Budgeting with The 50-30-20 Rule

The 50-30-20 budgeting framework is an important budgeting tool that can help you effectively manage your personal finances and draw up a budget. It works on the premise of spending 50% on living expenses, 30% on discretionary income, and 20% on savings. The 50-30-20 method is a simple and easy way to manage your budget, as complex budgets can be hard to manage and confusing.

This post looks at setting up a budget and sticking to it, how you can implement the 50-30-20 method into your life, its efficacy, and other useful budgeting tips that pair well with the method.

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The Complete Guide to 50-30-20 Budgeting

The 50-30-20 method allocates 50% to needs, 30% to wants, and 20% to savings. The first step is understanding your payslip. What’s your total income after taxes? From there, you can divide your budget into the 3 sections.

50%

Half of your budget should go to living expenses, expenses that must be met no matter what, like:

• Utility bills (water and electricity, wifi, etc.)
• Rent or mortgage payments
• Healthcare
• Insurance
• Groceries

If you can honestly admit to yourself that you can’t live without it (no, not Starbucks), the expense falls into the 50% category.

30%

A third of your budget goes towards wants or discretionary spending. It’s important to budget for discretionary spending because if you haven’t, you’re likely to blow your budget on a pair of shoes or eating out.

Some things that count as one include:

• Eating out
• Subscriptions like Spotify, Disney+, or Netflix
• Holidays
• Clothes and shoes

20%

The last 20% should go towards savings and preparing for the future, like an emergency fund. A savings fund is an important tool to fall back on, since you don’t want to take out a payday loan and fall into a debt trap.

Example of the 50-30-20 Budgeting method

Leah is a growth hacker and earns a R15 000 salary. She decides to try the 50-30-20 budgeting method because she finds managing her budget difficult. She spends R4500 on rent, R2500 on food, and R500 on insurance. She loves going out for drinks and thrifting clothes with her friends. She spends R5000 on subscriptions, going out, petrol, Uber, paying off her student loan, and buying clothes. She saves R2500 per month.

Budgeting tips you can use with the 50-30-20 method

A range of budgeting tips goes well with the 50-30-20 method, like diving her savings into different categories, shopping wholesale, cutting unnecessary expenses, and getting a side hustle.

Dividing savings into categories

You might want to save for different things, like an emergency fund or car. Let’s say Leah is saving for an emergency fund and a scooter. She allocates R1250 to her emergency fund and R1250 towards her scooter savings.

Shopping wholesale

Buying generic or household items at the grocery store is often a lot cheaper than buying brand name, like Woolworths. You can also buy in bulk or from wholesale stores like giants or your local market (for example Bellville or Durbanville market in Durbanville).

Cutting unnecessary expenses

Let’s be honest, Leah does need to go for drinks, Uber, or buy copious amounts of new clothes. She could stop those luxuries and put the cost of those expenses toward her savings fund and achieve her financial goals faster for smart spending.

Side hustles

If you’re really struggling to meet your expenses, consider getting a second job, also known as a side hustle. You could babysit, tutor, copyright, or contribute your existing skillset to another company. For example, Leah is gifted in marketing, so she decides to become a part-time marketing associate at a flower company.

Managing debt

Debt can also contribute towards an inability to meet living expenses, especially if you have overwhelming debt. Luckily, there’s a solution: debt review. Debt review is a legal process that enlists a debt counsellor to negotiate your paying less on debt and lower interest rates to make debt repayments more affordable and help you get out of debt.

Try our debt savings calculator and find out how much you could be debt-free in 5 years. Consider debt counselling and contact Debtco Group to get help with mitigating over-indebtedness. Stop struggling with debt today.