Spending your income

How much should you be saving? What’s an okay amount to spend on your rent or mortgage? Are you spending too much on eating out? Should you be putting money into your pension?

These are all common (and reasonable) questions and the answers will vary depending on your specific situation.

However, there are some general guidelines you can use to help decide whether you’re happy with how much of your income you’re spending, where you’re spending it and also whether you’d like to make changes.

50-30-20 rule

One commonly used spending guide is the ’50-30-20 rule’. It categorises your spending like this:

  • 50% on essential living expenses/ needs (rent/mortgage, bills, food etc)
  • 30% discretionary spending/ wants (eating out, shopping etc)
  • 20% savings and/or pension

Everyone’s situation is different and if you find your spending doesn’t fit the 50-30-20 model, that’s okay. But if your spending is very different – perhaps you’re not currently saving and would like to – it can give you a good goal to aim for.

How to apply the rule

To see where you stand, start by taking a look at how much money you have coming in on a regular basis. Essentially this is your salary. If your income changes from month to month, work out the average over the last three months.

Then, looking at your bank statements for the last three months, work out your average total amount of spending. It can be helpful to put your expenses into categories so you can see specific areas where you may be overspending. 

These categories should include regular outgoings like:

  • bills (essential)
  • rent or mortgage (essential)
  • groceries (essential)
  • eating out (discretionary)
  • shopping (discretionary)

What next?