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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.

50 percent for fixed costs and basic expenses
30 percent for leisure and personal needs
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:

reduce fixed costs

Check the basic expenses at regular intervals. Can you really afford your rent? Is there a cheaper worshiper for electricity or gas? Are all insurances necessary? Use consumer portals and comparison portals such as Check24 or Verivox. A separate household account to which you transfer 50 percent of your income by standing order can be helpful. It is important to differentiate exactly what basic needs are and what expenses enrich life but are not necessary.

keep a household book

You can get a good overview by keeping a household book. It contains current and future expenses. In this way, changes (to the previous months) can be checked and the budget can be planned. Bargain foxes also discover some savings potential.

Plan expenses ahead

Some expenses are unexpected, but much can be foreseen in advance. The fridge is ten years old, the car sputters? Plan ahead for such expenses. Set aside an amount of the savings portion or reduce expenses for personal needs for a while in order to have additional money at your disposal.

build nest egg

Long-term investment and returns are an important part of the 50-30-20 rule. Initially, however, the focus should be on building a financial nest egg. Rule of thumb: Set aside enough money to cover three to six months of ongoing expenses. This way you are prepared for emergencies and have a financial reserve. Set up a standing order on a savings or call money account until your nest egg is reached.

avoid exceptions

Don’t make exceptions to the 50-30-20 rule. Your net income is divided into the areas. This also applies to Christmas or vacation pay . If you keep making exceptions or pushing the boundaries, the system can’t work.

Maintain savings rate

A common mistake: if there are problems with the budget, the savings rate is reduced. Instead, question the other costs. This may mean a small incision or cost quality of life – but in the long term you will gain financial freedom . Don’t save on saving!

50-30-20 rule: financial planning app

You can further optimize your financial planning according to the 50-30-20 rule with the help of financial planning apps. Corresponding programs can be found in the Appstore. Well-known examples are “MyBudget”, “Moneywyn” or “Mint.com”. There you can even enter the expenses for each family member individually in the categories fixed costs, personal expenses and savings. You will be shown what percentage makes up what percentage and whether you are complying with the 50-30-20 rule.

50-30-20 rule: an alternative to saving

The 50-30-20 rule is a common and popular option for financial optimization and long-term wealth accumulation, but it’s not the only option. Various alternatives bring order to the financial chaos with different areas of spending or different allocations. What almost all of them have in common: It doesn’t work without a fixed savings and investment quota.

In other words , there must be money left over at the end of the month. If you use up all your income, there will be nothing left over the long term. Then there are only two options: increase earnings or reduce expenses.

60-30-10 rule as an alternative

An alternative that is similar to the 50-30-20 rule is the 60-30-10 rule. You split your salary into three different accounts, which are used for different purposes.

Consumption (60 percent)
Most of your income is spent on consumption. This part describes all monthly fixed costs, but also additional expenses for free time or other purchases. From this account you pay all running costs and cover your living expenses.
Investment (30 percent)
A comparatively large part of 30 percent is reserved for investments in this concept. This includes direct financial products and investments in shares – but also personal training to expand your skills and build up knowledge.
Save (10 percent)
The last 10 percent is your savings rate, according to the 60-30-10 rule. You put some of this aside for short-term emergencies and build up the nest egg mentioned above.

Advantage of this method: You invest a large part of your income and can thus make significant investments over several years. But the whole thing also has a big catch: you only have 60 percent of your income to live on.

The 50-30-20 principle – also for the self-employed

The 50-30-20 rule is suitable for every phase of life and every professional situation. In an employment relationship, it is particularly simple: the net income remains the same every month. But the formula also works for the self-employed: You calculate your average net annual income and divide it by twelve. Do not forget to include in the fixed costs the portion of the irregular charges. There are, for example, tax prepayments and back payments. Even months with low sales can be compensated in this way and you are spared any nasty surprises.

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