 20 / 30 budget.

You might have heard of the envelope system, the incremental budgeting, maybe even zero-based budgeting. But the 50 20 30 budget is something completely different entirely.

So, lets talk about what is it, how do you do it and most importantly… does it work?

What Is The 50 / 20 / 30 Rule?

The name 50 / 20 / 30 rule comes from the divisions your income receives for budgeting purposes. What makes this form of budgeting so very special is that there are only three true budget categories.

I’m a huge fan of this as I often think budgeting can become over complicated. Especially for someone who’s new to personal finance or perhaps someone who doesn’t have the time for a complex spreadsheet of income and expenditure.

Here’s the 50 20 30 budget broken down;

50 Percent = Living Expenses

According to the budget, 50 percent of your income should go to living expenses and life essentials. That’s things that are essential to your living;

  • Rent
  • Utilities
  • Supermarket shopping
  • Bus pass
  • Car insurance etc…

Task #1

Take a moment to note down your essential living expenses and the amount on a blank notes document in your phone or on a scrap piece of paper.

Head to this 50 / 20 / 30 calculator and input your income. Does the amount shown in the 50 percent column amount to the same amount your spending on your living expenses?

If yes, great. You’re within budget and earning enough to follow on with the next two sections of the budget.

If no, you have a problem. Your earnings are not covering the minimum amount for you to live and follow this budget. You need to look at increasing your income either with a promotion or side hustle.

Alternatively, you might want to look at ways you could cut your living expenses. Perhaps changing utility companies, renting out a spare room in your flat etc…

20 Percent = Financial Goals

The second part of the 50 20 30 budget is all about financial goals.

The budget believes that 20 percent of your income should go towards your financial goals. These include things such as; savings accounts, retirement plans, emergency funds etc…

Task #2

Take a look at the calculator below. In the 20 percent field, you should be seeing a financial goals amount that is advised based on the 50 20 30 budget.

It’s up to you to decide where you put that money. You might want to split it between a couple of different things such as; savings accounts, retirement funds etc.

30 Percent = Flexible Spending

Finally, we have the remaining 30 percent of your income. This equates to flexible spending, also known as… well… everything else.

It’s up to you to decide how you are going to spend this money. It could be things such as a new video game, a meal out, meeting friends for drinks, a new outfit… You get the idea.

Some people who budget using the 50 20 30 budget choose to include their food shopping within flexible spending.

It’s their belief that to a certain extent you’re in control when it comes to how much you spend at the supermarket. It’s up to you whether or not you choose to do so.

Task #3

Take a look at the amount in the final column below. The one that shows 30%.

Is it what you expected?

Do you think you spend more or less on your flexible spending?

People often underestimate how much they spend in this section of the budget.

Think about tracking how much you spend for one month on flexible spending. Then see how that compares to the amount below.

If you’re already using a personal finance service such as MoneyWiz, YNAB, MoneyDashboard etc. then you can use this to compare your last month’s flexible spending

If you’re under, great. Maybe consider increasing your spending percentage or using the remaining amount to purchase things you might need in the near future such as gifts for friends and family for Christmas etc.

If you’re over budget. Think of ways you can reduce your flexible spending. What are you willing to sacrifice?

The 50 / 20 / 30 Calculator

The calculator below will calculate the 50 / 20 / 30 rule based on your income. All you need to enter is the income field at the top, and let the calculator do the rest.

The website is American therefore the amount is shown in dollars rather than pounds. So just pretend the dollar sign is a pound sign.

The 50 / 20 / 30 Rule In Action

Just like any form of budgeting, the 50 20 30 rule is only a guide. A benchmark designed to help you understand where your money is and where it should be going.

That said, there is no reason why the budget cannot be adjusted or adapted based on your specific lifestyle and goals.

Example

Let’s assume your take-home post-tax is £20,000 a year. That’s equivalent to £1,666.66 per month.

Your living expenses should fit within 50 percent of this which is: £883.33

The amount you take out to reflect your personal goals should be: £333.33

The amount of flexible money you have should be no more than: £499.99

For many people, this could work. However, if you’re living in a major city for example London. It’s likely that your rent alone is going to be your entire living expense.

In this case, you might want to look at adjusting your percentages based on your financial needs.


If you’re married then pooling your money together might make it so you don’t need your full allowance of flexible spending.

Again, it’s up to you to suggest how you might want to use that remainder, you might want to adjust the personal goals to 30 percent and shift the flexible spending to 20.

Does The 50 / 20 / 30 Rule Work?

The short answer to this question is both yes… and no.

Provides Clear Directive

The 50 20 30 rule helps keep budgeting simple and provides you with a clear directive when it comes to where your money is (or isn’t) going. It’s by no means the saving grace – in fact, no budget is.

Just like any budget, this is only going to work if you are willing, to be honest with yourself and stick to it.

Helps You Understand How Your Lifestyle & Budget Match-Up

This rule should be able to help you understand how your lifestyle and earnings are matching up at a glance.

For example, if your living expenses are costing more than 50 percent of your paycheque. Then you’re going to realise thanks to the 50 20 30 budget and be able to ask yourself – why?

I think the importance of the budget, again, like any budget is to be realistic. For example, can you live without a TV licence? – Probably.

In which case the cost should be going in the flexible amount, not the living expenses.

What If I’m Spending More Than The 50 / 20 / 30 Rule Suggests?

As we reach the end of this article, you might be in shock. Good or bad.

In this case, I want to talk about the bad… You’ve calculated your spending against the budget and you’ve found that it doesn’t fit.

In this case, it’s time to take a long, hard look at your career, lifestyle and living arrangement.

Now, don’t get me wrong. It’s very easy to opt to cut out the 20 percent. Stop contributing to savings, emergency funds, pensions etc. and use the remainder on flexible and living expenses. However, this decision is going to hurt you a lot more in the long run.

What To Do If Your Living Expenses Are Too High?

If the budget has highlighted that your living expenses are too high then perhaps look at ways you can subsidise that. Look at renting out a spare room or your couch on Airbnb or even finding a room-mate. You could also look at renting out your parking space on Just Park.

If that doesn’t work consider moving to a smaller property in an area in which house prices are cheaper. Try and adjust your providers to reduce your bills or even ask for a promotion at work.

Are Your Flexible Expenses Too High?

I find for many adjusting flexible expenses is easier.

Start by taking stock of what you have. For example, if you have 20 bottles of half-used shampoo then maybe it’s time to use them up before purchasing any more.

If your wardrobe is bursting at the seems then you clearly don’t need any new clothes.

If you’re going out on the weekend with friends and find yourself spending a little too much on alcohol. Then consider asking them to come round with a bottle of wine for a movie and a pamper night.

Conclusion

The 50 / 20 / 30 rule a fantastic way to see how your budget should match up with your lifestyle.

If you’re new to budgeting and personal finance then I think it’s a great way of getting started and learning more about the situation you are in.

As always I’d love to know what you think of the 50 / 20 / 30 rule.

Do you use it?

Do you think an alternative budgeting method is better?

Let me know in the comments below.

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