The 50-30-20 rule provides potential savings for consumers

Simple saving method through intelligent budgeting

The 50-30-20 rule divides the budget into three parts. This is possible for any budget as each sum can be divided. The largest part of the income, 50%, is used for the monthly fixed costs. This includes rent, but also expenses such as groceries, telephone contracts, internet charges, insurance and much more. To facilitate the division, it may pay to set up a financial area directly with a separate household account used only for these expenses.

As leisure is also a part of everyday life, 30% of the existing income is used for leisure needs. This includes fashion, vacations, dinners with your partner or other luxuries that are simply desired from time to time. If the 30% has not been used in full, some of them can of course be saved up, eg for a longer holiday. It is important to know that savings in this area have nothing to do with the remaining 20%. If you save a certain amount of 30% on your leisure budget, you should only use it for leisure activities!

The last 20% is used for capital formation and is therefore intended for emergencies, but also for the future. They can be deposited in a daily account, but can in principle also be invested in fixed assets. Here it depends on the available budget. If the budget is tight, the 20% acts as a reserve to be accessed at all times in an emergency. With a good budget, which offers a large savings potential even in everyday life, the 20% can also be invested in a certain period to form new capital in the long run.

The following graphic shows an interesting overview and a good example of how the 50-30-20 rule works in everyday life:


Where does the 50-30-20 rule come from?

In 2005, the book All Your Worth was published by author Elizabeth Warren, a former U.S. senator, bankruptcy expert and former Harvard professor with a wealth of financial experience. She dispelled the narrative that a complex budgeting plan was the only way to reach your savings goals.

She mentioned the 50-30-20 rule, which makes it easy to divide money into three different categories regardless of budget and thus always have an overview. This also prevents overspending when it comes to spending because it is clear from the start how much money is available for leisure and private pleasure.

The basic needs:

50 percent of the money is used to cover all basic needs. Important to know: It is always assumed that the net income. The basic needs category includes:

· Costs for rent or rate for house financing

· Gas and electricity bills

· Monthly tickets for public transport

· Price for the car

· Insurance

· Amount for repayment of loan or debt

· Basic food

If the income is 3000 euros, 1500 euros are used for basic needs. Anyone who finds that more than 50% of their income is spent on fixed costs should optimize their own budget planning and push for any savings through cost-saving measures.

30% of total income serves as a wish fulfillment

With 30% of the money, own wishes and needs are met. This includes all things that are not essential to life but that are still worth striving for because they make you happy. Measured in relation to an income of 3000 euros, it would be 900 euros per month. Personal needs include:

· Visits to restaurants

· Fashion, beauty, visits to the hairdresser

· Luxury food

· Entertainment as a cinema, but also subscriptions to Netflix

· Visit to the restaurant

· Excursions, day trips, visits to the amusement park

· Vacation

It’s not about putting basic needs before personal needs, but you can opt out of a gym membership, but you can not pay rent. That is why this subdivision is so important as not to get into financial difficulties at the end of the month, which poses an existential threat.

20% of the money for serious purposes

It varies how the 20% of the money is to be spent. They serve to build a financial buffer. They can also be used to repay outstanding debts. Creating a pillow for emergencies also seems to make sense. If 20% of the net income is set aside each month, an emergency fund can be set up, but also a savings account to buy a property later.

How to apply the 50-30-20 rule step by step

The biggest advantage of the 50-30-20 rule is that it can be used by anyone. Anyone with a monthly income of 5,000 euros benefits from budgeting as much as a household with a monthly income of only 1,000 euros. Explained step by step, the regulation is extremely easy to implement.

Find out the net income

Anyone who works is not hard to find out the net income. What ends up in the account each month is the net amount. Freelancers, on the other hand, have a harder time because the net income can only be calculated if the taxes are set aside. Only when the net income is calculated, the next step can be taken.

Analyze the previous month’s expenses

To find out what the money is actually being spent on, a comprehensive analysis is required. Here, an account statement from the last 30 days can help, but also to keep a household book if it is no longer possible to make an analysis backwards. Each number is then entered so that it can be divided into areas in the following month.

Now the expenses can be mapped and analyzed. Finally, there should be a number that shows what the current distribution of expenses is. Now the adaptation to the 50-30-20 rule can take place.

Make a plan for the 20%

What happens to the 20% of the money that will be allocated to the savings sector in the future? Just leaving it in the account is unsuitable, because there it can happen that the money is accidentally spent. It is safer to open a sub-account or even a money market account where even a small amount can be earned on deposited funds. The advantage of the call money account is that the money can be accessed at any time if a financial emergency has arisen according to the 20% rule.

Dividing the budget into three parts makes it much easier to control spending. Photo:

Adapt your life to the 50-30-20 rule

If you analyze carefully, you will find that you often do not live by the 50-30-20 rule. It becomes difficult when the 50% is significantly exceeded. For example, if you already spend 70% on your fixed costs, you can hardly afford anything in everyday life and in the end there is no longer any potential for savings.

It is especially difficult to save money in this area because fixed costs are not luxury needs but unavoidable. Not paying the rent or ignoring the gas bill has huge consequences. In order to curb the costs of fixed costs, effective savings measures must therefore be used. This may include:

· Moving to a cheaper apartment with high housing costs

· Comparison of all insurances

· Change of electricity supplier to a cheaper area

· Change in buying behavior for basic foods

There is a large savings potential in the range of 30%

If the range of 30% is too important in the analysis, there is potential for savings. Especially in this sector, a lot can be saved, sometimes due to external circumstances. For example, if the bus ticket of 9 euros takes effect, it is worth leaving the car and investing in this ticket instead.

It also pays to analyze your own desires and luxury needs in more detail. When buying fashion, it is possible to look more at good offers and to buy cheaper. Sometimes your own desires can be screwed back in some places without creating a negative feeling.

In the 30% sector, it is also possible to save separately from the 20%. For example, if you want to buy an expensive piece of clothing or jewelry in the coming month, you can set aside the budget of 30% from the previous month and then make the higher investment a month later. This saved money is independent of the security buffer!

Conclusion: The 50-30-20 rule is universally applicable.

The great advantage of the 50-30-20 rule is that it can be used universally for any user. Even with social benefits, it is possible to live by this rule. Here it should be noted that the 50% also includes the rental services, which are often taken over by the office itself. However, the rental income is included in the total statement of income.

The simple implementation of budgeting makes it so interesting for consumers. It turns out that many people have lost control of their own expenses and costs. The savings potential is not exhausted, especially at lower incomes, so financial problems arise in an emergency.

Income-dependent budgeting allows for some basic savings, even if the income is below average. Already with a saving of 200 Euro per month (from the 20%) you can generate 2400 Euro per year.


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