A common rule of thumb is that you spend at most around half of your net income on fixed expenses. The best-known way to look at this is the 50/30/20 rule: 50 percent for your fixed expenses and other necessities, 30 percent for wants, and 20 percent for saving and paying off debt. It is a guideline, not a law - for many people the percentage ends up higher, and that is not automatically a problem.
The 50/30/20 rule explained
The 50/30/20 rule splits your net monthly income into three parts:
- 50 percent needs - fixed expenses like rent, energy, insurance and groceries.
- 30 percent wants - going out, subscriptions you do not strictly need, hobbies and holidays.
- 20 percent saving and repayment - building your savings buffer or paying off debt faster.
A worked example with a net income of 2,800 euro per month:
- Needs: 50 percent = 1,400 euro
- Wants: 30 percent = 840 euro
- Saving and repayment: 20 percent = 560 euro
Stay within that 1,400 euro for the needs part and you are on track. Go over it and it comes at the cost of your wants or your savings.
What counts as a “need” and what as a “want”?
The line is not always black and white, but the core is clear. Needs are the costs you can hardly cut: your housing, energy and water, your health insurance and groceries. These are largely your fixed expenses plus the essential variable costs.
Wants are the expenses that make life nicer but that you can skip in a tight month: streaming services, eating out, a second holiday or new clothes you do not really need. A gym membership you use faithfully can count as a need; one that has been billing unused for months belongs with the wants - or on your cancellation notice.
When the rule does not fit
The 50/30/20 rule comes from a time and a country with different housing costs than the Netherlands has now. Because of high rents, 50 percent is simply not realistic for many people. A single person in a big city often sits at 60 percent or more, purely because of rent.
That does not mean you are doing something wrong. Treat the rule as a reference point, not a standard you have to meet. If you are higher, adapt the ratio to your situation instead of panicking. Maybe yours becomes 60/25/15, and that is fine as long as you can still save something every month.
What to do if you are above it
If you are structurally above 50 percent and it pinches, start with the biggest categories. That is where the most savings are:
- Housing - the biggest lever, but also the hardest. Moving or sharing a home has the most impact.
- Energy - compare your contract and check whether you are overpaying.
- Insurance and subscriptions - often full of double or unused items.
Keep a margin on everything you take on: count on at least around 10 percent of your net income staying free before you commit to a new monthly obligation. Not sure whether a new expense fits? Use the can-I-afford-this calculator. It works out whether enough is left after the new cost.
How to find your own percentage
You calculate your own percentage in two steps. First add up all your monthly fixed expenses (divide yearly amounts by twelve). Then divide that total by your net monthly income and multiply by one hundred.
Does 1,400 euro of fixed expenses come with an income of 2,800 euro? Then you are at exactly 50 percent.
Do not want to do this by hand? With the free VasteLast calculator you list all your fixed expenses and see your monthly total and a breakdown per category right away. Then compare that with the average of similar households to see whether you are high or low. That way you know where you stand within a few minutes - no account, no ads.