Budgeting for beginners: the 50/30/20 rule

Learn all about an easy budgeting rule that makes reaching your savings goals ea

10 November 2022

4 minute read

What is the 50/30/20 Budgeting Rule?

Ever heard of U.S. Senator Elizabeth Warren? No? Well, she’s the mastermind that created the 50/30/20 budgeting rule.

Elizabeth was a law professor for over 30 years before beginning her career in American politics. Fun fact? She imposed a millionaire tax on accounts over $50 million, creating $2.75 trillion in revenue.

Elizabeth strove to relieve Puerto Rico's debt and improve the island's infrastructure. She secured $750 million of debt relief for over 28,000 students in the USA. Oh, and she’s written eleven books, most financial.

Her experience with government finances and public spending inspired the 50/30/20 easy budgeting formula.

Its premise is simple; divide your after-tax income into 3 parts. That way, you can hit your savings goals and keep important money safe. You can create Bank Accounts with bunq's app to separate your funds. You manage it all from your mobile, and earn high interest too.

50% Goes to Your Essentials

What is the difference between needs and wants? Wants, at the end of the day, are luxuries. Essentials, well, they're essential.

Your House Is Your Home

You need a roof over your head, so rent or mortgage payments are your first stop. If you’ve already paid off your mortgage, nice! Put those funds into your savings, or nice-to-haves if you feel like splashing out.

Getting Hungry?

Food, oh glorious food! But wait, we're not talking about a slap-up dinner for two with expensive wine. We're talking about essential foods: groceries.

Cooking for yourself keeps you and your wallet healthy. Buy in bulk, batch-cook your meals, and choose unprocessed foods. Top tip: having coffee at home will save you €100s each month.

A Piece of Your Wallet for Peace of Mind

Health care, home insurance, utility bills, and car payments are essentials. Defaulting on these will see your debt skyrocket. Take care of these before you're tempted by the out of sight out of mind mantra.

30% of Your Budget Is for Wants and Nice-to-Haves

Now we get to the fun stuff! It is hard to clarify what classes as a ‘want’. But use the rule that anything outside of essentials or savings is a want.

Eating out is a luxury for most of us, a treat at the end of a hard week. The same applies to alcohol, fancy desserts, and takeaways. You want them, in most cases, but you won't suffer (too much) without them.

Lavish vacations, cinema tickets, fashion, and electronics live here. Computers and smartphones can be essential, and many jobs rely on them. But that shiny, mega-super HD screen is a luxury.

A gym membership bloats your budget. Gyms can be dull places, and when the weather's nice, working out in nature is a definite stress killer. A small home gym can be an investment if you need to pump iron!

20% Bulks Up Your Savings and Pays Debt

Take 20% of your income and set it aside. It will add up, and if you do it automatically, you're free to focus on the fun side of life.

Strengthen Your Emergency Fund

The idea is to have 3-6 months of emergency funds in case of unemployment, disaster, or other such nasties. Now you know how to save money, it is time to clarify your why.

Be sure to fill your emergency fund back up every time you dip into it. Keep it separate from your main bank account, but make it easily accessible. You might have to fork out medical or repair bills in an emergency, for example.

Settle Your Debts, Achieve Financial Freedom

The rest of this 20% goes to debt repayments. Minimum payments are essential, but all other repayments live here. Reduce your future interest to boost your income.

Ready to Draw Up Your Budget Plan?

We hope the 50/30/20 budgeting rule helps you meet your financial goals. It is a pragmatic rule-of-thumb that can help you work things out, fast.

Our team at bunq strives to help you achieve financial stability. Break free from the chains of traditional banking, and see how we can help.

Sign up takes 5 minutes to start budgeting better, and help the climate too by planting a tree for every €100 you spend. Try our app for free today!

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Everything you expect from a mobile bank, and more. Open a bank account in just 5 minutes with your phone and ID.

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Enjoy full control over your money wherever you go, with true borderless banking, easy budgeting, powerful cards, and much more.

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