The 50/30/20 Rule: Making it Work for Your Income Level

The 50/30/20 rule is a popular budgeting method that can work for anyone, regardless of their income level. According to calculations by Hargreaves Lansdown, someone earning the UK national average of £34,000 a year would have £1,166 a month for needs, £700 for wants, and £467 for savings, after accounting for a 5% pension contribution. A higher earner on £60,000 a year would have £1,890 for needs, £1,134 for wants, and £756 for savings, with £506 left over after pension contributions.

Using this budgeting rule, someone with a credit card debt of £5,000 could clear it in 13 to 16 months. Alternatively, the savings could go towards their annual tax-free Isa allowance of £20,000. However, not everyone may be able to fit all their essential bills into the 50% needs category, especially with the high cost of housing in the UK.

Sarah Coles, head of personal finance at Hargreaves Lansdown, suggests flexing the “wants” category to fit the available cash and prioritize saving for the future. This might mean making sacrifices like cutting back on restaurant meals or shopping sprees. It’s important to adjust the budget breakdown as needed throughout the year to stay on track.

While the 50/30/20 rule can be a helpful guideline, it’s essential to customize it to your individual circumstances to ensure financial success. Following the rule blindly without considering your specific situation could lead you astray.