Does The 50-30-20 Technique Work In A Cost Of Living Crisis?

The 50-30-20 technique has long been considered a good rule in terms of what you should spend and save each month, providing a benchmark for people who aren’t great with their spending and want to make a positive change. However, the economy has changed massively in the last few years especially, with the cost of renting, bills and everyday outgoings going up significantly, so we’re going to discuss what this rule is and whether it will still work for people living alone during a cost of living crisis.

What is The 50-30-20 Technique? 

The 50-30-20 technique is a simplified model designed to help people simply control their finances and save in a positive way. 


The technique suggests that 50% of your income after tax should go on absolute needs, including rent or mortgage, household bills, car payments, groceries and debt payments. Controlling how much you spend on these things, for example living somewhere that you can afford, having a car you can afford and choosing a more affordable supermarket if needed is absolutely key to make the 50-30-20 technique work. 


Then you would spend 30% on wants, such as a gym membership when you could work out at home, eating out rather than cooking yourself, choosing to go out to the pub rather than staying at home with friends and also things like clothes, holidays for a well deserved break, nights out and tickets to events. This section is basically anything that isn’t necessary to keep a roof over your head and your stomach full. 


The last 20% of your income then goes into savings and investments. Things like creating an emergency fund (around 3 to 6 months worth of living expenses), putting money into an ISA for house savings or making debt repayments that are above your minimum payments. 

An Example Of How 50-30-20 Looks 

Now that we know how to break down your spending, let’s see how it looks in an example. In the UK, the average salary for a full time worker is around £38,000, which after tax equates to around £29,200. This is assuming you don’t pay off any student debts. So, this will be around £2,430 a month (as of November 2023). 


Based on this, you would have £1,215 to spend on your needs, so potentially £800 a month on bills and utilities, £200 a month on your car and insurance, £150 a month on food and £65 a month on debt repayments. 


You’d then have £730 to spend on your wants, so £130 a month could go on holiday savings, £50 a month towards birthday and Christmas presents, then the rest on your hobbies and spending time with friends. 


Then you’d be left with £486 to save with 20% of your take home salary. 


Does It Work In A Cost Of Living Crisis Living Alone? 

Based on the above, you could follow the 50-30-20 technique on the average UK wage, however for people earning below that, or with additional financial responsibilities like helping family members or caring for children, it can be quite unrealistic. 


For example, if you were a young person starting out a career in a city like Manchester, on a salary of perhaps £21,000, you’d only have £743 to cover all of your needs. Even if you lived in a house share, this is quite unrealistic. Let’s not even get onto what would happen if you were on a similar salary starting out life in London! 


Also, on this wage, people will be unlikely to be able to save much money. Not even getting onto anything like property, but if someone has moved to London and needed emergency treatment at their dentist in Wakefield who knows their whole complex medical history, the cost of a train back to Wakefield and then the dental treatment can be a lot. Another example would be to say a friend is getting married, the train costs £50 to get there, accommodation will be £150 and then you need to spend money for the day. Based on the 50-30-20 rule on this wage, you wouldn’t have potentially £250 spare, so you’d have to use savings. 


There are so many examples of unexpected things that come up and are expensive, whether it’s an absolutely necessary expense like emergency dental treatment or something that is just a part of life that you want to enjoy, like a friend getting married. So, whilst the 50-30-20 rule is a good base line, for many people, it’s not achievable in a cost of living crisis. 


So, What Rule Shall I Follow? 

For people who have tried to use the rule above and it’s not quite adding up, we’d recommend working out what you should really be assigning to your needs, wants and savings, then staying as close as you can. 


Let’s go back to our example of someone moving to Manchester and earning £21,000 a year. It may be that closer to 60% has to go on needs to begin with, so that’s around £890 a month to spend on rent, bills, food etc. If you were to live in a house share, choose an affordable supermarket and utilise public transport rather than a car, this is definitely doable. 


Next, we think that 30% is still quite accurate in terms of your wants. You’d have around £446 to enjoy living life in the city, making memories with friends and making the most of this exciting time in your life. You can also stay fit with a gym membership (and maybe even a new gym set every now and again), as well as going to different events in the city. 


That leaves you with 10% to put into your savings, at around £148 a month. This is still a good amount of money to get you started, and as you climb the career ladder and earn more money, you can begin to increase this. You will be able to enjoy life in the city and then still gradually see your savings increasing. 

Final Thoughts 

Of course everyone’s financial situation is different, from a young person just moving to a new city to a family who have 3 children to consider, however our advice would be to use the 50-30-20 technique simply as a guide and stay close to the percentages if possible. We all have different expenses that crop up which could impact things month to month, but aiming to put something away each month as savings, even if it’s £50, will begin to add up!