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If you have financial aspirations for the future, a solid budget is usually your first plan to help achieve your goals. Managing your money gives you more choice for the future and pays off the earlier you start. When planning out your budget, it doesn’t have to be all spreadsheets and formulas and calculators, here’s a simple way to better budgeting.

The 50/30/20 budgeting rule

A great place to starts is the 50/30/20 budget rule. This is an easy guide to show the percentage of your salary you should be spending or saving. With this rule you allocate: 

  • 50% on needs, such as your rent or home loan repayments, transportation, your weekly shop, paying off any debt, insurances and health costs, education and utility bills.
  • 30% on wants, such as daily coffee, eating out, shopping, entertainment, hobbies, and holidays, etc.
  • 20% on savings, such as emergency funds, savings accounts (e.g. saving for a new car or a housing deposit), additional debt repayments, as well as investments inside and/or outside of superannuation.

To show you how it works, let’s use two individuals, one receiving an after-tax income of $52,000 p.a. and the other receiving an after-tax income of $104,000 p.a. with the 50/30/20 budget calculator:

The 50/30/20 budget calculator

Scenario 1 - annual income $52,000

Allocation

Expenditure (rounded to the nearest dollar)

What

Weekly

Fortnightly

Monthly*

Annually

50% Needs

$500

$1,000

$2,167

$26,000

30% Wants

$300

$600

$1,300

$15,600

20% Savings

$200

$400

$867

$10,400

TOTAL

$1,000

$2,000

$4,334

$52,000

Scenario 2 - annual income $104,000

Allocation

Expenditure (rounded to the nearest dollar)

What

Weekly

Fortnightly

Monthly*

Annually

50% Needs

$1,000

$2,000

$4,333

$52,000

30% Wants

$600

$1,200

$2,600

$31,200

20% Savings

$400

$800

$1,733

$20,800

TOTAL

$2,000

$4,000

$8,667

$104,000

Please note: As there are 52 weeks in a year, not 48 (i.e. four weeks x 12 months), the monthly expenditure has been calculated by multiplying the weekly expenditure by 4.334 (52 weeks / 12 months).

So you can see how much is allocated to each category, and how savings can grow over a year.

Things to consider

When creating a budget, there's lots of benefits, such as:

  1. Helping you understand what spending habits you currently have, and what changes are required to meet your savings goal.
  2. Making you more financially secure to better tackle surprise costs and expenses.
  3. Giving yourself the confidence to spend money when you know that you can afford it.

At bcu, we have budget calculators available for you to help with your financial goals.

High income earners

For those with high incomes, a 50% and 30% allocation towards need and wants may be too high, encouraging some extra spending. So tweaking the savings percentage could enable you to live comfortably, and reach savings goals even sooner.

Low to middle income earners

For those who live in expensive areas, or with slightly lower incomes, it may prove difficult to only spend 50% of your salary on rent and outgoings. You may need to pinch the percentages for wants or savings to enable a good lifestyle. This is about understanding the balance, and introducing some budget planning into your banking routine.

Moving forward

The 50/30/20 rule provides a great place to start for all you budgeting needs.

Once you’re in a routine of managing your money and looking to broaden your goals such as building wealth or investing, it may be worthwhile to seek professional advice on your financial situation.

If your budgeting goals are working your way towards your first home, check out our article - five tips to help you save for a deposit while renting.


Important information

Information on this website is general and has been prepared without taking into account your objectives, financial situation or needs. You should consider whether this information is suitable for your objectives, financial situation and needs before acting on the information provided.