50/30/20 Rule For Easy Financial Management That You Can Try
50/30/20 rule

50/30/20 Rule For Easy Financial Management That You Can Try

Based on research done for Keupayaan dan Rangkuman Kewangan 2018, there are still many Malaysian that have low confidence, especially in their financial planning. it surely leave an unhealthy impact to Malaysian monetary condition. 

Therefore, knowing the basic of salary management like 50/30/20 rules is crucial in helping you to plan your financial management and monthly commitment especially when you are faced with challenges and unexpected situation. 

If you find it difficult to divide your salary to start your budgeting, you can use this formula. This is how to divide your salary using the 50/30/20 rule.

What is 50/30/20 Rule

According to Senator Warren, the basic rule is to divide your after-tax (disposable) income and allocate your spending as follows:

50/30/20 rule is one of the classic budgeting trick sthat you can never go wrong with for financial planning. The basic concept is spliting your salary into 3 catergories;

  • 50% for needs.
  • 30% for wants.
  • 20% for savings or debt. 

There is a generous allocation of the budget for flexible spending like shopping, splurges, and travel perhaps. The rule, however, does not promote careless spending. It emphasises the need to save regularly and put your finances in order.

Infographic : 50/30/20 Salary Allocation Formula


50/30/20 rule

50/30/20 Rule: Salary Allocation

1. 50%: Needs

Examples of needs are rent, groceries, insurance, minimum loan repayment, utilities and car service that you need to pay and requires to make your life easier. It can be considered as a basic need for you as you live. 

Half of your salary after tax should be all you need to have a decent living and survival. If you spend more than that for needs, you might need to restrain yourself from your wants or to lower your living standard or lifestyle, maybe you can find a smaller house or car that is more affordable for your salary. 

2. 30%: Wants

Wants are all the things that you spend your money on but does not hold the upmost priority in your life. Some great examples of wants are watching movies at the cinema, fancy dinner at restaurant, new handbag, ticket to sports match or concert, vacation and trendy gadget

All of these unnecessary spending can be cut down by working out at home instead of subscribing to gym membership, good instead of eating out or watching online or television live of sports match or concert instead of attending these events in person. 

This also includes the decision  to upgrade for luxury and entertaiment instead of for your living comfort like upgrading your steak option to something more expensive like Wagyu, or purchasing a Mercedes instead of Honda which is far cheaper and affordable. Simply put, wants is just a minor addition to your spending to make your life a bit fun and bearable as a self- reward. But need to be reminded to spend it on moderation as it is not wrong for you to spend money on your guilty pleasure. 

3. 20%: Savings

The last but not least categories shall be savings. You should allocate 20% of your salary for savings or investment. That includes adding money to your emergency fund in your saving account. 

You must have at least 3 months worth of emergency fund as preparation for unexpected circumstances or losing a job. Eventhough the allocation for savings is smaller than others, but this is the most vital allocation in your financial budgeting, according to the 50/30/20 rule.

Implementation: 50/30/20 Rules for Salary of RM3,000

Source: Freepik (@Odua)

Assuming your monthly after-tax income is RM3,000 and you want to follow Warren’s method of 50/30/20 rule, here is how it should look. You can spend 50% or RM1,500 for your needs such as rent or mortgage, transportation, groceries, insurance, etc. Somehow, this budget pertains to your monthly fixed costs.

The 30% or RM900 is the money you can use for your discretionary or unrestricted spending such as gym membership, eating out, Netflix membership, etc. The remaining 20% or RM600 should go to savings or payment of debts. This also could include funding for your emergency fund, investing in a retirement scheme, or investing in your Amanah Saham (ASB) account.

While the allocation for savings is the smallest, however, it is the most important item on the budget. Warren believes that saving a little is better than having zero savings. Also, if you use the money to pay off debts, you open the window of financial opportunities. However, Warren argues that not all debts steal from your future. Mortgages, cars, and student loans are good debts because you get something of value in return. 

On the other hand, credit cards and payday loans leave you with no assets. The tendency of many is even to build a mountain of bad debts. Therefore, the risk of bankruptcy in the future increases.

