Personal Finance and Online Security

The Simple Hack To Save More Money!

The 50/30/20 rule is a quick and easy way to organise your finances.

A worryingly small number of people in the UK save any money each month. In fact, about one-third of adults in the UK had savings of less than £600 in 2020. Beyond this, nearly one in ten people have no savings whatsoever and 40.93% don’t even have enough savings to live for a month without income.

Now… I didn’t mean to scare you with that opening paragraph but I did want to highlight the importance of saving your money and being money-smart. If you’re feeling overwhelmed with how to start then hopefully by the end of this post, you’ll have a new rule that will give you the boost to start your journey to financial freedom.

What Is the 50/30/20 Rule of Thumb?

This rule is called the 50/30/20 rule and it could not be any easier to implement. It is a rule-of-thumb to allocate your budget according to three categories: needs, wants, goals. This rule is not a hard-and-fast rule but more a rough guideline to help you build a financially strong budget.

Originating from the 2005 book, “All Your Worth: The Ultimate Lifetime Money Plan” written by Sen. Elizabeth Warren, and her daughter, Amelia Warren Tyagi. Sen. Warren echoed my thoughts that in order to get your finances in check, you don’t need to follow a complicated budget!

How to use the 50/30/20 Rule of Thumb?

The 50 30 20 rule simplifies budgeting by dividing your after-tax income into just three spending categories — needs, wants, and goals (savings/clearing debt).

Knowing exactly how much to spend on each category will make it easier to stick to your budget, and help keep your spending in check. Here’s what your budget looks like when using the 50/30/20 rule:

First, calculate your monthly income after tax

This is usually the net pay figure taken from your payslip. Do not forget to include bonuses and tips, etc. If your salary is not so regular, then consider calculating an average or projected income.

1. 50% for your needs:

Now, you have your monthly income, you take 50% and spend on the expenses that you MUST cover each month in order to have an acceptable quality of life.

These include:

  • Rent/Mortgage payments
  • Utility bills (Water, Energy, Gas, etc.)
  • Basic food (this does not include dining out — think bread, water, toothpaste!)
  • Internet
  • Travel costs to and from work (assuming COVID-19 permits)
  • Mobile phone contract (If this is £50+ month for the latest iPhone then you may need to ask yourself some questions)
  • Minimum payments on credit cards (Please, please, please, pay at least the minimum required)

Now, of course, everyone is different, but I feel these expenses are the absolute basics that in today’s society everyone must pay in some form.

Once you have listed all your necessary payments, it is important you do not spend more than 50% of your income on them.

If you’re new to the rule, then look over previous bank statements for your average spending. I summarised this in my other post ‘A beginner’s Guide to Personal Finance — Budgeting’

2. 30% on your ‘Wants’:

You may read this and say “Wow! I can spend a third of my income on things I want?”, but hold on, this category was designed to cover every purchase that isn’t completely essential — and you’ll find these add-up quick.

So, these purchases may be:

  • Eating out/Takeaways
  • Going to the theatre, movies, museum, etc.
  • Holidays/weekends trips
  • Going out drinking
  • ‘Nice’ clothes and new furniture
  • Tech upgrades

If you find that you’re spending too much on your ‘wants’, then it is worth asking yourself — can any of these be cut back or ditched completely?

(aside: Read The Minimalists — it’ll open your eyes to a whole new way of living!)

3. 20% on your ‘Goals’:

Lastly, put away 20% of your monthly after-tax income for goals. These could be saving for a new house, or paying back outstanding debts. (Although, if you’re in debt, then you should seriously consider how big your list of ‘wants’ are!).

The key here is consistency — if you can put aside some money each month and not touch it (hopefully in an ISA), then over time and compound interest, this value will grow and grow.

For example, if your monthly income is £2,000 and you put away £400 each month, then over a year, you’ll have saved close to £5,000! Mind-blown?


Now, What Are The Cons?

Firstly, figuring out your finances is confusing. But, this is why the 50/30/20 rule is so great. It’s a super simple rule-of-thumb that works well.

However, there are some grey areas to the rule:

Can be difficult for low-income people

If you earn just enough to make ends meet, you’re going to struggle to save 20% each month, regardless of how you live, especially if you have a family to support.

Continue tracking your budget

The 50/30/20 rule is great, however, you still need to track your spending and overall budget. I personally bank with Monzo and their app is great as it has a built-in spending tracker that automatically organises everything into their own categories so I can easily see how much and where I spent my money.

Savings may not be enough

20% may not be enough if your financial goals are to buy your first house, especially in a higher-income area, such as, London. Therefore, bend the rule slightly and up the spending and decrease your ‘wants’. Unfortunately, the 50% must remain for your needs!


I hope you have seen the power of the simple 50/30/20 rule of splitting your monthly after-tax income into categories: needs, wants, and goals. Use this rule to begin your journey to financial peace of mind.


Featured image: Artem Beliaikin on unsplash

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Daniel Nelson


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