The 50-30-20 rule is a simple formula for saving money and building capital no matter what your earnings . The disposable net income is divided into three spending and savings areas of different sizes.

  1. 50 percent for fixed costs and basic expenses
  2. 30 percent for leisure and personal needs
  3. 20 percent for savings and debt payments

The aim of the 50-30-20 rule is a better overview of your own finances. The monthly budget is organized so that costs can be covered and investments can be made.


50-30-20 Rule: How Should I Split My Salary?

According to the 50-30-20 rule, structure your net income as precisely as possible into the three categories. The following list shows which costs fall into which area:

Fixed costs (50 percent)

The largest items are the basic expenses that are incurred each month. They finance (survival) life. These include primarily:

  • Rent
  • electricity and gas
  • insurances
  • Contracts for internet, television, telephone and smartphone
  • Food
  • Thought

Calculate exactly what you need for this. In order to comply with the 50 percent limit, a cheaper apartment or changing providers can help with contracts. Price comparison portals can help here.

Personal needs, free time and desires (30 percent)

These expenses are not essential to life, but cover personal needs. These are expenses for leisure activities and participation in social life. They are also called leisure expenses or lifestyle costs. This includes:

  • dining out
  • Travel
  • shopping and clothing
  • cultural activities
  • hobbies
  • Vacation
  • consumer electronics

You alone decide what you spend the money on. You can and should treat yourself to something. It is important that the costs do not exceed 30 percent of the monthly income.

Savings share (20 percent)

20 percent is not spent on consumption, but goes into the piggy bank. The third part according to the 50-30-20 rule can serve different purposes:

  • repayment of debt
  • Saving and wealth accumulation
  • Invest in stocks or ETFs
  • reserve for emergencies
  • Private pension plan
  • Preparing for a real estate purchase

Paying off debt takes precedence over savings goals . It is this saved 20 percent that allows you to build long-term wealth. With 1,500 euros net, you invest 300 euros per month.


Sample calculation for the 50-30-20 rule: 2000 euros net

The example shows the effectiveness of the 50-30-20 rule. With an assumed net income of 2000 euros per month, the breakdown for the budget looks like this:

  • 50 percent fixed costs: 1000 euros
  • 30 percent Personal expenses: 600 euros
  • 20 percent savings: 400 euros

How much can you save with 3000 euros net?

If the net income increases, the amounts for the different areas adjust. With an income of 3,000 euros, this results in savings of 600 euros per month. Sounds like a lot, but the percentage distribution remains the same. So you have 1,500 euros available for fixed costs and you can plan 900 euros a month for leisure expenses and your personal needs.

50-30-20 rule: experiences and reports

Experiences with the 50-30-20 rule have been very positive. Numerous testimonials testify to an improvement in their own financial situation. A big advantage is the ease of use. The concept is easy to understand. After an initial organization, it is possible to allocate the costs to the three areas without much effort.

Of course there are also points of criticism. Experience reports show problems with the implementation, especially with a small budget. With only 1,200 euros a month, many find it difficult to use 240 euros as a savings quota.


Why does the 50-30-20 rule work?

The 50-30-20 rule works through consistent and disciplined income sharing. You use your money sensibly in various areas: you secure your standard of living, you can treat yourself, reduce debt and build up capital. The requirement also reveals where you live above your means. Apartment too expensive? Too much shopping? The 50-30-20 rule forces you to reflect on your own expenses. If you want to save capital for the future, you cannot avoid sacrificing consumption in the present.

Tips for the 50-30-20 rule

After so much theory it is now practical. In order for the rule to work, you must ultimately check your fixed costs and expenses for potential savings. This can be achieved with the following tips, for example: