Want a quick money management tip that makes budgeting a breeze? Try the 50/30/20 Budget!
What is The 50/30/20 Budget?
The 50/30/20 Budget is one of the simplest and most effective ways you can create a personal budget. Whether you’re making your very first plan, or maybe your existing one is a little uneven, the 50/30/20 method will help you create a balanced personal budget in no time. Meaning less stress, and more chance to achieve your future financial goals!
How does The 50/30/20 Budget work?
It doesn’t matter if you get paid weekly or monthly, the 50/30/20 method is great for managing your money between pay days. The basic idea is to spread your pay across three pots; Needs, Wants, and Savings. Here’s how to divide up your money on payday.
50% for Needs
Putting the largest part of your budget towards your ‘Needs’ makes a lot of sense. That way you don’t need to worry about running out of life’s essentials between paydays.
30% for Wants
Having fun is important too. By putting the second largest part of your budget towards ‘Wants’, you’ll be able to enjoy yourself between paydays, without worrying about running out of money.
20% for Savings
It’s the smallest part of your budget, but it’s really important this money goes towards your savings.
What are ‘Needs’?
Your ‘Needs’ are regular expenses covering the basic things you need to live. You must budget for these payments first, before Wants or Savings. The repayments for any loans or credit cards you have need to come first. Missing repayments can result in expensive late fees, unmanageable debt, being denied credit in the future, and much worse.
Needs often include things like your:
Rent or Mortgage
Debt Repayments
Council Tax
Utility Bills e.g. gas, electricity, water
Essential Travel Costs e.g., for work
Essential Food e.g. breakfast, lunch and dinner
Household Goods e.g. cleaning products
Essential Clothes and personal goods
Childcare
What are ‘Wants’?
Your ‘Wants’ can include both regular expenses and one-off purchases. They cover ‘treat yourself’ things that you’d like to buy but you could live without. This means they are not ‘Needs’, even though it can get confusing sometimes.
Wants often include:
Non-essential Food e.g., sweets, takeaways, eating out
Non-essential Clothes e.g., a new party outfit, fancy shoes
Socialising e.g., bars, restaurants, nightclubs, football, cinema,
Entertainment e.g, Netflix, Spotify, toys, TVs, video games
What about ‘Savings’?
Savings come last because they are flexible. But don’t think of savings as the least important part of your budget. Whether your goals is to save for something big like a house deposit, or something smaller like a birthday gift for someone special, put that money straight into your savings. Don’t be tempted use this money to top up your ‘Wants’ pot. You never know when you’ll need a rainy-day fund, and if it’s not there it could force you into debt that didn’t plan for or can’t manage.
The 50/30/20 Budget is flexible.
Remember, the 50/30/20 budgeting method isn’t set in stone. It’s a great place to start, especially if you’re making your first budget, but everyone is different. If your ‘Needs’ come to more than 50% it just means you can put a little less into other areas, like your Wants, or even your Savings if you have to. Just make sure you always set enough aside to make any debt repayments you have.
Check out the Oplo Financial Education Programme
We want to help people of all ages in the UK to power their potential with better money management, and that starts with the youngest in our society.
That’s why we’re launching our Oplo Financial Education Programme in UK schools, to make sure the next generation of earners, spenders, borrowers, and savers, have the knowledge they need to make informed financial decisions throughout their lives.
Check out the Oplo Financial Education Programme blog to find out more.
