The 50-30-20 rule has recently been getting TikTok users talking, with users creating videos in which they talk about how they’re using it to better manage their finances. Here we explain how much you can actually save if you follow it.
We all find savings strategies to slot into our daily lives without too much effort as a way to boost our finances. However, if you want to get a proper grip on your spending and know exactly where your money is going then the only way is to budget. Whether you use a spreadsheet or a budgeting app is up to you, but the secret is to find a formula that works for you.
Recently, TikTokers have been raving about the 50-30-20 budget rule as a guideline for saving money. The method splits up your income into a percentage to be spent respectively on needs, wants and savings for financial goals.
In this article, we cover:
- How do I apply the 50-30-20 savings rule?
- Is the 50-30-20 even possible?
- What do the experts say about the rule?
Read more: Ten money-saving tricks
What is the 50-30-20 savings rule?
The 50-30-20 rule is a simple way to budget by setting out the percentage of income you spend on three categories: your needs (rent, mortgage, food and household bills), wants (hobbies and entertainment), and savings.
So if you earn the average UK salary of £34,963 a year, your monthly income of £2,237 after tax (allowing for an 8% pension contribution) would be split:
- £1,118.50 on needs
- £671.10 on wants
- £447.40 on savings
You can play around with the rules. For example, should money to pay off a credit card debt come from your needs category or savings category? Should money for holidays come from your wants category or savings category?
Read more: Looking for a place to put your savings? See the best savings accounts
How can the 50-30-20 rule help me budget?
Setting financial goals can help you save more, according to research from the University of Stirling.
The 50-30-20 rule can force you to overhaul your spending across the three categories. You could start by switching your broadband deal, food planning to save money at the supermarket, cancelling unnecessary subscriptions or limiting your number of nights out each month.
If you are motivated enough to stick to the 50-30-20 rule you mighty want to sell unwanted clothes or create a source of passive income.
Is the 50-30-20 budget even possible?
You may well find the 50-30-20 rule out of reach, especially if you’re renting in an expensive part of the UK, such as London, paying for childcare, or just dealing with rising rents, high mortgage rates and still-high energy costs.
If 50-30-20 doesn’t quite work for you, you can adjust the percentage to better suit your living situation. For example, you might find that a 60-30-10 rule or even 60-20-20 is more achievable and still a great way to budget for you.
The rule is not there to make you feel guilty about spending or to put you under unhealthy pressure. It’s a helpful goal for you to work towards.
What the experts say
Steve Reay, financial wellbeing expert at HSBC, believes that there are benefits to using the rule, but that it lacks some flexibility.
He says: “It’s a good rule to ensure that there is a focus on saving and/or paying off debts beyond any minimum payments and establishing healthy financial habits, however small these may start off.”
However, he said that the 50-30-20 rule could be “viewed as idealistic, with a lack of flexibility that does not recognise individual circ*mstances and how things can change across life stages.”
Carys Barnes, head of personal current accounts at TSB, believes that the rule can work for some people, but that people should work out what works for them and their individual circ*mstances.
She says: “The best way to budget and manage your finances really depends on what works for you and your lifestyle. The 50-30-20 rule will certainly work for some people, but others might find it tough to stick to such rigid goals every month and may need to adapt their budget at different points in time.”
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