UK consumers are responsible for wide-ranging financial demands. It’s easy to get lost in the details as you balance earnings and outgoings, and to become overwhelmed, keeping up with your complex financial life. Anything that simplifies your personal finances and yields productive outcomes is worth a look – particularly if you’re seeking better accountability and budget discipline.
Sticking to the 50/20/30 budgeting rule is one way UK households take charge of their finances and allocate funds. It may not be the best strategy for every family, but adopting the straightforward concept takes the guess work out of money management, and may provide the financial balance you need at home.
What Do the Numbers Mean?
Adopting a consistent budgeting system provides a sturdy framework from which to administer money matters at home. It’s important to put some thought into your money management practices, so you don’t repeat mistakes and lose financial ground. Because you’ll wrestle with financial issues over the course of your entire lifetime, starting with a solid structure is the best way to keep moving toward your goals. A 50/20/30 budget provides a useful framework, which may be just what you need to get a better handle on your finances.
There are many different ways to organise your finances and divvy up your earnings. The 50/20/30 rule establishes limits in key spending categories, providing targets to keep you on track. According to the budgeting scheme, your finances should look like this:
- 50 per cent of your earnings are dedicated to spending on necessities. That includes the amount you pay for rent or mortgage, as well as customary costs of living such as utilities, groceries, and transport. Comprising half you budget, the spending needs in this category are those you cannot defer or deny, without significant – perhaps life-altering consequences.
- 20 per cent of your income is devoted to reaching financial goals you’ve set. This share of your 50/20/30 budget includes your savings – whether earmarked for a particular purpose or not, investments, and money you spend on finance goals like debt-reduction. The 20 per cent isn’t necessarily just money you have sitting in the bank; it also represents other financial progress you make. For example, if you select a short-term loan, or use other forms of funding to wipe debts, the costs would fall into this classification, because the move advances your long-range financial goals.
- 30 per cent of your spending is flexible, accounting for all the discretionary purchases you make throughout the year. This lifestyle category includes money you spend on travel, entertainment, and day-to-day purchases. Spending in this class puts the emphasis on “wants” rather than “needs,” accounting for lifestyle choices. It’s important to note; you are in control of your budget, so it’s up to you to put your expenses into the most sensible category. If your work calls for a powerful PC and feature-rich mobile phone, for instance, are these tech gadgets necessities or should they be classified as personal wants?
Benefits of a Simplified Strategy
One of the big advantages of using the 50/20/30 discipline is that the scheme is based upon spending percentages, rather than hard figures. The cost of living for Londoners is very different than what someone spends to get by in Liverpool, so it’s hard to compare the two using hard figures. The simple 50/20/30 budgeting formula, on the other hand, accommodates Britons from all over the country, without making special adjustments to account for particular regions.
Another benefit of committing to a strict 50/20/30 approach is that it’s easier to plan and work out your money when your spending priorities are clearly defined by the numbers. And with some discretion built-in to the system, allowing you to classify your own spend, you can fine-tune it to perfectly suit your household spending habits, without changing the 50/20/30 distribution.
There’s more than one way to manage your money. Various budgeting schemes provide solutions you can use to rein-in wasteful spending and keep your finances on track. The 50/20/30 philosophy works for some families. Why not plug-in your numbers and see if it can help you, too?