But what most people probably don’t know is that the 50/30/20 rule is not only embedded in good economic principles, but the creator of it was none other than US senator Elizabeth Warren.
The former Harvard lawyer, bankruptcy expert and current Trump-botherer devised the nifty notion of spending 50pc of your net monthly income on needs, 30pc on wants and saving the remaining 20pc, in her book All Your Worth: The Ultimate Lifetime Money Plan, after her experience of her own parents struggling financially when her father lost his job.
Imbued with a mission to lift people out of poverty and help them manage their money, the trend has become, well, trendy again after social media jumped on the financial bandwagon.
There are countless influencers claiming the slogan as their own, but what does it really mean, and should you follow it?
In theory it makes sense. Half your net income every month probably will be spent on a roof over your head, your utilities, insurance, transport and food: the basic necessities of life.
The 50/30/20 rule divides monthly income into three broad categories. Photo: Getty
But what if you think your daily non-fat-soy-latte and Pilates membership is central to your soul? What if you simply can’t live without your gym, or Netflix subscription?
That’s where it can break down. The blurring of needs into wants is a fine line. And who has money for savings these days?
How to follow the 50/30/20 rule
The answer lies in automation. Your bank is the link. They allow you set up free savings accounts, vaults, pockets or jars where you can send some of your cash on pay day. The answer lies, according to experts, in “paying yourself first”.
That means, by standing order or bank transfer, you arrange, every single month, for money to be scooped into a range of savings buckets which are named and purposed for specific things, in the three days following pay day.
You might have one for holidays, another for kids, or Christmas, or car maintenance. A key one is the household fund, to cover bills and expenses.
By streaming money in on payday, it keeps your goals alive, but you can always “steal” it back if there’s an emergency.
50pc for needs
These are, according to Investopedia, the essentials for survival. It’s rent/mortgage, groceries, insurances, servicing debt and utilities.
“Consider either cutting down on wants or trying to downsize your lifestyle if you’re spending more than 50pc on your needs,” it says.
“This might mean downsizing to a smaller home or a more modest car. Maybe carpooling to work or cooking at home more are solutions.”
I’d add shopping around for a new energy provider every year, and using a broker for insurance.
30pc for wants
We all want everything. Identifying what’s a reasonable expectation (think a summer holiday rather than a yacht, or new clothes instead of a Chanel bag), and you get the picture.
Wants include things like restaurants, gifts, streaming services and gadgets – basically the things that make life fun.
It’s important to keep from straying into “needs”. You don’t need Spotify, or a 252-registration car. They’re a “nice to have”.
20pc for savings
Savings are a good idea, and Irish people are really good at it. There’s over €160bn on deposit in bank accounts, deposits and Post Office accounts. That’s far more than we collectively owe.
Most people have savings (earning little or nothing) and debt (costing a lot), as a “just in case”.
That’s fine, to a point.
How about directing your savings for a specific purpose and time? That means you control them, and have goals for your money which you’re more likely to achieve.
Calling a savings account “My New Car”, or “2026 Holiday” and purposefully putting money in every month under the “pay yourself first” principle makes you more likely to achieve your goal and less likely to dip into it for an impulse purchase.
Have as many accounts as you have savings goals: they’re free to add once you have a current account. Personally, I have four, all named.
If you need to mind yourself from your inner thief, set them up outside of your bank.
State Savings products are great as they have a fixed term (three to 10 years), are 100pc guaranteed, earn tax-free interest and you can’t get at them until the term is up.
This category crucially includes saving for the future you – your pension contribution.
Giving your savings account a specific purpose will make you less likely to dip into it. Photo: Getty
50/30/20 example
Earnings after tax: €3,600 per month
50pc on needs (€1,800) – automated by Direct Debit except for groceries30pc on wants (€1,080) – As much of it automated as possible, but don’t go mad.20pc on savings (€720) – make sure your goals are specific, measurable and achievable – and don’t steal it.Benefits of the 50-30-20 ruleIt’s simple. Anybody can do the calculation and see how their monthly spending fits in.Your bank app will help, by drawing up charts based on your spending, so you can see clearly where your money is going.Users are better at money management. If you’re saving for a mortgage deposit or on a tight budget or in debt, you can cut through discretionary spending until you get back on track.It can identify problem areas: for example, if too much is going towards servicing debt, your goal might be to get that down first, before kicking off savings.Where the 50-30-20 rule doesn’t workIn Ireland, we have a dysfunctional property market. Rents are ridiculously high and we pay higher interest on mortgages than most of the EU.Our energy prices can be off the wall – we pay the second highest electricity prices across the entire continent and the third highest food prices of 27 member states.All those costs are “needs”, so keeping it within 50pc is very difficult. So don’t worry if your neat calculation isn’t working out. Needs trump wants, and even savings, so divert if you must while prices remain high.