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How to use the 50/20/30 budget rule

Fri 07 August 2020

How to use the 50/20/30 budget rule

Budgeting is a key part of becoming and staying financially stable. If you’ve searched for budgeting advice or money saving tips in recent months, it’s likely that you’ve seen consumers and experts mention the 50/20/30 budget.

The 50/20/30 rule allows people to get a handle on their personal finances without too much effort, and these saving tips are a great guide for anyone who’s new to the world of money management and money saving. 

What is the 50/20/30 budget?

The 50/20/30 rule helps you distribute your income and can give you a clearer sense of where your priorities should be.

The rule says that around 50% of your income after tax should be spent on essentials, 20% kept for savings and debt repayment and 30% spent on ‘lifestyle’.

Put simply, it’s 50 on things you need, 30 on things you want, and 20 for the future. 

How to create a 50/20/30 budget

This money saving system is effective if you want to get on top of debt (for example from online loans), save steadily and consistently cover your essential costs.

Here’s how to get started:

1. Work out your monthly income

The 50/20/30 rule starts with the after-tax figure on your payslip - and your income could also include money from bonuses or tips. If your wage varies from month to month, try to work out a minimum average income.

2. Identify your needs

‘Needs’ are the everyday expenses you must pay every month to have an acceptable quality of life. They include:

  • Rent or mortgage payments
  • Basic food, clothing and personal care items (bread, socks and soap for example)
  • Energy bills
  • Commuting costs 
  • Internet and/or mobile phone
  • Minimum payments on credit accounts, online loans and same day loans

Once you’ve identified your monthly essentials, try to make sure you don’t spend over half of your income on them.

If it looks like the total cost of your ‘needs’ will go over 50%, you will need to think about how to reduce your spending - perhaps by searching for other energy providers for example. Remember, there are lots more money saving tips available elsewhere in our blog section.

3. Think about your ‘wants’

This category is for any purchase that can’t be considered completely essential  – and often these costs can add up quickly.

Here are some examples:

  • Alcohol and takeaways 
  • Films and video games
  • Dining out and going out
  • Designer clothes and furniture
  • Holidays

These ‘wants’ should take up no more than a third of your monthly income. Like your ‘needs’, it’s advisable to work out how much your ‘wants’ cost in an average month, then you can find great money-saving ways to reduce spending if you need to.

4. Savings and repayments

According to the 50/20/30 rule you should put the remaining 20% of your monthly earnings towards things like:

  • Paying off credit cards, same day loans and online loans (over and above your minimum monthly payments)
  • Starting an emergency fund
  • Saving for a house deposit
  • Pension contributions

Using these money saving tips, having a plan and sticking to it will allow you to cover your expenses, save for the future and still do the activities that make you happy.

Morses Club specialise in online loans to help with unexpected expenses. Our loans aren’t right for everyone, and you should only borrow what you can afford to pay back. If you would like to find out if a Morses Club same day loan is right for you, read our FAQs for more information.


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