Save money with the 50-30-20 rule

Each month, your salary lands in your account, and soon after, it seems to vanish. Rent, utilities, groceries and small extras quickly add up – often leaving little at the end of the month to set aside. This is where the 50-30-20 rule comes in. Our guide explains what the 50-30-20 rule is and how it works. Plus, we’ll provide examples and alternatives to help you find the saving method that suits you best.

• The 50-30-20 rule divides your net income into fixed costs (50%), personal needs (30%) and savings goals (20%)

• It helps structure spending, identify savings potential and achieve long-term financial stability

• Its flexibility allows you to adapt the method to your circumstances, such as adjusting the savings percentage

• A fixed savings portion supports building reserves, investments, and funds for the future

What is the 50-30-20 rule?

The 50-30-20 rule is a straightforward budgeting method that helps divide your income into three clear categories: fixed costs, personal expenses and savings goals. The core idea is to allocate a fixed percentage of your net income to each category.

This structure creates a balance between financial security, individual needs and long-term wealth building. Whether you’re single or have a family, the 50-30-20 rule suits anyone who wants to maintain an overview of their finances.

How does the 50-30-20 rule work?

The 50-30-20 rule helps structure your income by dividing it into three main categories: fixed costs and essentials, personal needs and wealth building. This clear division not only provides clarity but also supports setting financial priorities. Each category serves a specific purpose, from covering basic needs to shaping your lifestyle and securing your finances for the future. To make the most of this method, it’s important to understand the three areas in detail, which we’ll examine below.

50% for fixed costs

Half of your net income should go towards fixed costs. These expenses cover basic daily needs and are essential. Examples of fixed costs and essentials include:

• Rent or mortgage payments

• Utilities such as electricity, water, and heating

• Insurance (e.g. health and liability insurance)

• Transportation costs like petrol, public transport, or leasing fees

• Groceries for daily needs

By identifying and capping these expenses at 50% of your income, you ensure they don’t overly strain your budget. If your fixed costs exceed this limit, consider exploring savings opportunities, such as switching utility providers or optimising insurance policies.

30% for personal needs

A third of your net income is reserved for personal needs. This category provides room for individual expenses that aren’t essential but often enhance quality of life:

• Dining out or ordering takeaway

• Leisure activities like cinema, gym memberships, or hobbies

• Clothing and accessories

• Subscriptions such as streaming services or music platforms

• Holidays and weekend getaways

The 30% allocation ensures that budgeting isn’t equated with deprivation. It helps to plan personal expenses consciously and prioritise them when necessary to stay within this limit.

20% for wealth building

The remaining 20% is dedicated to building financial reserves and growing wealth. This includes both short-term savings goals and long-term financial planning:

• Creating an emergency fund in a savings account

• Regular contributions to a savings plan

• Investments in stocks, ETFs, or cryptocurrencies

• Paying off debts to reduce interest burdens

• Retirement planning through private pensions or savings accounts

The 20% allocation promotes financial freedom and prepares for unexpected expenses. It’s advisable to start by saving three to six months’ worth of living expenses as an emergency fund before gradually investing in other savings or investment goals.

Already built your emergency fund and ready to pursue new saving goals? Now’s the time to start investing and growing your wealth for the long term. Bitpanda makes it especially easy: with the Bitpanda Saving plan, you can regularly and automatically invest in cryptocurrencies, ETFs, or other digital assets to focus on wealth building.

How to apply the 50-30-20 rule

The 50-30-20 rule is easy to integrate into daily life but requires conscious effort to understand your finances. The first step is to get an overview of your income and expenses. Once you’ve done that, categorise your spending according to the three sections of the rule.

Tip: To make the 50-30-20 rule even easier and more straightforward, consider using a household budget or creating a personal financial plan. Regularly recording your income and expenses will help you maintain an overview of your finances.

This process not only helps you implement the saving method but also gives you a better understanding of your financial situation. We’ve summarised the key steps of the process for you below.

Understanding your income

The starting point of the 50-30-20 rule is calculating your available net income. This includes your salary after taxes and social security contributions as well as other regular income sources like:

• Income from self-employment

• Rental income

• Child benefits or other state benefits

• Side income such as freelance work or part-time jobs

It’s important to only consider reliable sources of income. A realistic picture of your monthly income forms the basis for effective budget planning.

Identifying monthly expenses

Next, list all your regular expenses, including both fixed and variable costs. You can create an overview of monthly payments using various methods:

• Collecting bank statements or credit card bills from recent months

• Recording cash expenses that don’t appear on statements

• Using apps or tools to manage spending

It’s essential to include all expenses to get an accurate overview. This transparency will help you see where your money is going and identify potential savings.

