The 50-30-20 budget

This article is for general information purposes and not financial advice or a recommendation to take any action. 

When saving towards a goal, creating a budget that allows you to both invest, alongside managing your desired lifestyle, is critical. One common way to do this is by using the 50-30-20 budget.

The 50-30-20 rule involves splitting your after-tax income into three categories, in order to allow you to spend and save with simplicity and control. It's based on percentages rather than how much you earn and can therefore be a great tool at every stage of life.  

How it works is simple

50% to your needs

Budget 50% of your after tax income to your needs.

Needs are the things that are absolutely necessary in your life such as accommodation, food, utilities, transport & debt repayments. The non-negotiables.

30% to your wants

Budget 30% of your after tax income to your wants.

Wants are all those things you enjoy as part of your lifestyle but could go without if you had to. These are likely meals out, streaming services, luxury clothes, and holidays.  

20% to your savings and goals

Budget 20% of your after tax income to your savings.

Establishing financial goals and allocating money to these each month via a savings platform like Earnr is a way to ensure you stay on target. Your goals might include saving for a home, retirement, or a holiday.   

Let's look at an example in practice. If you earn $130,000 per year, your take home is around $97,500 in the year - so about $1,875 per week.   

• 50% or $937 should go to essential items. 
• 30% or $563 can be spent on things you want like meals out or clothes.
• 20% or $375 should be allocated to your financial goals - using a savings platform like Earnr that allows you to top up regularly can be a great way to manage this.

What are the benefits?  

It's simple - this is a very straightforward and simple framework for budgeting, that can continue to work as you move through different stages of life.  

Effective Management - you are able to meet key financial obligations as well as save for your financial goals.  

Prioritisation - you must think about your needs versus wants and prioritise.  

Emphasis on goals - 20% of your budget is reserved for savings, you can be confident you always have forward momentum towards your financial targets.  

What do FIRE adopters think of 50-30-20?  

Well, they believe you can save a LOT more than 20%.

While FIRE may not be everyone, it's worth reading about how they approach living and saving.

You might not want to save to the extent these adopters do, but it might help push you from 20% to to 30% for example.

You can read about how FIRE adopters save over 50% of their after tax income here.

At the end of the day, this is about balancing your current lifestyle needs and wants, with your future lifestyle goals.

How can Earnr help?  

Earnr's products are designed to help you effectively manage your budget and achieve your savings goals.  

Our Everyday Account allows you to earn interest on funds you might need to meet your monthly budget while our Notice Accounts and Term Accounts give you the ability to earn higher interest on your savings funds so you can hit your financial goals.

Remember, always read the product disclosure statement and target market determination for Earnr to make sure it's right for you. If you have any questions about how our accounts work - book a call with an Earnr Account Specialist here.

The information in this article is intended to be factual though may also contain the opinion of the author. Whilst every effort has been made to ensure accuracy, we take no responsibility for any errors or omissions. Any opinions are those of the author alone and not a recommendation to take any action or obtain any product. You should consider whether this information is appropriate for you and obtain independent advice before making any decisions.