The 50/30/20 rule

So you’ve decided to pay yourself first – winner, let’s get at it. Not sure how much you should be paying yourself or where to start though? There are many approaches to budgeting and we’re going to break down some of them over the next week. One approach that we love, and that works for many people, is the 50/30/20 rule.

What is the 50/30/20 rule?

Let’s firstly just say that even though it’s a ‘rule’ – it’s not a hard-and-fast-rule. It’s a place for you to get started and then adjust as required based on your life stage.  

Under this budgeting approach, you’re thinking of your take-home pay (what gets deposited into your bank every week/fortnight/month) in three buckets:  

  • 50 – NEEDS. This truly just contains the expenses you need to be able to live safely – housing, water, food, transport, minimum debt repayments etc.
  • 30 – WANTS. All of your discretionary expenses – so everything from eating out, your gym membership, Netflix account, date night etc
  • 20 – PYF / FUTURE YOU. Whatever you are working towards for future you comes into this bucket: saving, investing, debt payments above the minimum.

My 50/30/20 is more like 80/15/5

We understand that some costs might overfill your “needs” bucket and 50 isn’t achievable for all stages of life. If you have kids, a large mortgage or personal debt, or are dealing with life, “needs” might be the biggest — or only — bucket for a while.

It’s even possible that if you’re an inner-city resident your rent might be close to 40% and mortgage repayment even higher.

Some costs also fall into a grey area between two NEEDS and WANTS. If exercise and self-care is crucial to your success in life; your gym membership may absolutely be a NEED. For others, it make be truly a WANT.

The point is – 50 / 30 / 20 is a place to start. A place to benchmark where you currently are (yes, that means looking at your expenditure) and seeing where you can get Future You as close to 20 as possible.

Implementing any change is not an overnight success; it’s about having the right habits and systems in place to set yourself up for success.

You’ve got this.

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