The 50/30/20 rule: A simple framework for splitting your income
The 50/30/20 rule A simple framework for splitting your income
Most people spend money in roughly the right categories — they just don't know what those categories are costing them. The 50/30/20 rule gives you a way to check.
What it is
The 50/30/20 rule splits your after-tax income into three buckets:
- 50% on needs — rent or mortgage, groceries, utilities, insurance, minimum debt repayments, transport to work. The stuff that would cause real problems if you stopped paying it.
- 30% on wants — eating out, subscriptions, hobbies, travel, anything optional. Things you'd miss, but could live without.
- 20% on saving, investments and debt repayment — KiwiSaver contributions, an emergency fund, extra mortgage payments, or paying down debt faster than the minimum. In SortMe, these show up in your Lifestyle Spend group.
Savings or debt repayment or both?
You should always aim to allocate your money to clearning any outstanding debt before you put it towards savings or investments. Target the highest interest debt first. Interest penalties just increase your debt balance at a compounding rate you wish your savings and investments could match!
The cost is the interest, and at credit card rates, that cost compounds fast. 20% interest on a $1000 debt adds $200 to that original $1000. Now you owe $1200. The next interest paymet is then calcualted from the total $1200 which adds another $240. This is how your debt compounds.
Align the 50/30/20 rule in your SortMe account
Needs can sit in your Household Essentials group.
Wants sit in your Lifestyle Spend group.
You can create achievable savings, investments & debt repayment goals in your Goals feature. The combined allocations for each goal will sit in your Total Budgeted as Goals Allocation.
The framework has been around since the early 2000s and is widely used by financial planners and budgeting coaches alike. It gained traction in NZ through personal finance content and adviser education — and the three-bucket structure maps cleanly to how New Zealanders spend, and what gets in the way.
How to use it
Start with your take-home pay after tax and KiwiSaver. That's your baseline number.
Multiply it by 0.5, 0.3, and 0.2. Those are your targets. Then compare them to what SortMe shows you're actually spending across each category.
If your Household Essentials are eating 65% and savings are sitting at 5%, that's useful information. It tells you where the pressure is coming from — and gives you something concrete to work towards.
You don't need to hit the split exactly. Housing costs in Auckland or Wellington often push needs above 50% before anything else is considered. The point isn't perfection — it's visibility.
How to use it with SortMe
SortMe categorises your transactions automatically once your accounts are connected. Use the spending breakdown to compare your Household Essentials (needs) and Lifestyle Spend (wants) against your targets and see where your income is actually going. Think of the Goal Allocation in your Total Budgeted as the final piece of the pie.
If you're not sure how to classify something, ask: would I stop paying this if money got tight? If yes, it's a want.
You can split your Household Essentials (needs) and Lifestyle Spend (wants) into more manageable groups or buckets in your Budget by creating more groups by clicking Manage Categories. Don't forget to assign categories to the new group so you can set targets and track your progress.
When to get advice
If your needs are consistently above 60% of your income, or your savings rate is near zero, the 50/30/20 framework can show you the gap — but it can't fix the underlying structure on its own.
That's where a financial adviser can help. Naked Finance works with SortMe users to look at the full picture — income, debt, KiwiSaver, goals — and build a plan that's specific to your situation.
These articles are financial education, not personalised financial advice. For advice specific to your situation, talk to a licensed financial adviser.