Use Personal Financial Apps

If you are having the difficulty and does not know how to budget and allocate your salary, there are some financial apps that can help ease your financial management. There are lots of free apps that can help you better plan your financial management. Most of these apps use Artificial Intelligent (AI) that can help you manage your money by linking your bank account and e-wallet. This method is one of the easiet way to track your cash flow and your daily expenses just by filling in your amount of daily expenses into the apps. It can help help manage your bills, credit score, credit debt, investment and more. Some apps even use the concept of 50/30/20 rule. 

Is 10% Savings From Salary Enough?

Is 50/30/20 rule the best option for budgeting? 50/30/20 rule by Warren is only a general financial advice to make your financial management easier and smoother. You does not have to count every cent of your money. You only have to keep enough fund and consistent every month. 

Some of the financial advisor are more keen of the 10% savings rule which is a saving model that has existed since 1920. 50/30/20 rule urge people to save at least 10% of their earnings as a retirement fund. This rule might not be applicable in contemporary time. 

This is because, most of the people does not live up to 60 years old. In 2020, life expectancy for Malaysian is 76.22 years old. With a higher life expectancy, savings that is up to 10% per month is not enough. Your retirement fund might run out before your life does. 

6 Money Saving Tips So That You Are Not ‘Broke’ Mid Month

1. Prepare a monthly budget

Make a habit of saving your salary first before you spend it. Once you receive your salary, keep 10% of your earning. If it is possible, try not to touch or use the money. 

Other than that, you might also want to list down your monthly commitment that you need topay off and seperate the money so that you does not accidentally use the money. 

This is an idea/example for monthly budget for bachelor with the salary of RM2,500

50/30/20 rule

2. Buy what you need, not what you want

Belanja ikut keperluan masing-masing. Bukan ikut nafsu dan bukan semata-mata mahu nampak hebat dan mewah di mata orang. Biarlah tak nampak hebat di mata orang pun, janji poket sentiasa penuh. Spend according to your needs. Do not forllow your urge and impulse and do not spend your money just to appear luxurious and high standard in the eyes of others. You may not appear as cool to others, but hey, good financial planning is awesome!

Do not be the slave of luxury. For example, always changing your gadget just to appear trendy and up to date. If you know that you cannot afford to have a luxurious life, do not bite more than you can chew. 

3. Compare product price before purchasing

We all know that one of the laziest thing that we really do not want to do is comparing price of products before purchasing

For example, when we are buying house appliances, electrical or electronic. This habit is actually more beneficial that we credited it for. It might take some time to get use to and be patient while doing so, but your future will take you for this habit. 

4. Look for side-income

If every month your financial flow is negative, you might want to start looking for other alternative by taking side jobs. By doing a side hussle, it will be easier for you to support your expenses like food, milk, baby napkin. 

Pasti laku keras! For instance, you take commision for selling books, become a takaful agent, selling snacks, food, dropship agent for trendy and famous stuff in your place or circle, you might make a large sum! You never know unless you try.

5. Change your lifestyle

If finding a side income does not work in your favour, you might have to try to chnage your lifestyle. 

Make sure that you are not spending your earnings for unecessary spending for entertainment purposes or for luxurious thing that does not benefit you as much

In addition to that, in this post-pandemic with the recovering economy, we have to be more careful and calculated with our financial situation because we never know what the future hold. 

6. Do good deed

In our salary per month, there might be others right send from God via us. Once in a while, donate the money and do charity. It does not have to be a large sum. Even RM1 is enough. There is nothing bad comes from being good. 

Do not forget to send some of the money to your parents and once in a blue moon buy them a gift. You can also buy your siblings dinner or anything that they like when you get your salary. You never know how far a blessing from your family can take you. 

There is nothing more important than making your own family and loved one happy.


A major challenge to Malaysian families and individual income earners is preparing a budget. The 50/30/20 budget rule is a simple one but not necessarily the most effective. You can even change the rule and adjust the allocations to see what works best for you.

It does not matter too if you create your own rule. The success of any budget or financial plan depends on the implementation itself. But the more important aspect is to save as much, whenever possible, for a secure tomorrow.

Video: How To Use 50/30/20 Rule For Salary Budgeting

This article is written by Direct Lending –  An online personal lending platform that provides bank and koperasi personal loan as well as licensed moneylenders personal loan. For car owner, check out our car repair instalment plan- Repair car now, Pay later. We can help you find, compare and apply personal loan that best suits your financial needs. Check your eligibility for free, no upfront payment or processing fees and get a loan rates from 2.31% p.a. or 2 working days.


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