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Money

What is the 50/30/20 rule, and should you be following it?

Search online for a simple straightforward budgeting plan to follow and you’ll most likely be recommended the 50/30/20 method. This little slice of financial planning wisdom, adapted from Elizabeth Warren’s book All Your Worth: The Ultimate Lifetime Money Plan, advises dividing your spending (most commonly on a monthly basis) into three categories: 50% for your needs, 30% for your wants and 20% towards savings, investments and paying off debt.

‘Needs’ in this context are things like your rent, utilities, groceries and transportation cost – essentially the unavoidable costs required by going through life. ‘Wants’ are usually defined as ‘non-essential expenses,’ such as the things that you choose to spend your money on but which you could live without – so dining out, holidays, your Netflix subscription and even your gym membership all fall under this category. The last 20% should go towards savings, which can be done by monthly adding to a savings account or making investments (for instance in the stock market) and paying off debt. One thing to note is that minimum repayments are considered ‘needs’ under the 50/30/20 rule, and the 20% should only go to paying the back debt which is extra repayments to reduce existing debt. 

The 50/30/20 is intended to be a simple blanket rule that most earning adults can follow in order to make sure they are still able to cover their essential expenses, buy things they want and invest in their future. The question is, is this a realistic budgeting guideline for students to follow? 

I know the majority of my fellow students worry about their spending, as well as their future, so on the surface, an easy-to-follow budgeting method like the 50/30/20 rule may appear perfect. However, the problem is that sometimes the neat categories divided under the 50/30/20 rule don’t fit the needs of everyone. For instance, my fellow St Andrews students will be paying far more for rent than many other students and so this may mean that more than 50% of your monthly spending has to go towards rent. On top of this, rising gas prices may further stretch out the ‘needs’ category, which forces students to pick between spending less on their monthly wants or saving for the future- and it’s pretty clear what most students are going to pick in this scenario. In my opinion, this is okay! 

After all, the 50/30/20 is intended as a template for the monthly spending of earning adults, not students who are just entering the world of utility bills and student loans. Furthermore, if rising living costs are forcing students to pick between having fun and saving money for their future, it shouldn’t be frowned upon for students to pick the former. The time spent at university offers a unique environment of independence – you are not quite ‘out in the world’ having to earn an annual salary and get a mortgage, but you likely have more financial autonomy than you have ever had before. At no point in your life will you have as few responsibilities as you do as a student, so rigidly enforcing yourself to stick to a budgeting plan, such as the 50/30/20 rule, can be unrealistic and cause unnecessary, additional stress. 

It is important for students to keep a track of their spending by keeping an eye on how much is going where. However, being stringent with exact monthly percentages split between clear categories is not something I believe students need to be enforcing on their spending. In the long run, there is no one-size-fits-all budgeting method, but rather something that should be tailored to fit each person’s income and financial goals. Students, who are in a unique situation that fosters independence and growth but is also centred around a social experience, should make sure that they enjoy it while it lasts. 

Josie Smith

St Andrews '24

Hello! I’m Josie, a third year studying philosophy. I’m particularly interested in writing about health and well-being topics as well as the unique financial and business issues that women face. I feel so excited and grateful to be a part of an editorial that focuses on amplifying and empowering women’s voices.