The Realistic Budget that actually Works: 50/30/20 – RULES

As a budgeter, I am excited to share the realistic budget that actually works using the principles of the 50-30-20 rule created by Senator Elizabeth Warren and her daughter. Personal finance is a topic that is close to my heart, I shared how I paid off £12K in debt on a low income in 2-years and how I am now able to save £1000 a month from various sources of income. Regardless of how much money you make, if you don’t budget for your expenses or savings, it will be difficult to stay on top of your personal finances.

According to the Money Charity, in Dec-2020, 8.6 million people borrowed more money due to covid. This is a shocking number and it made me feel so fortunate that I am in a position where I am not borrowing money (except for my mortgages) but saving it for a rainy day. Ever since I paid off my debt, I made a point of starting an emergency fund and a rainy day fund because you never know what expenses might pop-up in the future. Another shocking thing is that “about 22% of UK adults have less than a £100 in savings“.

In this post, I hope to share what I call the realistic budget that actually works and I will be following the 50-30-20 rule principles. *Disclaimer – I am not a financial advisor, if you are in debt – speak to a debt charity in the UK*

The Realistic Budget that actually Works: What is the 50-30-20 rule?

Over the last few years, I have moved between budget trackers to apps and back to budget trackers, I just find excel match easier to manage and the apps are an added bonus. I recently came across a book called “All your worth: The ultimate life time money plan and its in this book I became ware of this money rule – the 50-30-20 rule. Basically this rule offers a ‘rough’ guideline on how to manage your money once the taxes have been deducted. So, the 50% of your income is allocated to your needs, 30% to your wants and 20% savings or debt repayment.

Essentially for the 50% portion of your total income after tax should be allocated to your basic essential needs like: mortgage/rent, car payments, car+ life insurance, (some) debt repayments, utilities and the like. These are essential things that you need to pay for to keep a roof over your head, Netflix doesn’t fall under this category. So that 50% of your income should cover your housing, food (not eating out), transportation, utilities, insurance and those with kids, child care.

The 30% portion of your income after tax is allocated for your wants, this differs depending on the person or family but essentially that new handbag you had been wanting, eating out, going on vacation, electronic gadgets, streaming services and even chocolate. These are things that you actually want but don’t necessarily need. So think travel, you want to but don’t need to, entertainment like digital streaming services and the like.

Then the 20% portion of your income is then allocated to your savings and/or debt repayment. Under the needs you have some debt repayments like credit cards but in this category its all the other debts that you have and need to pay off. But not only that, this portion of the money if you don’t have debt or can stretch it should be going to your investments or emergency funds. When I was in debt, I definitely allocated more to paying off debt than 20% but every one’s circumstances are different.

So, what is the realistic part?

I want to reiterate that the 50-30-20 rule of thumb for personal finance management is just a rough guide and not set in stone. I personally put more than 20% of my salary into my savings and investments and I use less for my ‘wants’ especially in the current environment. Another thing to remember is that this rule of thumb might not work out so well for low income earners because they are struggling to make bread and you are asking them to save 20% of what they don’t have.

Like I said, this rule of thumb is a rough guide to how to have a realistic budget that actually works. Like I have mentioned in many of my money posts, I am a to-do list orientated person and I love to budget for everything. I know where my money goes even for just buying a chewing gum, I track my money so I know where I stand financially and don’t have to guess. When it comes to budget trackers, I use Patricia Bright’s ‘The Break‘ tracker which has been incredible in helping manage my money from various income sources.

Realistic Budget + 50/30/20 Rule

So, I am going to share how I implement the 50/20/30 rule in my personal life – those of you who are astute will have noticed its not 50/30/20 rule but 50/20/30 rule. Like I said, I allocate a little more to my investment and savings and reduce my ‘entertainment’ allocation. The numbers I am using are for illustration purposes only except for my actual spending amounts as shown in the table below.

50/20/30 Rule	Allocation vs Actual Spending
50% or 0.5 of £4000	£2000 vs £1980 essential expenses
20% or 0.2 of £4000	£800 vs £550 entertainment expenses
30% or 0.3 of £4000	£1200 vs £1010 savings & investments

As you can see from the table above, my actually don’t deviate too much from the 50-20-30 rule and money I have left outside of allocations above, I donate to charities and help out family members where necessary.

As mentioned above, I track all of my earnings and expenses using budget trackers and various apps like Plum(*affiliate link) which I highly recommend. In order to be able to implement a variation of the 50-30-20 thumb rule, you need to first understand (1) your income (day job, side hustles, dividends etc) then (2) you need to calculate your spending threshold for each category.

Like I mentioned, this thumb rule might be difficult for those on low incomes to implement but I think most people can still implement a variation of it. So once you take our your essential bills, what’s left for savings or debt repayment? You might not have an entertainment budget and that is ok, focus on paying off your debt or creating your emergency fund and the like.

Have you ever heard of the 50-30-20 rule? How do you budget your spending in your home? If you looking for a comprehensive yet simple budget template to use, I sell mine on Etsy.