What’s the 50/20/30 budget rule and is it right for me?

Finding the right budgeting plan to suit you and your financial goals can take some trial and error. 

If you’re just starting your savings journey, are facing debt, or are an established budgeting-pro simply looking for a new approach—the 50/20/30 budget rule may be a good option for you. But what is the 50/20/30 rule and could it help you towards a more financially stable future?

50/20/30 budget rule


What is the 50/30/20 budget rule?

The 50/20/30 rule is a money management tactic that divides your after-tax earnings into three categories: 50% for the essentials, 20% for savings and 30% for everything else. For some people, the 50/20/30 budget rule works because it’s simple and intuitive. However, if you’re in a situation where rent or other essentials take up a majority of your paycheque, you may want to look at other budgeting plans or consider downloading a budgeting app

How does the 50/30/20 budget rule work?

The 50/20/30 budget rule works by breaking your after-tax income into the following categories:

Essentials (50%)

Essentials are classed as bills that have to be paid to survive. This includes: rent, mortgage repayments, credit card payments, car payments, food and groceries, health care, debt payments, utility bills, child-care and any other non-negotiable expenses you can’t live without. It’s important to be strict on what classifies as a need compared to a ‘want’. Luxuries like subscription streaming services and your daily take-out coffee can feel like a need, but they shouldn’t slip into your essentials column.

If you calculate your essentials and find they’re still more than 50% of your income, you may have to look at ways to downsize your lifestyle. Perhaps moving to a smaller home, or choosing public transport over driving.

Savings (20%)

The second step in the 50/20/30 budget rule is allocating 20% of your after-tax income to savings and investments. This includes aiming for an emergency savings fund of approximately three months of living expenses in case of unforeseen events such as losing a job or someone getting ill. 

Once you reach that goal, consider investing money for retirement, saving for a house or investing in the stock market. If you have to use your savings for an emergency, you should try and replace it from your ‘wants’ category at your next paycycle.

Wants (30%)

Wants are all the things we spend money on that aren’t essential. This could be family outings, gadgets, subscriptions, gym memberships, eating out and premium versions of an item or service when the basic version would do. A common example of this is upgrading to the latest smartphone when you could keep your current handset. 

The great thing about creating a ‘wants’ list is that it makes you think more deeply about the little expenses that can add up quickly. Do you need brand-name foods or could you save money on your groceries by switching to generic brands? Little tweaks like these start to accumulate and can make a big difference to your weekly budget.

How to create a 50/20/30 budget plan

Creating a 50/20/30 budget plan doesn’t have to be complicated. All you have to do is follow these five steps:

Step 1. Work out your income after-tax

Spend an afternoon going through your expenses with a fine-tooth comb so that you can calculate what your monthly income is after tax. Don’t just include payments from your primary workplace. Do you receive any government assistance or passive income from a side job or renting out a room? All these income streams need to be added together. 

If you have any HECS repayments or superannuation that comes out of your income, you can add those costs back into your budget as they will be included in your ‘needs’ category.

Step 2. Create your 50/20/30 categories

Once you know exactly what your income is, you can start creating your 50/20/30 splits. If you’re currently experiencing debt, it’s important to prioritise repayments within your ‘needs’ category. It can help to speak to a debt counsellor who will consolidate multiple debts for you so all you have to do is calculate one easy payment each month. 

Step 3. Find ways to stay accountable

One of the hardest things about budgeting is staying on track and accountable. Little temptations can creep in, or an unexpected event occurs and before you know it, you’ve blown your budget and the disappointment makes you throw in the towel completely. 

To overcome any of these hiccups, successful budgeters use expense tracking. This requires you to write down everything you spend in a notebook or good budgeting app. By creating a conscious awareness and physically documenting what you spend each day, you’ll be in the right mindframe to be more cautious with your money. Turn budgeting into a game where you set small achievable goals to beat each month. You’ll be amazed at how fun budgeting can be.

Step 4. Automate payments

Set up linked bank accounts for your three categories and auto transfer your income into them each paycycle. If your income is instantly split into your ‘needs’, ‘wants’ and ‘savings’ it makes tracking and accountability much easier. Auto-transfers are also a good way to repay any debts or pay recurring bills without falling behind.

Step 5. Adjust as necessary and celebrate the little wins

As you start to build your savings or have little successes like paying off an outstanding debt, make sure you come back and reassess your budgeting plan to fit your new circumstances. It’s also important to pat yourself on the back for any little wins you have along the way. As you start to build financial stability, the satisfaction and security that comes with it can feel amazing and you’ll naturally want to continue.

Does the 50/20/30 rule work for people already in debt?

One of the reasons the 50/20/30 rule works for people in debt is because it’s simple and easy to follow. Being in debt can already feel overwhelming, so adding a complicated and confusing budgeting system in place on top of that stress—especially if you have multiple debts going to different recipients—only adds to the overwhelm.

If you’re in debt, one of the most effective ways to make the 50/20/30 rule work for you is to speak to professionals like Debt Counsellors about consolidating some of your debts and other strategies that can help you get back on track and saving again.

Whether its credit card consolidation, debt consolidation or credit repair, Debt Negotiators can help you take control again.

Unlike some financial institutions, Debt Negotiators don’t make promises we can’t keep. We’ll carefully look at your unique financial situation and work with you to create achievable solutions you’ll feel good about sticking to. 

If you’re struggling with any debt, take our free debt assessment or contact our friendly team today to find out how we can help.


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