Cost of Living

What is the 50/30/20 Budget rule?

Learn to manage your money with the 50/30/20 budget rule. Discover how this simple strategy helps you allocate income for needs, wants, and savings effectively.

Published on: Jun 22, 2024


Ever thought that the money that you wished to save is no longer in your pocket by the end of the month? Or have you been consistently thinking about your nature of spending money rather than saving? These things pop up in the mind when you are living alone in some other state or country away from the family and their support. It is indeed hectic to think and balance things when you have other commitments buzzing your mind. At such times, the only thing that can be a saver is budgeting. Budgeting your expenses based on month, week, or daily can be a game changer. In a country like Australia, where the cost of living in a metropolitan city is beyond the financial capacity of an individual being able to save even a minute seems to be victorious. There is a very popular method of budgeting that is effective in actual terms and helps prevent overspending, reduce debt, and build financial stability over time. It is the 50/30/20 budget method. 


Hence with the help of this blog let us unravel the concept of this method and what factors it includes to make it work and be efficient for us throughout. Whether you're navigating the high costs of living in Melbourne or saving for a dream holiday on the Gold Coast, read till the end to take control of your financial future and make the most of your hard-earned money.



Exploration of the 50/30/20 Budget Method


Management in the financial aspect is a major concern these days amongst the students as well as for elders who come here for their jobs or employment. Especially an international student who has to bear the expenses within the country to prepare for their stay in Australia and then within Australia for their health insurance, tuition fees, groceries, travel, etc. And then for elders navigating their expenses and healthcare costs, finding a balance between spending and saving is essential.


For all the issues into this concern enter the 50/30/20 budget method – a versatile and accessible approach to financial planning. It resonates with both students and elders who are likely here to work alike. The method decides the income of an individual into three parts: needs, wants, and savings, providing a clear framework for managing finances regardless of age or life stage.


For the benefit of students, the 50/30/20 budget method offers a practical solution to the challenges of living on a limited income. Students can prioritise their essential expenses and exempt unnecessary expenses. Expenses like rent and utilities can take up the 50% category,  allocating a portion for discretionary spending on dining out or entertainment taking up the 30% category, and then setting aside savings for future goals or emergencies taking up the 20% category. With this plan, you can achieve financial stability while still enjoying your university experience.


In relevance to the working population, the 50/30/20 budget method can be an active practical solution to the challenges of managing a steady income amidst the demands of daily life. They can even allocate 50% of their income share towards essential expenses such as mortgage or rent, utilities, and transportation. By investing 30% income for discretionary spending like dining out, travel, or leisure activities you can enjoy life's pleasures without sacrificing your long-term financial goals. Then the 20% category can be used for savings and investment purposes. It lays the foundation for future security and wealth accumulation. You can either build an emergency fund, save for retirement, or invest in assets for growth. 



Breaking Down The 50/30/20 Rule


The breakdown is very simple and self-explanatory:

  • 50% for Needs

  • 30% for Wants

  • 20% for Savings and Debt Repayment


  • Needs” constitutes the basic and actual utility of any person. The expenses that are necessary for survival and well-being. These are the fundamental costs that you must pay to maintain your day-to-day life.

  • Wants” constitutes the non-essential but impacting activities of our living. It includes expenses made for pleasure, convenience, or enjoyment. These expenditures are optional and can be adjusted based on your financial situation.

  • Savings and Debt Repayment” encompasses the money that is kept aside for future needs and paying off existing debts. It includes both saving for emergencies and long-term goals, as well as reducing debt to improve financial health. 




Examples of Needs falling into the 50% category:


Housing: Rent or mortgage payments, property taxes.

Utilities: Electricity, water, gas, internet, and phone bills.

Groceries: Food and household supplies.

Transportation: Public transit costs, fuel, car payments, and maintenance.

Insurance: Health, home, car, and life insurance premiums.

Minimum Loan Payments: The minimum amounts due on any loans or credit cards to avoid penalties and maintain good credit.


