How to Use the 50/15/5 Rule for Spending and Saving

How to Use the 50/15/5 Rule for Spending and Saving
Photo: fizkes, Shutterstock

Sometimes the best way to stick with a budget is to follow a simple rule that doesn’t dictate how every last dollar should be spent. That’s the idea behind the 50/15/5 rule, which offers guidelines on managing your monthly budget while still keeping you on track of your saving goals. This rule is most relevant for people who already earn enough cover their expenses and put money aside for retirement — here’s a look at how it works.

How to use the 50/15/5 rule

Popularised by Fidelity, the 50/15/5 monthly budget rule helps you maintain financial stability in the short term while ensuring that you’re on track to keep your current lifestyle in retirement. The rule breaks down as follows:

  • 50 per cent or less of your take-home pay should be spent on essential expenses such as housing, utilities, transportation, and food.
  • 15 per cent of your pre-tax income should be saved into a retirement account (including matching employer contributions, if that’s offered).
  • 5 per cent goes toward unexpected monthly expenses or building an emergency fund.

Of course, that’s only 70% of your income. The remaining 30% is usually spent on discretionary purchases like restaurant meals, entertainment, clothing or travel. The benefit to this approach is that you don’t have to micromanage every discretionary penny you spend — a hassle that makes it more likely that you’ll ditch budgeting altogether (a recent survey suggests that 20% of people don’t budget at all).

Of course, this rule works best if you’re living somewhat comfortably already, as you’d have to increase your retirement savings if you want to improve your lifestyle in retirement (and if you’re weighed down by a lot of debt, a 50/20/30 budget or 80/20 budget might be a better fit for you).

To see if a 50/15/5 budget works for you, check out this calculator. And remember, this rule is adjustable, too — aside from the 15% earmarked for retirement savings, the rest of this budget rule is more of a guideline than a firm rule to be followed. Many people struggle to keep expenses at just 50%, so you might want to do something closer to 65/15/5 — whatever works best for you.

You can always adjust your approach to the 50/15/5 rule if you find a few cheeky ways to save some extra cash each month, like combing through your utility bills to see where and how you can save. For example, when it comes to phone, internet and electricity bills, you should check to make sure you’re not overpaying with your current provider and what the current deals are. You might even be able to negotiate a better deal.

The best way to do this is to compare your current costs to alternative providers in your area. We’ve partnered with a powerful comparison tool called eConnex to help make this process fast and easy. You can even use your most current electricity bill details to get an accurate comparison. Enter your postcode in the box below to get started.

Where are you located?

Currently available in ddd, ACT, SA, VIC, parts of QLD, TAS & WA (only Gas). Not available in Ergon Area (QLD), NT and embedded networks or non-quotable meters.

If you do find yourself in a position where you can save some extra cash each month, you can factor those savings into your 50/15/5 rule, and maybe even give yourself some additional wiggle room.

And if you’re struggling to pay off your debts, we’ve got a few ideas about how to help with that too. Check out this Lifehacker post that covers your options.

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