50/30/20 - Start investing with a proper plan

A guide on how to manage your income while trying to be realistic.

The two hardest parts of investing are in two parts: to start, and to be consistent. More often than not, investing is seen as a tertiary purpose. Some would prioritize spending their money on things like concerts before actually thinking about savings.

Don’t get us wrong, we love concerts, we love fun, and we understand how important it is to do things that make you happy, what we’re trying to convey is a guideline or at least a rough framework on how you can better manage your income

What is a 50/30/20?

It refers to a method which seeks to help you divide your income (after tax) to spend it systematically and to help you maximize your savings and income.


Here is how it is divided:


50% of your income will be allocated for your needs, like rental payments, car instalments, groceries, healthcare, transportation, and others.

30% of your income will be allocated for your wants and debt repayments. This can include your streaming service subscriptions, movie nights, eating out, and others.

20% of your income will be allocated for savings and debt repayments. This also includes your investment. However, on a micro scale, it is up to you how you’d allocate from that 20% how much you want to be put in savings and how much you want for investments.

Needs, wants, and savings & debts

There’s no clear guideline as to which is which, but generally, you can put it like this:



Savings & Debts

Does it make sense?

Frankly, if your income is relatively low and paired with the high cost of living, it is not a perfect plan. However, you don’t always have to follow this rule strictly – create some wiggle room to allow your money to grow.

Say, you make below-average in San Francisco with $4,000 a month (after tax) and you’re renting an apartment with a $1,500 monthly. You pay $540 for your car and around $360 monthly for groceries. The total is around $2,400. That is already 70% of your income. 

Now, you’re left with only 30% of your income instead of 50%. Is it a sign to say “nope” and just abandon it? No.

What to do then? 


We suggest that you adjust your ratio according to the balance of income. Say, from the example above – you’re now left with 30% of your income. 

Since needs are not something you can compromise with (you can’t decide to say no to paying for food), what you can do is compromise with your wants or even investments, but we don’t recommend you compromise with debts.

A prolonged debt wouldn’t be good for your wallet, especially when some of them entail interests that grow at a worrying rate. When we speak of compromising investments, we don’t mean that you should leave it out.

Instead, you can reduce the allocation of your income that you’d use for investments. The key is to not abandon it all but invest as much as you can, even if it’s just a dollar.

Or you could also explore other allocation methods like the 80/20, zero-based, and envelope methods. 

The pros and cons of the 50/30/20 method


  • Ensure that you can manage your income responsibly.
  • It helps you in investing constantly.
  • Helps you identify if you’re overspending. 
  • Even if you can’t follow it exactly as is, you can use it as a framework to build a habit of good financial planning. 



  • It can be seen as unrealistic when your income is meager while expenditures are extremely high.
  • Some would argue that 30% for wants is too much. 
  • Some would argue that 20% for investments and savings wouldn’t help if you’re planning for financial independence & early retirement.

Key Takeaways

  • You can follow it as is, but in most cases, it is advisable to be flexible with it. 
  • Even when your income is low, try seeing what your expenditures would look like under a 50/30/20 framework to get a sense of structure in your budgeting. 
  • Saving/investing 20% may not make you filthy rich, but it would surely provide you with a certain level of safety net
  • Better to cut on wants than debt repayments

The key-takeaways/market update is a series by AxeHedge, which serves as an initiative to bring compact and informative In/Visible Talks recaps/takeaways on leading brands and investment events happening around the globe.

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None of the material above or on our website is to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument. Investors should carefully consider if the security and/or product is suitable for them in view of their entire investment portfolio. All investing involves risks, including the possible loss of money invested, and past performance does not guarantee future performance


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