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Have trouble budgeting? Try the 50/30/20 rule



Want to budget but have no idea how or where to get started? 🙄


Don’t worry, it’s absolutely normal. Everyone tells us we need to have a budget planner, but not many tell us how to actually budget. The good news is that we’ve got a strategy to help you do just that.


To get started, you’ll need a record of your expenses of the past month. There's no need to get into the nitty gritty, but having some number will help.


In this post we’ll be going through a quick step-by-step guide to using the 50/30/20 budgeting rule.



1. Calculate your nett income


Start by figuring out how much money you earn after tax. This is everything that remains of your income after you take all your taxes out.


If you’re an employee and have a steady income, it’s just a question of looking at your payslips. If you’re self-employed, take out the EPF contributions and insurance you pay.


Done? Now onto the juicy bits. 🍎


The 50/30/20 budgeting rule

2. 50% are needs


Anything that would impact your quality of life severely such as food, rent or electricity is a need.


Some other examples:

  • Car loans

  • Utilities

  • Insurance

  • Healthcare


Items and daily expenses such as Netflix, Starbucks and fancy dinners are not needs. 😛


The aim of this budgeting strategy is that needs should only take up 50% of your monthly income.


Look back on your past month. How much did you spend on needs?


If the total higher than 50%, look for ways to reduce those monthly expenses. Changing insurance, downgrading your car and shopping somewhere cheaper are some examples of changes you could make.



3. 30% are wants


The second part of the 50/30/20 rule is to keep your wants down to 30%.


Wants are desires. They are basically anything you can live without. These include retail therapy, massages, desserts, boba teas, gym membership, holidays... and the list goes on.


How did you do last month? Are your wants over 30% of your income? 👀



4. 20% are savings and investments


The 20% is neither a want nor a need - it’s a class of its own.


The 20% is where the magic happens. It’s where you work on improving your financial health and make progress towards your financial goals. It’s the money you use to repay debts, to save money, to build your emergency fund, and to contribute to your retirement.


If you’ve never built an emergency fund before, this 20% will help you do so. If you’re saving to start investing, to buy a house or to pay off debts, this extra money will help you get there. Make saving part of your budget, and you won’t even miss it.


Don’t know where to put your money? Do some research on Fixed Deposits and high interest bank accounts. Make sure that money is working for you!



An example 👩


Ivy works in sales for a large company in Kuala Lumpur and makes RM7,500 every month after taxes. She discovered the 50/30/20 rule and has decided to use it on her own personal finances.


Following the rule, this is what her percentage allocation looks like:

  • 50% needs: RM3,750

  • 30% wants: RM2,250

  • 20% savings: RM1,500


Ivy was thinking of buying a house, and now she has a guideline for her mortgage payments. Including utilities and other bills, the total shouldn’t go above RM3,750.


As for her wants: under RM2,250 per month. She thinks that’s pretty doable.


Finally, the extra RM1,500 for her savings come in very handy. She’ll use that to start paying off her entire credit card debts, and then start building her emergency fund. Go Ivy!



The 50/30/20 budgeting technique is a good rule to follow for those who are still new to the idea of budgeting.


It’s true that this strategy might not work for everyone; if you’re paying off heavy debt or saving to buy a house, the percentages might be a bit different. Similarly, if you’re a student and on a strict budget, your needs will take up a larger portion of your budget.


In any case, breaking down your spending into percentages will help you see your finances in a whole different way. 😉



Want an easy way to help you track your spending and budget on-the-go? Download BigPay now. 💪



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