In our cash flow guide, we showed how the 50/30/20 rule helps you make the most of your income. Ready to take your budgeting to the next level?
You already know the first step of good money management: save or invest at least 20% of your take-home pay. Now let’s look at how to split the rest even more precisely.
Using budgets for specific categories
So you have 80% of your income left. How exactly do you use it? Is it enough to know that 50% should go to needs and 30% to wants? If that works for you, great. But if you struggle to decide how much each spending category should get, read on. Below you will find what counts as essential and non-essential spending, with recommended percentages for each budget.
How you split your income depends a lot on where you live and on costs specific to your region. Treat these numbers as general recommendations to inspire you, and adjust them to fit your life.
Essential expenses (50%)
These are your needs, the things you can’t imagine daily life without. A place to live and food to eat come first, but there are other bills we all rely on. Let’s break them down.
Housing (20–35%) and utilities (5–10%)
For most people, this is the biggest part of their income. It is also where you can easily see whether you are living above or below your means. A budget for these categories covers everything you pay for your home: rent or mortgage payments, energy, water and essential equipment. If you are thinking about buying a home, our mortgage calculator shows what the monthly payment could be.
Food (10–15%)
You have to eat, but you don’t always have to eat out! For some people food is purely a need. For others it is also part of their entertainment. It is up to you how you split it. A common recommendation is to keep about 10% of your take-home pay for food. If you enjoy eating out now and then, use those 10% for groceries and count restaurants under personal spending or entertainment. Whatever works for you.
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Insurance (5–15%)
It is smart to list all your insurance plans in one place. Whether it is health, car, home or disability insurance (and there are many more), you should know exactly how much you pay.
Health care (5–10%)
Health care costs vary much more than insurance, even though both matter just as much. Prescriptions, doctor visits, medical devices and treatment all belong in this category.
Transportation (5–15%)
Wherever you live, you need some way to get around every day. Include everything tied to your daily travel: a public transport pass, car payments, fuel, tolls and maintenance. Since these are essential expenses, keep vacation travel out of this budget.
Personal expenses (30%)
These expenses make life more enjoyable. They cover purchases and activities that are nice to have, but not necessary. This is where you can save the most each month and move the rest to savings or next month.
Personal (5–10%)
This is a lifestyle category for personal care and similar spending. Examples include clothes, magazines, beauty products or a gym membership. Because these costs vary, you decide what counts as personal and stick to it.
Entertainment (5–10%)
Let’s be honest: life shouldn’t be only about paying bills and going to work. Spending some of your income on fun is healthy. This includes concerts, books, video games, sports events, hobbies, vacations and streaming subscriptions. Basically anything that fills your free time and cheers you up.
Miscellaneous (5–10%)
This category is the safety net you have been looking for. Maybe an expense doesn’t fit anywhere else, or you have already used up the budget in another category. This last slice helps you stay on track anyway.
How do I start?
Having so many categories and budgets can feel overwhelming. But you have already taken the first step by learning these general rules. They are not the exact percentages you have to use, but they are a great starting point for finding what works for you.
To turn the percentages into real amounts, start with your take-home pay (our salary calculator can work it out from your gross salary), then try the 50/30/20 budget calculator. If you use Spendee, you can set one total monthly budget and split it into category budgets like the ones above, so you always see what is left to assign. Want to learn more? Read Budgeting 101.
Is there one category that keeps getting out of hand? Start small and set a budget just for that one.