> Skip to content

Article  •  5 January 2021

 

The 50/30/20 rule

In Financially Literate Youth, Marlies and Jai Hobbs offer practical advice for managing your finances.

No matter what your income is, keeping track of your expenses is a critical life skill. So how much of your income should ideally be going where when it comes to budgeting and expenses? Let’s have a look at some percentages that can help you understand how you’re tracking in terms of incomings, outgoings, essential expenses and savings.

THE 50/30/20 RULE
First made popular by US Senator Elizabeth Warren, the 50/30/201 rule is a simple way to look at budgeting and ensure you have enough money to handle necessary expenses, while still setting aside savings for emergencies. Using this principle, you look at your take-home pay (after tax) then ensure no more than 50 per cent of your income goes to needs (essential for survival), 30 per cent is set aside for wants (not essential for survival), and a further 20 per cent is put aside for savings.

Needs – 50 per cent
Needs are the necessary financial commitments you are required to meet each week or month to live and survive. They are the items that we listed above, including accommodation costs (mortgage and/or rent), electricity, credit card repayments, transport, food, clothing, medicine, etc.

These should account for no more than 50 per cent of your take-home income throughout life, no matter what you earn. 

Wants – 30 per cent
Wants are your variable expenses. They are items like entertainment, dining out, home decor, gifts, designer clothing, sport, travel, etc.

Savings – 20 per cent
This is the money you set aside for a rainy day or to help achieve major life goals, like buying a car or house, travel, etc.

The great thing about the 50/30/20 rule is that it offers a fair bit of wiggle room, but the most important thing is to keep your necessary expenses (needs) at or below 50 per cent. Bear in mind the bulk of your needs will also be taken up with housing, so let’s have a closer look to help you understand how much you should dedicate to accommodation.

1. ‘50/30/20’. Accessed 27 Feb. 2020.


FLY: Financially Literate Youth Marlies Hobbs, Jai Hobbs

Your go-to reference guide for life's important financial decisions and milestones, from high school and beyond.

Buy now
Buy now

More features

See all
Article
Read these books before your kids go back to school

Books for first timers, experienced students or parents at home.

Article
Five tips for surviving year 12 exams

As year 12 students prepare for their exams, author of Atomic Habits, James Clear, has some simple tips that could help.

Article
Journalist’s haunting encounter at serial killer’s murder scene

When Garry Linnell stumbled across the grisly story of Frederick Deeming, he knew it was the one he wanted to tell.

Article
Dire prediction of ‘uninhabitable’ parts of Australia

Greg Mullins, former Commissioner of Fire and Rescue NSW, predicts parts of Australia will record 50C days in just decades to come.

Article
'Utterly broken': The Resilience Project co-founder’s powerful admission

Hugh van Cuylenburg was being interviewed on a national radio station when he surprised himself with an admission.

Article
Simple reading hacks for time-poor dads

Two authors — who are also dads — share their tips on how fathers can get a moment to themselves.

Article
The four hidden health benefits of reading

Reading offers us entertainment and a quick escape from reality, but did you know about these other hidden health benefits?

Article
The top books for dad this Father's Day

Show them you know them by picking a book that perfectly matches your dad.

Recipe
Spinach and ricotta lasagne

A fresh and delicious lasagne to enjoy regularly.

Recipe
Sticky miso bananas with lime and toasted rice

This dessert ticks all our flavour boxes.

Recipe
Confit tandoori chickpeas

These chickpeas have had their fair share of Insta fame for a multitude of reasons.

Recipe
Vodka lemon drizzle pancakes with blackberry compote

There is, I have to confess, no need to put the vodka in the blackberry compote that accompanies these, but it does add to the sense of occasion.

Looking for more articles?

See all articles