The 50/30/20 Rule The best thing you can do for your finances.
Creating a sustainable personal budget doesn’t have to be difficult. One of the most popular and easy-to-use budgeting methods is the 50/30/20 rule. It provides a clear structure for how income should be distributed each month, without requiring advanced calculations. It is an easy way to take control of your money while at the same time creating a balance between necessary expenses, quality of life and savings.
50% – Necessary expenses Half of your net salary should go to what is absolutely necessary to live: housing costs, food, transport, electricity, telephone, insurance, pets and other fixed expenses. This part therefore covers everything that must be paid each month to make everyday life work.
30% – Lifestyle and entertainment The second part, 30%, is intended for optional expenses, i.e. things that are not essential to life, but that make life more enjoyable. This can include restaurant visits, shopping, travel, renovations, new gadgets, tools, gyms, accessories of various kinds, plants, a new grill, and more. This category is not about avoiding indulging, but about doing so consciously and within reasonable limits.
20% – Savings and Debt The last part of your income, 20%, should go towards savings or paying off debts. This can involve building up a buffer, saving for larger goals, investing, or paying off loans. By setting aside this portion each month, you increase your financial security over time. Having a buffer means that unexpected expenses no longer have to cause stress, and long-term savings create better conditions for the future.
Simplicity and flexibility
The best thing about the 50/30/20 rule is that it is flexible. It works for students, families, and high-income earners alike. It doesn’t have to be followed slavishly every month, but should be seen as a guideline to create balance in your finances. Even small adjustments can make a big difference in the long run. Many people choose to give up some of their lifestyle and pleasures and save more instead.
Currently we are saving around 20-25% (net income) with a small kid and a bigger house. Earlier we used to save more but expenses increased a lot after the kid and with COVID. But, into the future, the target is to increase our savings ratio…
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