Examples of Wants falling into the 30% category:

Dining Out: Meals at restaurants, cafes, and takeaways.

Entertainment: Movies, concerts, streaming services, and recreational activities.

Hobbies: Costs associated with personal interests and leisure activities.

Vacations: Travel expenses for holidays and getaways.

Non-Essential Shopping: Clothing, electronics, gadgets, and other luxury items.


Long-Term Savings and Debt Payoff:

This includes contributing to superannuation funds or other retirement savings plans. You can even purchase stocks, bonds, mutual funds, or other investment vehicles to grow your wealth over time. And if you have significant debt on your shoulders, then you can work on that by freeing up more money for savings and other financial goals. 



Making the 50/30/20 Budget Rule Work for You


A plan that is not executed is not a way to get the best results. Usually, we plan the budget but working according to it stays on hold due to varied reasons. Therefore if you want to save some decent amount then implementing the 50/30/20 budget rule is the only go-to-go process. 


Step-by-Step Guide to Creating a 50/30/20 Budget


Calculate Your After-Tax Income: Taxes are something that you can not resist, therefore you need to analyse your income after tax deduction. If you are someone who receives a regular paycheck, then your after-tax income is your net pay. Or if you are self-employed, or have multiple sources of income then you can add them up then get the net pay after the estimated deductions.

Categorise Your Expenses: Analyse your habits and expenditures throughout the past few months and get a picture of where your money goes. Understand where you need to spend every month and their necessity, then the wants which you want to be a part of your life as leisure activities. Lastly, the untouched can be saved or can be used to pay off the debts.

Adjust Your Spending to Fit the Rule: As we mentioned in the above point, you need to make adjustments and categories your spending according to the rule. Identify the areas where you may be overspending or underspending. For example, if you find that your wants are consuming more than 30% of your income, consider cutting back on dining out or entertainment to stay within budget.

Tools and Apps That Can Help with Budgeting: You can use tools or applications to allot and maintain your chart by following this method effectively. Or instead of using online resources, you can pen all these things down, eventually to keep track of your finances. 

Some of the popular applications you can use are as follows: 

Mint: A free budgeting app that connects to your bank accounts, categorizes your expenses and provides a comprehensive overview of your finances.

YNAB (You Need a Budget): A robust budgeting tool that helps you allocate every dollar towards a specific purpose, promoting proactive financial planning.

Pocketbook: An Australian budgeting app that syncs with your bank accounts, categorizes transactions, and offers insights into your spending habits.

Goodbudget: A budget tracking app based on the envelope budgeting method, helping you allocate funds for different categories and stick to your budget.

By following these steps and utilising available tools, you can effectively implement the 50/30/20 budget rule and gain better control over your finances. There might be some challenges coming your way but we will tell you how you can overcome those. 



Tips to Overcome Challenges in Maintaining a Budget and Saving


1. Educate Yourself by reading, or by following reputable financial blogs and podcasts to increase your financial literacy. You can even consult a financial advisor if the crisis is beyond your control.

2. Automate Savings is another way to ensure that you save consistently without having to think about it. There are employer-sponsored saving plans, such as automatic contributions to superannuation or retirement accounts.

3. Try to Reduce Unnecessary Expenses such as subscriptions and memberships. You can share the 20% of your income with family and friends to avoid consuming it.

4. Plan for irregular expenses such as car repairs, medical bills, or home maintenance by setting aside a portion of your income each month.

5. Cultivate a positive mindset about budgeting and saving. Understand that setbacks are normal and don't get discouraged by occasional slip-ups.




If you are someone who has always faced difficulty in managing expenses then this is the best method to have control over them. The 50/30/20 budget rule is an excellent way to start. It is a simple yet effective way to implement, even for those new to budgeting. By following the method and strategies, you can take the guesswork out of financial planning and set yourself up for success. You just need to stay committed to your financial plan, educate yourself on personal finance, and seek support when needed. 

Start your journey towards financial well-being today by implementing the 50/30/20 budget rule. With dedication and perseverance, you'll find yourself on a path to a more secure and prosperous future. 


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