The 50/30/20 rule

and how to adapt it to your financial situation.

I have recently been looking into the 50/30/20 rule and how it works to manage your finances.

For anyone not in the know, it is the principle that your income is split 50% on bills, 30% on spending and 20% towards saving. This got me thinking about how I spend my money and where I sit with this rule.

As you can imagine, a single parent can only dream of spending just 50% of their income on bills. That would be magical. But the reality is, for most people this does not work. This rule is made for those living at home with parents and paying little to no rent.

So where am I with this rule?

Bills – I spend 64% of my income on bills. This includes absolutely everything.

Spend – This is equal to 4% of my income. Not typical for most people.

Savings – For me this is 32%.

Let’s unpick this a little. On the onset it looks like I am paying a lot for bills. I think this would be the same for most people. I am in a reasonably good paid job and pay for a 2 bed private rented house. I think this would be a lot higher if it wasn’t for the fact that I mean plan and shop around for my bills. I am focused right now on reaching a financial goal of being able to buy a house. This means I have to put a higher amount each month aside to be able to get there. The only way I can do this is by making sacrifices. If I want to achieve this then I do really need to cut any unnecessary spend out. This is why I am on a no spend year (do see previous posts about this journey so far). I think it’s a matter of priorities here. If you do not have big financial goals such as saving a house deposit then a more realistic split would look something like this…

64/16/20 – This is likely to be my split at the point of buying a house. As I will no longer need to save as much money aside each month. However, I do want to create financial security for later on in life and so need to keep saving at a reasonable rate. It may be that my wages increase over the next 10 years, but it would be presumptuous to factor this in just yet. Whilst it is likely, I do need to keep to the facts that I am currently working on.

60/20/20 might be a more likely split for most people with bills to pay.

I would love to know what your thoughts on this budgeting strategy. Is your split nearer to the 60/20/20?

Rachel, That 30 Something Life X