The 50 / 20 / 30 Rule – How Minimalists Budget, But Does It Work?

The 50 / 30 / 20 rule is one of the easiest budgeting methods to follow. Used by many minimalists it's idea for those who just can't budget. I've used this article to highlight whether or not the 50 / 30 / 20 rule works inc a calculator to tell you how to split your income based on your earnings - it really couldn't be made any easier... Welcome to budgeting for beginners!

These days there are just as many ways to budget your money as there are diets. With 2017 in full swing it’s no wonder so many people are looking to the latest budget trend the 50 / 20 / 30 rule. You’ve heard of the envelope system, you’ve heard of incremental budgeting, you’ve even heard of zero based budgeting. But the 50 / 20 / 30 rule 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. The thing that makes it so special in this sense is that there are only three true budget categories. Instead of 40 different envelopes or bank accounts trying to keep track of each individual expense.

50% Living Expenses

50% of your income should go to living expenses and life essentials. By essentials I don’t mean new eyeliner… Instead I’m talking about your rent, utilities, and things like your supermarket shopping and bus pass or petrol to get you too and from work.


20% Financial Goals

By financial goals I’m talking about savings accounts, retirement plans, emergency funds and so on… Decide what’s most important (i.e. paying off debt) and once achieved move onto splitting your financial goals up to suit your future (i.e. a certain percentage in a savings account, and a certain percentage going towards a retirement plan)


30% Flexible Spending

Flexible spending equals everything else. Meals out, going out for drinks, a night at the cinema, that new outfit and so on… Some choose to include food within their flexible spending as it’s really under your control as to how much you spend at the supermarket. Feel free to adjust what’s included within your flexible spending based on your budget and circumstances.


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 50 / 20 / 30 Rule In Action

Keep in mind that whilst the 50 / 20 / 30 rule or any budget for that matter is great, it’s only a guide. A helpful benchmark to understand where you’re money is and should be going. That said, there is no reason that it can’t be adjusted or adapted based on your specific lifestyle and goals.

Let’s assume you’re take home post tax is £20,000 per annum or £1,666.66 per month. Your living expenses should fit within 50% of that which in this cases is £883.33 The amount of money you take out each month to reflect your personal goals should be £333.33 Finally, the amount of flexible money you have for holidays, make up etc… should total no more than £499.99.

For many this might work, however if you’re in a major city such as London it’s likely that your rent alone is going to be your entire living expenses and in which case you should look to adjust your percentages based on your financial needs. If you’re married then together you may not need your full allowance of flexible money. However, if you’re nearing the end of your career you may instead opt to increase the percentage you’re putting into your personal goals to ensure you’re going to have a comfortable retirement.


Does The 50 / 20 / 30 Rule Work?

So we know what it is, we know how it works, but the question is…does it actually? 

and the answer to this is yes… and no.

Whilst the 50 / 20 / 30 rule keeps your budgeting simple and helps you have a clear directive when it comes to where you’re money is or isn’t going. It isn’t the saving grace. In fact, no budget is. Any budget system is only going to work if you’re willing to be honest with yourself and stick to it. The beauty of the 50 / 20 / 30 rule is just how simple it is. If you’re someone who gets bogged down with the math or the deciding of how much money should go where then this budget is most definitely for you.

This rule should also help you understand how you’re lifestyle is matching up. For example, if you’re living expenses are costing more than 50% of your paycheque then it’s time to look at why. It’s important to be realistic for example, can you live without a TV licence?

If not then is that a living expense or part of your flexible budget? This can be a big eye-opener to many who may find that they need to opt for a less lavish house, or in fact lifestyle in order to plan for the future accordingly. That said, even if you don’t 100% stick to the 50 / 20 / 30 rule it’s worth auditing you’re accounts against it to see just how realistic your lifestyle and living situation is, before it’s too late. Whilst there are now many mobile applications on the market to allow you to track your spending.

Plenty like to stick to the good old fashioned pen and paper. All forms of budgeting are going to be much easier when organised. Find a method that suits you. And be sure to set aside time to ensure you’re sticking to it.


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

If you have spent some time adjusting you’re finances to the 50 / 20 / 30 rule but no matter how hard you try it just doesn’t seem to fit. In which case it’s time to take a long hard look at your lifestyle and living arrangement.

It’s easy to opt to cut the 20% and stop contributing to savings, emergency funds etc. However, this decision is going to hurt you a lot more in the long run. Instead, you need to look at taking action now, while you can.


Living expenses too high?

Consider ways in which you can subsidise that. Perhaps rent out a spare room or your couch on Airbnb or your parking space on Just Park. Consider starting a second job or picking up a side-hustle. It’s even worth considering moving house or getting a room-mate. Selling your old clothes and electronics on eBay is going to be all well and good, but you’re going to need to increase your income long term if you want to make this work.


Flexible expenses too high?

Then take stock of what you have. If you have 20 bottles of half used shampoo it’s time to use them up before buying anymore. Wardrobe bursting at the seems? – Then you clearly don’t need any new clothes. If you’re going out on a weekend with friends and spending too much on alcohol then consider inviting friends round to yours for a movie & pamper night.


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