What Is the 50/30/20 Rule? A Simple Budgeting Strategy

What Is the 50/30/20 Rule? A Simple Budgeting Strategy

Budgeting doesn’t have to be complicated. The 50/30/20 rule is one of the simplest and most popular budgeting methods for Australians, helping you understand where your money goes and how to manage it more confidently. In this guide, you’ll learn what the 50/30/20 rule is, how it works, the pros and cons, and practical steps to try it in your own budget.

We’ll also cover situations where this method may not suit your circumstances and share options you can consider if you need short-term financial support from $500 (subject to eligibility and lending criteria).

Apply now: https://www.credit24.com.au/au/apply/login

What is the 50/30/20 budgeting rule?

The 50/30/20 budget rule is a general budgeting framework that helps you divide your after-tax income into three broad categories:

50% Needs
30% Wants
20% Savings & Debt Repayments

The method was popularised by U.S. Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan and has since become a widely used starting point for building budgeting habits.

Key things to know:

• It’s based on after-tax income (your take-home pay), not gross income.
• It aims to balance essential expenses, lifestyle spending, and progress toward savings or reducing debt.
• Many people adjust the percentages to reflect their real-world costs (for example, higher housing costs).

For more budgeting fundamentals, see:
How to do a budget: https://www.credit24.com.au/blog/how-to-do-a-budget

Breaking down the 50/30/20 rule categories

50% to Your Needs

Needs are the essential costs you usually have to pay to live and work. In Australia, these may include:

• Rent or mortgage
• Basic groceries
• Utilities (electricity, gas, water, internet, phone)
• Healthcare and insurance
• Transportation (fuel, car running costs, public transport)
• Childcare and school-related costs
• Minimum repayments on credit cards and loans
• HECS/HELP repayments

These are typically higher-priority expenses. If your “needs” are well above 50%, the rule can still be useful as a reference point to help you identify where adjustments might be possible (even small ones).

30% to Your Wants

Wants are discretionary costs that can improve your lifestyle but aren’t strictly necessary. Examples include:

• Dining out, coffees, takeaway
• Entertainment (movies, concerts, sporting events)
• Subscriptions and streaming services
• Hobbies and recreational activities
• Travel and weekend getaways
• Non-essential shopping
• Gym memberships and classes

A helpful guideline: If you could delay or reduce it without major consequences, it’s more likely a want.

For tips on managing spending on a tight budget, see:
How to budget and save money on a low income: https://www.credit24.com.au/blog/how-to-budget-and-save-money-on-a-low-income

20% to Your Savings and Debt

This category is designed to build financial resilience and improve your financial position over time. It may include:

• Emergency fund contributions
• Extra repayments on loans or credit cards (above the minimum)
• Saving for a home deposit
• Investments (such as shares, ETFs, managed funds)
• Education savings
• Voluntary super contributions (optional)

Many people prioritise reducing higher-interest debt while also building a small buffer for unexpected expenses.

Benefits of the 50/30/20 budget rule

The rule is popular because it can help you:

• Keep budgeting simple without detailed spreadsheets
• Build awareness of where your money is going
• Create balance between essentials, lifestyle, and future goals
• Spot patterns like “needs creep” or rising discretionary spending
• Adjust gradually, rather than trying to change everything at once
• Develop habits that support long-term financial literacy

Drawbacks of the 50/30/20 budget

Although useful, this budgeting method won’t fit everyone’s circumstances. Potential limitations include:

• It may not feel detailed enough if you prefer strict tracking
• “Needs” may exceed 50% in high cost-of-living areas
• 20% may not be enough for some goals (or may be hard to reach for others)
• It can be harder to apply if your income changes month to month
• It may not account clearly for irregular or annual expenses (like rego, school costs, or insurance)
• Some expenses can sit in a “grey zone” between needs and wants

How to create a 50/30/20 budget plan

Step 1: Determine your after-tax income

Include sources such as:

• Salary after tax
• Side income
• Centrelink or government payments (if applicable)
• Investment income (if applicable)

If you’re self-employed, a simple starting point can be:
Net income = Gross income − Business expenses
(You may also want to set aside money for tax, GST, or other obligations, depending on your situation.)

Step 2: Assess your current spending

Track your spending for at least 30 days. You can do this using:

• Banking app transaction categories
• A budgeting app
• A notes app or spreadsheet

Label each expense as:

• Need
• Want
• Savings/debt

Then compare your real spending to the 50/30/20 split.

Step 3: Record your 50/30/20 split (without using a table)

Work out your monthly take-home income, then calculate rough dollar targets.

Example (monthly take-home pay: $3,600):

• Needs (50%): $1,800
• Wants (30%): $1,080
• Savings/debt (20%): $720

To make this easier to manage, consider using separate bank accounts (or “buckets”) so the money is clearly allocated.

Step 4: Hold yourself accountable

Choose a simple routine:

• Check spending weekly (10 minutes)
• Review category totals each month
• Adjust if you notice a category consistently runs over

Step 5: Automate your savings

A practical approach is to set an automatic transfer shortly after payday into your savings or debt repayment account. Automations can reduce decision fatigue and help you stay consistent.

Step 6: Reassess regularly

Your budget may change with rent increases, interest rate changes, family commitments, or income changes. A review every 3–6 months can help you keep the budget realistic.