Categorising expenses

Once you’ve identified your expenses, assign them to the three categories of the 50-30-20 rule:

• Fixed costs: essential expenses such as rent, utilities, insurance, and groceries

• Personal needs: discretionary spending on leisure or personal preferences

• Wealth building: savings, debt repayment, or investments

This categorisation can reveal weaknesses in your financial habits. For example, fixed costs might exceed 50% of your income, requiring adjustments. By consciously dividing expenses into these categories, you can better control your budget and ensure enough is allocated to savings and long-term financial goals.

Example of saving with the 50-30-20 rule

The 50-30-20 rule effectively helps you save money by dividing your monthly net income into its categories. For example, with a net income of €3,000, you would allocate:

• €1,500 (50%) to fixed costs

• €900 (30%) for personal needs

• €600 (20%) for savings goals such as an emergency fund, investments, or debt repayment

Here’s how this breakdown might look in detail:

50% for fixed costs

€1,500 would cover basic expenses such as:

• Rent: €1,000

• Utilities (electricity, water): €150

• Insurance: €200

• Transport (e.g. monthly pass or petrol): €150

30% for personal needs

€900 would cover leisure and discretionary spending, for example:

• Dining out: €150

• Hobbies or fitness classes: €100

• Clothing: €200

• Subscriptions (streaming services, music): €50

• Holiday savings or trips: €400

20% for savings goals

€600 could be used for wealth building, allocated like this:

• Emergency fund in a savings account: €200

• Regular investments in ETFs or stocks: €300

• Debt repayment (e.g. loan instalments): €100

Conclusion: how the 50-30-20 rule can help you save money

The 50-30-20 rule is a practical method that helps with saving while also structuring expenses. It’s suitable for both families and individuals who want to cover fixed costs, fund personal needs, and build long-term savings. Its clear structure makes it a simple way to achieve financial stability and maintain control over your budget. The rule is flexible, adapting to different life situations, making saving both manageable and efficient.

Not only does the 50-30-20 rule provide structure and financial security, but it also lays the foundation for targeted investments. You can use the savings portion to grow your wealth through investments, whether by building an emergency fund or exploring new investment opportunities like ETFs, stocks or cryptocurrencies. Platforms like Bitpanda make it easy and secure to implement these investments, helping you build wealth even more effectively.

Frequently asked questions about the 50-30-20 rule

Here you’ll find additional information and answers to common questions about the 50-30-20 saving method.

What are the advantages and disadvantages of the 50-30-20 rule?

Here’s an overview of the key pros and cons of the 50-30-20 rule.

Advantages:

• Fixed allocations make budgeting simple and clear

• The rule can be adapted to individual circumstances

• The set savings portion helps build savings and wealth

• The method is easy to understand and apply

• Regular categorisation of expenses provides financial transparency

Disadvantages:

• Irregular income or fluctuating expenses can make the rule harder to follow

• Fixed percentages don’t always suit every situation

• One-off costs like repairs or medical emergencies aren’t directly accounted for

• Fixed categories may be too restrictive for lower incomes if fixed costs take up a large share of the budget

Are there alternatives to the 50-30-20 rule?

Yes, there are various alternatives to the 50-30-20 rule that may better suit your financial situation and goals. One example is the 80-20 rule, where 80% is allocated to expenses and 20% to savings goals. Other detailed budgeting methods divide expenses into more categories.

Additional alternatives include:

• Zero-based budgeting: Plan every expense in advance, leaving no unused budget

• 60-20-20 rule: Allocate 60% to fixed costs, 20% to savings goals, and 20% to leisure activities

What savings goals work with the 50-30-20 rule?

The 50-30-20 rule is ideal for achieving various savings goals in a structured way. You can use the 20% savings allocation flexibly to pursue short- and long-term financial objectives. Potential savings goals include:

• Building an emergency fund for unexpected expenses

• Saving for major purchases, such as a car or property

• Investing in securities or cryptocurrencies for long-term wealth building

• Setting aside money for retirement, such as through private pensions

• Paying off debts to reduce interest burdens

Can the percentages of the 50-30-20 rule be adjusted?

Yes, the percentages of the 50-30-20 rule can be tailored to individual circumstances while maintaining its core structure. For households with high fixed costs, the savings percentage could temporarily be reduced, or the personal needs allocation might be trimmed. Similarly, those with higher incomes could increase the savings percentage to reach financial goals more quickly.

The key is to ensure adjustments promote financial stability and reflect personal priorities while preserving the overall principle of the rule.

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