Budgeting Techniques: What is the difference between the “50/30/20" Rule & “Pay Yourself First?”

If you’re reading this, it probably means you’re ready to take control of your finances. I want to take a moment to applaud you. This is a big and important move and so excited for your financial journey!

And now let’s get to the good part. Let’s answer this question: what is the difference between the “50/30/20" and “Pay Yourself First” Budgeting Rule?

What is the "50/30/20" Budgeting Rule?

TL;DR: Get your TAKE HOME pay and split into 50% needs, 30% wants, and 20% towards savings/debts.

For Example:
Your Monthly Take Home Pay = $5,000. The 50/30/20 rule suggests:

• $2,500 (50%) goes towards needs like rent, groceries, car payments etc.

• $1,500 (30%) goes towards the fun stuff like games, snacks, movies, hanging out with friends etc.

• $1,000 (20%) goes towards big future goals like a house or a car, or to pay off any debts.

Mainly used by people who: are looking for an easy to follow framework for balancing spending between essentials, wants, and savings. Ideal for those new to budgeting or those who prefer structured but flexible financial planning.

People who like it: enjoy it because it’s super simple and easy to implement!

People who don’t like it: find it challenging because it’s too rigid. It may not suit everyone's unique financial situations or priorities, especially if their income fluctuates or if they have higher debts or different financial goals.

What is the “Pay Yourself First" Budgeting Rule?

TL;DR: Get your TAKE HOME pay and allocate a set % into savings or investments before covering any expenses.

For Example:
Your Monthly Take Home Pay = $5,000. You decide to set your savings goal of 10%. The “Pay Yourself First” rule suggests:

• $500 (10%) immediately goes towards your savings/investments.

• $4,500 (90%) is used to cover everything else from your needs and wants.

Mainly used by people who: want to prioritize building savings or investment portfolios. It helps those who struggle to save consistently or those focused on financial growth and security.

People who like it: enjoy it because it helps them priortize savings and mentally get into the habit of saving. And doing so, can help build a strong financial cushion or investment growth over time.

People who don’t like it: find it challenging because it requires discipline and a stable income stream. It can be challenging for those with variable incomes or high monthly expenses that might prioritize immediate financial obligations over savings.

There you have it!

The "50/30/20" rule gives you a clear map of where your money should go, while "Pay Yourself First" ensures you’re always building your nest egg for the future. Try them out and see what works best for you. There will be some trial and error since everyone's financial position is different and budgeting methods should be tailored to the individual's needs.

Are you team "50/30/20" or "PYF"? I’d love to hear your thoughts! Feel free to email me at sam@pennyandpurpose.com if you want hash it out or to just drop a hello! 👋