The 50/30/20 rule to budgeting and saving

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When I was leaving university and just learning Excel, I took a copy of my father’s budget spreadsheet. One of the best things I ever learnt from my parents financially – I use it to this day. How can you keep on top of your finances if you don’t know how much you have to fork out daily, weekly or monthly?

So make a vow (not a new year’s resolution but a real pledge to yourself, for life, not just this year) to sort out your budget, and you’ll quickly find other money-saving and budgeting tips fall into place seamlessly. The key is understanding your incomings and outgoings in the first place, rather than burying your head in the sand.

Create a budget

Set up a Google Doc or Excel spreadsheet for your budget. Divide it into three sections. I recently read a great article on the “50/ 20/ 30 guideline” (split your outgoings three ways – a maximum of 50 percent of your salary on Fixed Costs such as rent and insurance, a minimum of 30 percent on Flexible Spending such as food, transportation costs and fun, and at least 20 percent on your Financial Goals i.e. saving) and discovered that I had been following this almost precisely for 15 years without realising it.

I have divided my budget into these three sections as row headers and have a column to convert actual spend into a percentage of salary, by item and by section.

I have columns to convert each cost into a weekly, monthly and annual figure. Put the amount in the column you pay it in – weekly, monthly, or annually – and set up the other columns as conversions (e.g. if cost is annual, weekly number = amount / 52, monthly number = amount / 12).

And, as I still have interests and accounts in other countries/ currencies, I have columns for dollars and euros – it can help looking at money in two currencies to ensure you understand the real value of what you’re spending. Set up the conversion figure in a single cell and use a formula to sum all your home currency columns, using a currency converter site like

Remember EVERYTHING – that newspaper subscription, the cost of a regular money transfer overseas each month, your post box and car registration annual renewals. You can keep adding stuff – the devil is in the detail. This budget is for life, not just a one-off, so you can always add to it or update it later.

Make sure you have a section at the end for your salary, total spending and the difference. Mark it in red for a deficit, green for any excess. If it’s red – work out how to change this. Normally you can cut down on your flexible spending and you can work out ways to cut your fixed costs too. If you absolutely must, reduce your Financial Goals savings until you have paid off debts.

I also have a separate sheet in the same budget document, where I document all my different savings and which currency they’re in. That way, I only have to look at one file to check on my money.

My budget template in Google Docs
My budget template in Google Docs – note the division of fixed costs, goals and flexible spending and % column

Tips for cutting ‘Fixed’ costs

  • Bills: Some bills fluctuate a lot (and can be trimmed) and should therefore go in Flexible Spending; some you know precisely each month. I treat all bills and insurance costs – even little ones like annual subscriptions – that I consider a must as Fixed Costs and budget ahead for them.
  • Cashback: Don’t forget – if you have big annual or quasi-annual outgoings, you could make money back by getting a cashback credit card.
  • Insurance: Get insurance – and know what it covers. Did you realize your smartphone is covered by your home insurance? Are you covered when you travel? Are vaccinations or dental care covered on your private health insurance? Insurance is an upfront cost that brings peace of mind, safe in the knowledge there won’t be big bills in the future due to unforeseen circumstances.
  • Housing: The US Bureau of Labor Statistics’ Consumer Expenditure Survey suggests you budget for housing costs this way:
    • Mortgage: 58 percent
    • Utilities: 21 percent
    • Household furnishings and equipment: 9.2 percent
    • Household operations: 6.8 percent
    • Housekeeping supplies: 3.6 percent
  • Utilities: Keep an eye on them and, if you’re seeing massive fluctuations month on month, create a new worksheet in your budget spreadsheet, get all your bills out and document the costs month by month. You may spot that you have a hidden leak or that your heating or cooling is going through the roof.
  • Car/ transportation: Be careful not to overload yourself with massive car finance repayments; some finance experts suggest you pay no more on a car loan in a year than you make in a month. But most Americans, for instance, spend around 17 percent of their income on transportation, according to the US Bureau of Labor Statistics.

Tips for cutting ‘Flexible’ spending

  • Track: Use an app or a notebook to track ALL your spending for a month – it’s tedious and painful but it will identify the little outgoings that add up… and yes, often that’s a daily coffee and a lunchtime sandwich, which can cost quite a lot.
  • Transportation: You don’t know how much you may have to spend on car maintenance but make a guess and plan for it. Same for gas.
  • Big events: Holidays and gifts should be broken down and planned for. The UK average family spend on Christmas, for instance, is £840 – £70 a month. Start putting it aside. (And buy bits in the sales now, like wrapping paper!).
  • Partition: Set up difference accounts for different savings – one for holidays, for instance, that is separate to your long-term savings accounts AND to your current account. A particularly organized couple I know even save a lump sum a month towards their goal to replace their car every five years. If you did this alongside your current spending, eventually it would replace the amount you spend as a fixed cost on a car loan.
  • Food: Generally allocate five to 15 percent of your budget on food. Plan out your shopping and bulk buy wherever you can, even if you live alone. It really does pan out for the basics. And don’t shop hungry…

Tips for ‘Financial Goals’ success

  • Envelope of money: A tip I read recently and am putting into practice this week myself – 10 Ways to Save $1,000 – put $20 in an envelope every week and you’ll have $1,000 in a year. Just remember to keep it somewhere safe – you don’t want to make this envelope easy for you or anyone else in the family to dip into. (It’s up to you if you choose to put this into your Financial Goals or Flexible Spending section of your budget!)
  • Savings: Set up automatic transfers if possible, or set yourself a reminder otherwise to move money as soon as you’ve been paid. If you don’t see it, you won’t miss it! I just set up a Moneybox ISA and you can use the app to link to your other accounts then round up your weekly spendings in them with pennies and pounds going into your ISA to keep adding to your savings. Brilliant.
  • Pension: We’re living longer and pension systems and healthcare are creaking because of it. Start putting money aside and use the power of compound interest to get that pension going NOW.
  • Tangible goal: Set a real, short- to mid-term goal. I saved the hardest the year I bought property – having to focus on a 20 percent cash down payment was a true incentive to cut out the coffees, brunches and spending sprees…

Finally a gift – I have a budget template on Google Docs you can use.

Content Disclaimer

The information contained above is provided for information purposes only. The contents of this article are not intended to amount to advice and you should not rely on any of the contents of this article. Professional advice should be obtained before taking or refraining from taking any action as a result of the contents of this article. Locke Digital Ltd disclaims all liability and responsibility arising from any reliance placed on any of the contents of this article.

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