Example of the 50/30/20 plan in action

If your monthly take-home income is $4,000, your targets could be:

Needs (50%) = $2,000

• Rent: $1,500
• Groceries: $350
• Utilities: $100
• Transport: $50

Wants (30%) = $1,200

• Eating out & entertainment: $500
• Shopping: $300
• Subscriptions: $50
• Savings for holidays: $350

Savings & Debt (20%) = $800

• Emergency fund: $350
• Extra loan repayments: $200
• Investing: $250

This is only an example—your categories and amounts will depend on your location, household, and existing commitments.

When might the 50/30/20 rule not be the best saving strategy?

You may want to modify the framework if you are:

• Living in high-cost areas where housing and essentials take up a larger share
• Carrying high-interest debt and want a stronger focus on repayments
• On a low income where essential costs exceed 50%
• Self-employed or working casually with irregular income
• Supporting dependents or managing significant family costs
• Working toward major goals like a home deposit
• On a fixed income in retirement

In these cases, the 50/30/20 rule can still be a helpful reference—but it may work better as a starting point than a strict rule.

Adjusting the 50/30/20 rule to your situation

You can customise the percentages based on your circumstances. Examples include:

• 60/20/20 if essential costs are higher
• 40/30/30 if you’re able to put more toward savings or debt reduction
• 70/10/20 if you’re currently focused on covering essentials and stabilising cash flow

Other practical adjustments:

• Base your budget on your minimum reliable income if your earnings fluctuate
• Use “good months” to boost savings, pay down debt, or build a buffer
• Create “sinking funds” for irregular expenses (like rego, insurance, school costs, or birthdays)

Tips for success with the 50/30/20 rule

• Compare utility providers to reduce essential costs
• Cancel subscriptions you don’t use
• Meal plan to reduce grocery overspending
• Check whether you’re eligible for government rebates or concessions
• Choose free or low-cost entertainment options where possible
• Use separate accounts for needs, wants, and savings/debt
• Track spending with an app or your bank’s category tools
• Consider prioritising higher-interest debt while still building a small emergency buffer

For transport emergencies:
Car repair loans: https://www.credit24.com.au/car-repair-loans

For moving or rental costs:
Rental bond loans: https://www.credit24.com.au/rental-bond-loans
Rent loans: https://www.credit24.com.au/rent-loans

For planned travel expenses (if suitable for your situation):
Travel loans: https://www.credit24.com.au/travel-loans

FAQ about the 50/30/20 budget rule

What counts as a need versus a want?

Needs are essential living costs—such as rent, groceries, utilities, transport, and insurance. Wants are discretionary—such as takeaway, entertainment, shopping, and hobbies. A simple test: if you can delay it without major consequences, it may be a want.

Should I include HECS/HELP repayments in needs or debt repayment?

HECS/HELP repayments that are automatically deducted from income are often treated as a “need” because they are compulsory. Some people prefer to treat them as debt to track progress—either approach can work as long as you stay consistent.

How do I handle an unexpected windfall with this budget?

Some people use a windfall to strengthen their emergency fund, reduce debt, and allocate a smaller portion for enjoyment. The best split depends on your situation, priorities, and existing commitments.

What if my needs exceed 50% of my income?

This is common, particularly when housing costs are high. You can adjust the split (for example, 60/20/20) and focus on what you can control, like reviewing bills, shopping habits, or subscription costs.

Can I use the 50/30/20 rule if I'm self-employed?

You can, but it helps to calculate your net income and allow a buffer for variable earnings and tax obligations. Many people budget from a conservative income estimate and use higher-income months to build a buffer.

How do I adjust this budget for irregular income?

Base your budget on your minimum reliable monthly income (not your best month). Use surplus months to build savings, create sinking funds, or reduce debt.

Should superannuation contributions count in the 20%?

Employer super contributions are separate from take-home pay, so they typically aren’t included in the 20%. Voluntary contributions can be included if they come from your after-tax income and fit your plan.

How does the rule apply to shared household expenses?

You can split shared “needs” (like rent and utilities) based on what’s fair in your household, then apply the wants and savings categories to your own income and goals.

What's more important: paying off debt or building savings?

Many people aim to reduce higher-interest debt while keeping a small emergency fund to avoid needing to borrow for unexpected costs. The right balance depends on your interest rates, cash flow, and how stable your income is.

Need a small personal loan? Choose responsible lending

Even with a strong budget, unexpected costs can happen. If you’re considering borrowing, it can help to:

• Understand the total cost (fees, charges, and repayments)
• Check the repayment schedule fits your budget
• Borrow only what you need, and compare options

Credit24 offers personal loans from $500 to $10,000, with fixed repayments and an online application process (subject to eligibility, lending criteria, fees, and charges).

Apply now: https://www.credit24.com.au/au/apply/login

Conclusion

The 50/30/20 rule is a simple, flexible budgeting method that can help Australians improve money awareness and build healthier financial habits over time. It may not suit every income level or household cost structure, but it can be a useful starting point for learning how to allocate income, prioritise essentials, and plan for savings or debt reduction.

Budgeting progress often comes from small, consistent improvements. Start with the 50/30/20 framework, adjust it to match your real costs, and keep refining as your circumstances change.

Disclaimer
IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839. The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.