The 50/30/20 budget rule explained
A simple way to split your take-home pay: half on needs, 30% on wants and 20% on savings or paying down debt. Here is how to use it.
What the rule says
The 50/30/20 rule splits the money you take home each month, after tax, into three groups:
- 50% for needs. The essentials you have to pay: rent or mortgage, council tax, energy, water, groceries, travel to work, phone and broadband, insurance and minimum debt payments.
- 30% for wants. Things you choose: eating out, subscriptions, hobbies, clothes, holidays.
- 20% for savings and debt. Emergency savings, pension top-ups, investing, and any debt payments above the minimum.
An example
If you take home £2,500 a month, the rule suggests about £1,250 on needs, £750 on wants and £500 on savings and extra debt payments. Work out your own take-home first with the take-home pay calculator, then put your spending into the budget helper, which sorts your costs into the three groups and compares them with the targets.
What counts as a need or a want
The line is not always clear. Groceries are a need, but a big shop of luxuries is partly a want. A phone is a need, but the most expensive tariff may not be. A useful test is to ask whether you could not pay it without serious consequences, such as losing your home, your job or your energy supply. If yes, it is a need. A cheaper version of a need can move the difference into wants or savings.
If your needs take more than 50%
In many places housing costs alone take more than half of take-home pay, so a 60 to 70% needs share is common. Treat the rule as a guide, not a test you pass or fail. If needs are high, the usual advice is to trim wants first, and aim for as much savings as you can manage, even 5 to 10%, then increase it when your income rises or a cost falls away.
Why the 20% matters
Putting savings first, rather than saving what is left over, makes it more likely to happen. A good order is a small emergency fund, then paying off expensive debt, then longer-term saving. If you have debts you are struggling with, free help is available, see our debt advice guide. For growing savings, try the savings calculator.
Make it work for you
- Work out your take-home pay each month.
- List what you spend, using bank statements and bills.
- Sort each cost into needs, wants and savings.
- Compare with 50/30/20 and decide what to change first.
- Check again in a few months, because costs and income change.
Where to learn more
This guide is for information only and is not financial advice.