Savings Challenge: Tip 2

7 February, 2023

What is the 50:30:20 rule?

The 50:30:20 idea is that you divide your take-home pay, that is, after tax income, into 3 categories.

Category 1: Needs

The first category is Needs and the rule suggests that 50% of your income is allocated to your needs.

Things that you could define as a need would be:

  • Bills
  • Rent
  • Groceries
  • Insurance
  • Loan Repayments
  • Transportation
  • Medical Expenses

If you need more than half your income to cover these expenses, you may need to adjust how much you spend on wants. Do you really need Amazon Prime, Disney Plus AND Netflix? Or a €600+ smartphone upgrade?

Category 2: Wants

The second category is wants and if you are following this budgeting rule, you should only use 30% of your income on wants.

Things that you could define as a want would be:

  • Netflix
  • Spotify
  • Other subscriptions
  • Holidays
  • Parties
  • Eating Out and ordering in
Category 3: Savings

The third and last category is savings and you should aim to set aside 20% of your income for this. These savings are for your rainy day and/or retirement.

They say that we should all have at least 3 months of savings to deal with unexpected changes to your circumstances like unemployment or illness. That sounds like a lot, but try not to get too caught up with that. The important thing is to keep saving what you can.

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