Budgeting can be a daunting task. But, it has the ability to help you take control of your finances. And why would you not want to be in control of your finances? Being in control of our finances gives you the ability to make informed decisions. We emphasise the importance of a budget and sticking to it. That’s why we’re here. Let’s take a look at the 50/30/20 budget rule.

Note: your budget should be based on your net income (take-home salary)*

50% – The Necessities 

Your needs will constantly change. However, your dedication to your budget, cannot. According to Investopedia, your needs are categorised as bills. Essentially, you cannot go one month without paying them. These necessities are:

• Rent or home loan payments
• Water & Electricity
• Transport cost/petrol
• Vehicle payments
• Groceries
• Medical Aid/Insurance
• Cellphone/data/internet
• Household/vehicle insurance
• School fees and;
• Other debt repayments

30% – Your Lifestyle Spending 

With your necessities budgeted for, you can now look at your lifestyle spending. With reference to Standard Bank, the 30% allocation of your budget applies to anything that isn’t a basic necessity. This includes:

• Entertainment
• Dining out
• Clothing
• Entertainment subscriptions
• Gym memberships
• Holidays and;
• Activities

20% – Your Savings

According to N26, 20% of your budget should be allocated to your savings, in the ideal circumstance. For example, this would fall into the following categories:

• Short-term savings
• Long-term savings and investments
• Additional debt repayments
• An emergency fund and;
• Retirement savings

In addition, if you are struggling to fit your necessities, lifestyle spending and savings into each category. Then it would be worth cutting some of your costs out.

For example, let’s take a look at how Vinni Vantage uses the 50/30/20 budget split based on his R15 000 net income.

As seen in the example above, Vinni Vantage has utilised his net income down to the very last Rand. Which means, he is successfully covering all of his expenses and reaching his financial goals, whilst also saving. Although his split is not exact, it does provide a solid base for expense allocation.

However, for many, this may not be the case. In most cases in South Africa, many consumers are struggling to budget and this is due to a number of factors that influence their budgeting capability. But, we will always recommend trying to stick to your budget.

If you have tried budgeting or want some financial tips. Our team of experts will conduct a free financial assessment with you and provide you with some tips to help you.