The 50/30/20 Budget Method

If you’ve been to The Frugal Cottage before, you know I love talking about budgeting. And today’s post is all about a specific budget method that I think might be a great one for you to use.

I honestly believe that everyone should have a budget. There are many different types of budget – we use the Zero Based Budget Method as ours – and once you’ve figured out one that works for you, then a budget can change your life. But, apart from sharing numbers and talking through aims, just what can a budget do for you?

Having a budget – especially if you haven’t had one before – can be daunting. It includes lots of numbers and, depending on which budget method you choose, can be fairly detailed.

The only I’m going to talk about today is the 50/30/20 budget method.

What is the 50/30/20 budget method?

Essentially, this splits your money into three different categories – needs, wants and savings. It then uses percentages to determine what amount of money should be directed to each part of your budget. This could be great if you are not one for budgeting down to the penny!

50% of your budget should go on needs.

The first section of this budget – and the largest – is for your needs. The things that keep the roof over your head, heating, electricity and food. The four walls of your home, if you like. The main things included in this category are:

Housing costs – rent/mortgage + council tax
Utilities – gas and/or electric
Insurance – home, life, critical illness
Food – basic necessity.

All of these things are essential to have in your budget for the well being of you and your family. These are the non-negotiable part of your budget. And yes, that should include insurance. Depending on your home circumstances, these might be multiple ones during the month.

30% of your budget should go on wants.

The second section of this budget – which is a smaller section – should go towards wants. So not things that keep the roof over your head but other items that want from a month to month basis. These could include:

Entertainment
Personal items
Hobbies

Anything else extra that doesn’t fit within the needs category. This section might have multiple parts to it; it depends on your lifestyle.

20% of your budget should to go savings.

So in this budget method, the final part of it is about savings. 20% of your income should go towards preparing for things in the future. This could include:

Emergency fund
Sinking funds
Retirement savings (if not already auto enrolled with your employer)
Investments

This is a fairly important category so it might need to be stretched between quite a few pots!

Does this work?

There are definitely positives to this method. Firstly, it does not require you to budget down to the penny. So if your income is varied from month to month, then it could work well.

It also priorities different things, on importance. So the biggest category are the things we need to have in order to survive. It does but more importance on the wants than the savings but this budget method definitely has a specific plan in place.

You might also like:

What doesn’t work about it?

For me, the fact that the savings category is less than the wants. Now I know that what we’re doing is not the norm but to stretch all of those savings categories into the smaller part of the budget doesn’t make sense to me. Especially if that includes retirement [pension] savings as well. But, that could be changed over time.

So here is the 50/30/20 budget method broken down. I think that it might be a great starting point if you’re just thinking about budgeting. Especially if you don’t really know how much you should be spending on the different categories; this does it for you. And, over time, you could change it so it works better for you.

Have you heard of the 50/30/20 budget method? Do you use it? Let me know!