> 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.

Feature Title

FLY: Financially Literate Youth
Your go-to reference guide for life's important financial decisions and milestones, from high school and beyond.
Read more

More features

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

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

The power of food order: how changing the sequence can boost your energy levels

The surprising science behind the order in which we eat our food.

6 inspiring women share the best New Year’s resolutions they ever made

Learn about the best New Year's resolutions to inspire your own goals for 2023.

Feeling lost and overwhelmed this holiday season? Read this book

How finding your ikigai can give you a new perspective on stress.

QUIZ: Which Aussie dog are you?

Take this fun quiz to find out which amazing Aussie dog you’re most like.

Listening to these 5 audiobooks will instantly upgrade your life

Five audiobooks that will change your perspective, expand your mind and upgrade your life.

How becoming parents inspired YouTube stars to write a children's book

We caught up with Jessica and Stephen Parry-Valentine to learn about their new book, van life, travelling with a baby and the destinations they recommend everyone adds to their bucket list.

Memoir Madness: 5 memoirs to dig into this month

See some of the best books – old and new – that recount the real lives of influential people.

Experiencing anxiety after Covid? You’re not the only one

We spoke with James O’Loghlin and Ian Hickie about mental health and their new book, Minding Your Mind.

Your guide to the 5 love languages

Learn about the five love languages from We Love Love by Laura Byrne and Brittany Hockley.

Everything you need to know about David Attenborough

All about Sir David Attenborough. Find out his age, birthplace, how many documentaries he has made and more.

7 fun facts about Gabor Maté

Learn about Gabor Maté and his new book, The Myth of Normal.

Looking for more articles?

See all articles