Borrow Now

What is the 50/30/20 Rule for Budgeting?

Build a budget that works for you with this 50/30/20 budgeting rule.

What Is the 50/30/20 Rule?

Managing money can feel tricky, especially when prices are rising in Canada and your paycheque doesn’t stretch as far as it used to.

But there’s a simple method that can help you make smart choices with your money. It’s called the 50/30/20 budgeting rule, and it’s a great way to plan where your cash goes each month.

In this blog, you’ll learn how the 50/30/20 rule works, how to apply it to your everyday spending, and how to use it to build better habits, even on a tight budget.

The 50/30/20 Budgeting Rule Explained

The 50/30/20 rule is a simple budgeting method that helps you divide your income into three easy categories:

  • 50% for needs
  • 30% for wants
  • 20% for savings or debt payments

This budgeting rule is viewed as one of the easiest ways to create a budget that works for everyday life.

Here’s a quick breakdown:

  • Needs (50%): These are things you must pay for to live, like rent, groceries, transportation, and basic utilities.
  • Wants (30%): These are extras that make life more fun, like takeout, streaming services, or going out.
  • Savings (20%): This includes saving for emergencies, paying off loans, or putting extra money toward bills.

Visit the Government of Canada’s Budget Planner tool to create your own budget.

Why Budgeting Matters in Canada Right Now

Everything from gas to groceries costs more than it used to. That’s why planning your spending is more important than ever. Following the 50/30/20 savings rule can help you:

  • Avoid running out of cash before payday
  • Keep up with bills
  • Save for unexpected expenses

If you’re struggling to get ahead, you’re not alone. Many Canadians are looking for ways to manage money better during these tough times.

Step-by-Step: How to Use the 50/30/20 Rule

1. Figure Out Your Monthly Income

Begin the process by calculating your take-home pay, which is the amount you receive after taxes have been deducted. If you are paid on a weekly or biweekly basis, make sure to sum up your earnings for the entire month to get an accurate figure.

Example: If you bring home $2,400/month, your budget would look like this:

  • 50% for needs = $1,200
  • 30% for wants = $720
  • 20% for savings/debt = $480

2. List Your Needs (50%)

Essentials represent your non-negotiable expenses that are crucial for maintaining your day-to-day life. These essential costs typically include:

  • Housing payments: This encompasses either your rent or mortgage, which is often the largest expense in a household budget.
  • Food purchases: This refers to your grocery shopping, which is necessary for sustaining your nutrition and overall health.
  • Transportation costs: This includes expenses related to public transit, car loans, and fuel, all of which are vital for commuting and travel.
  • Utility bills: These are the costs associated with heating, electricity, and water, which are essential for a comfortable living environment.
  • Insurance premiums: This covers various types of insurance, such as health, auto, and home insurance, which protect you from unforeseen expenses.

If you find that your essential needs exceed 50% of your overall budget, it may be wise to explore strategies for reducing spending in other categories or to consider revising your financial plan altogether.

For instance, you can explore these tips for saving on groceries to help lower your food expenses and free up some of your budget for other important areas.

3. List Your Wants (30%)

Wants are not inherently negative; in fact, they are the delightful extras in life that can bring us joy and enhance our overall well-being. However, it’s important to manage these desires wisely by keeping them to 30% of your overall budget or less.

Some common examples of these wants include indulging in takeout meals, enjoying subscriptions to services like Netflix, shopping for the latest clothes or tech gadgets, and planning travel adventures or nights out with friends.

It’s perfectly acceptable to allocate some of your budget for these fun and enjoyable experiences, but always remember to prioritize your essential needs and savings before indulging in your wants.

4. Plan for Savings or Debt (20%)

Consider allocating this portion of your income to several important financial goals that can significantly enhance your overall financial stability and well-being. Here are a few suggestions on how to effectively use these funds:

  • Build an emergency fund: This is crucial for unexpected expenses that may arise, providing you with a safety net.
  • Pay down credit cards or personal loans: Reducing debt can alleviate financial stress and improve your credit score.
  • Save for a big goal: Whether it’s purchasing a new car or funding your education, setting aside money for significant milestones can help you achieve your dreams.

If you’re unsure about how to get started with building an emergency fund, you can find valuable insights in this blog post.

Tips to Make the 50/30/20 Rule Work for You

  • Be honest about your spending – Write everything down, even small items.
  • Use cash when possible – It’s easier to track spending when using cash.
  • Start small – If saving 20% isn’t doable, start with 5% and build from there.
  • Adjust as needed – Everyone’s life is different. The rule is a guide, not a strict rule.

What If I Need Help Covering Expenses?

If you’re short on cash and need help getting by until your next paycheque, Speedy Cash offers payday loans that are easier to repay in scheduled payments. Explore loan options here.

You can also visit a Speedy Cash location in Alberta, British Columbia, Nova Scotia, or Saskatchewan. Find a Speedy Cash store near you.

Get Cash from a Speedy Cash Payday Loan

The 50/30/20 rule is an easy way to take control of your finances. It helps you focus on what matters most: your needs, a few wants, and saving for the future. You don’t need to be perfect. Just start where you are, and make small steps every month.

Remember, budgeting is not about cutting out all fun. It’s about being smart with your money so you can do more of what you love without worrying about running out of cash.

For more help with money tips, budgeting, and loans, visit the Speedy Cash blog or talk to one of our friendly team members at a location near you.

Resources:

Visit Our Blog