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What is the 50/30/20 rule?

The 50/30/20 rule is a simple budgeting technique that ensures each month you can take care of the essentials (50%), enjoy the things you love (30%), and pay something towards your future (20%).

This is a great starting point to help you limit overspending, and ensure you’re putting something (however small) away for your long-term goals.

How do I work this out?

To work out your spend in each category, you can dig through your bank statement with a calculator, or use a budgeting app that will connect to your bank via open banking.

This can be very useful if you have a few different accounts, as it pools all your spending into one place and organises it by category.

Once you have a view on your spending, you can see how it stacks up in the 50/30/20 split:
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Divide the amount you’re spending on Essentials, desires and goals per month by your monthly income.

For example: If your monthly Essentials are £1,100 and your income is £2,200 do the following

£1,110 ÷ £2,200 = 0.5 then multiply that number by 100. For example: 0.5 × 100 = 50%.

How much should I be investing?

There are a few things to consider before looking to invest. You’ll want to prioritise paying off any long-term debts, and have a 3-6 month emergency fund of savings to cover basic living expenses.

Once these are covered, you might want to consider investing the remaining portion of your future savings budget. This will be different for everyone, and it’s important to make sure your investments are aligned with your risk tolerance.

The great thing about the 50/30/20 rule is it’s adaptable to your needs. Need to push your savings portion a bit further to hit a short-term goal? Consider increasing the allocation to 30%, and cutting back on your ‘desires’ portion for a little while. 

Remember that life is about balance, and achieving these goals to the exact percentage point each month might not always be possible. Sometimes life throws you curveballs.

This guide is designed to give you a useful starting point on calculating a budget, and where your investment budget can be positioned. 

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‍When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation. The following should not be taken as advice or guidance around financial hardship. If you're in this situation, there is support available from GOV.UK or Citizens Advice that can help.