Personal Finance

The 50-30-20 Budget Rule

25 April 2023

One financial advice that we often hear from our elders is to be disciplined in our savings. There are many ways to make sure that we're spending wisely and making the best of our money. One of the simplest ways to do so is to have a budget in place.

A budget outlines expected expenses for a specific period of time and can help guide us in how to best spend and save our money. Instead of obliviously spending from our savings account, a budget assists us in navigating, allocating our resources for our priorities so we can maintain financially stable.

Without a budget, it's easy for us to overspend on non-essential items, which can lead to either saving a low amount or not saving at all.

A budgeting formula that is easy to remember, simple to understand, and can be adapted to suit your lifestyle is the 50/30/20 Rule. Here's how it works:

50% for Needs

Needs are items and bills that are absolutely necessary in order for you to survive. This includes your home loan/financing or rental, car payments, insurance, utilities, medication, and groceries. 50% of your income needs to be allocated to these non-avoidable expenses.

Let's say Peter earns a net income of RM4,500 a month but his home rental costs RM2,500. That alone has exceeded 50% of his income and that's without including his other needs such as utility bills, insurance, and so on. To combat this situation, Peter can consider downsizing or moving to a lower cost property. Otherwise, he may rack up on debt and not have enough money for other expenses.

30% for Wants

Wants are non-essential expenses that give you joy or add value to your life. This could range from gym memberships and dining out to a new pair of shoes, tickets to a live show, and vacations. To compare, 'needs' are required for your survival whereas 'wants' allow you to live a more fun, fulfilling life. Essentially, you could live without your 'wants' if you had absolutely no choice.

Based on the 50/30/20 budgeting rule, you may allocate 30% of your income to your wants. This means you do have an allocation for things that enrich your life such as celebrating a loved one's birthday at a nice restaurant or watching your favourite international artist perform at a big arena. However, it must not exceed 30% of your income.

So if Peter's net income is RM4,500, he needs to ensure that he doesn't spend above RM1,350 on his wants.

20% for Savings

The remaining 20% of your income should go towards savings and investments. Whether you choose to build your emergency fund, contribute to a Private Retirement Scheme, or invest in the stock market, the goal is to ensure you have a financial cushion of at least 3 months' worth of expenses in case of unforeseen circumstances.

If you find yourself not prioritising your savings, practice to Pay Yourself First, where you treat yourself like a utility bill at the beginning of each month to hinder any possibility of forgetting or not saving at all. Alternatively, you could always automate your savings to ensure a portion of your income remains untouched.

In the case of Peter, he needs to make sure at least RM900 of his income goes towards his savings.


Some may not know this but credit cards may also help in saving your money. Credit cards typically offer a variety of benefits such as cashback, reward points, complimentary airport lounge access and reward redemption. More often than not, banks also run exciting promotions at selected merchants to further help customers enjoy discounts when paying with their credit cards.

If you're looking for a credit card that can help you on your money-saving journey, consider applying for an Alliance Bank Visa Signature Credit Card. This cashback card allows you to enjoy up to 5% cashback on all retail purchases such as online shopping, groceries, dining, petrol, utilities and other retail spends.