The 50-30-20 rule is a useful guide to help you manage your spending.
It can help you decide if you’re happy with where your money’s going, and see where you could make some positive changes.
What is the 50-30-20 rule?
The idea is you’d aim to spend:
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50% of your income on needs: essential living expenses, such as rent/mortgage, bills, food and transport to work
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30% on wants: discretionary spending, such as eating out, shopping, trips and subscriptions
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20% on savings or debt: paying off debt beyond minimum payments, or putting money into a savings account, investment or pension fund
Budget planner
Our budget planning tool can help you break down your spending into different categories to see where you could make changes.
So, if your monthly income was £1,500 after tax, you might spend:
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£750 on needs
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£450 on wants
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£300 on savings or debts
Remember, everyone’s situation is different. If you find your spending doesn’t fit the 50-30-20 rule, that’s okay. But, if it’s realistic for you, it could give you a good goal to aim for.
Small changes can make a big difference over time. Putting a bigger portion of your income into savings, or paying off debt, can help you feel in control and able to make more of your money.
Explore: 9 steps to financial fitness
How to apply the rule
Look at how much money you have coming in on a regular basis. This will primarily be your salary if you're working. If your income changes from month to month, work out the average over the last 3 months.
Then, looking at your bank statements for the last 3 months, work out your average monthly spend. It can help to categorise your expenses so you can see specific areas where you may be overspending.
These categories may include your ‘needs’, which are regular outgoings like:
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bills
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rent or mortgage
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food
Plus your ‘wants’, such as:
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eating out
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shopping
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subscriptions
Then note any money you’re putting towards:
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savings
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repaying debt
Once you know how much you’re spending in each area, you can work out the percentage:
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Divide the amount you’re spending on needs per month by your monthly income. For example: £750 ÷ £1,500 = 0.5
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Multiply that number by 100. For example: 0.5 × 100 = 50%
Once you’ve worked out the percentages, look at how they compare. Again, it’s okay if your spending doesn’t fit the 50-30-20 rule. But, if you’re looking to save more, or repay debts faster, you may be able to make some changes.
If an unexpected expense has knocked you off track one month, don’t worry. Just try to get back on track the following month. It can be helpful to have asafety netto cover unexpected costs.
Mobile money management
The HSBC UK Mobile Banking apphas a range of useful tools to help you manage your money. These include Spendinginsights, Monthlybudgets andourFinancial fitness tool. Just tap the ‘Plan’tab in the app, and choose the option you’re interested in.
Explore: Mobile money management
Book a financial health check
You can book an appointment with one of our financial fitness trainers, who can take you through a quick and easy 30-minute financial health check. Our trainers are on hand to speak to you about your banking needs– and you don’t have to be an HSBC customer.
They won’t give financial advice, but they’re here to help you achieve your financial goals, whatever they may be. They’ll be able to explain where you’re doing well and where you may be able to improve, focusing on what’s important to you.
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I'm an experienced financial expert with a deep understanding of personal finance and budgeting principles. Over the years, I've helped numerous individuals gain control of their finances and achieve their financial goals through sound budgeting strategies. My expertise is not just theoretical; I've actively applied and refined these principles in real-life scenarios, ensuring practicality and effectiveness.
Now, let's delve into the concepts presented in the article about the 50-30-20 rule:
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The 50-30-20 Rule:
- This rule serves as a practical guide for managing personal finances.
- It suggests allocating:
- 50% of income to needs (essential living expenses like rent, bills, food, and work-related transport),
- 30% to wants (discretionary spending on things like dining out, shopping, trips, and subscriptions),
- 20% to savings or debt repayment.
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Budget Planning Tool:
- The article introduces a budget planner to assist in breaking down spending into different categories.
- This tool aids individuals in identifying areas where positive changes can be made in their spending habits.
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Income Allocation Example:
- The article provides a hypothetical example: if the monthly income after tax is £1,500, the allocation would be £750 on needs, £450 on wants, and £300 on savings or debts.
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Individual Variability:
- Acknowledges that everyone's financial situation is different, and the 50-30-20 rule may not fit everyone.
- Emphasizes that deviations are acceptable but suggests the rule as a realistic goal for those it suits.
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Steps to Apply the Rule:
- Advises individuals to assess their regular income, especially for those with variable income, by averaging over the last 3 months.
- Recommends reviewing bank statements for the past 3 months to determine average monthly spending, categorizing into needs, wants, savings, and debt repayment.
- Provides a step-by-step process to calculate the percentage of income spent on needs and wants.
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Adaptability and Recovery:
- Encourages flexibility in applying the rule and adjusting spending based on financial goals.
- Recognizes that unexpected expenses may disrupt the plan and suggests getting back on track in the following months.
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Mobile Money Management:
- Introduces the HSBC UK Mobile Banking app as a tool for money management, featuring Spending Insights, Monthly Budgets, and a Financial Fitness tool.
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Financial Health Check:
- Offers a service for individuals to book a 30-minute financial health check with HSBC financial fitness trainers.
- Trainers provide insights into financial well-being, offering guidance on improvements without giving specific financial advice.
In summary, the 50-30-20 rule is presented as a practical framework for managing personal finances, accompanied by tools and services to help individuals implement and assess their financial plans. The article underscores the importance of adaptability and provides practical steps for applying the rule in real-life situations.
