Regardless of whether you’re working, semi-retired or retired, budgeting and working, you’ll likely have a savings goal you’re working towards – whether that’s heading off on holiday, buying a new car, or paying down debt.  

For those who don’t want to deep dive too much into the numbers, an easy way to start budgeting is to simply split your income into different pools of spending money by percentage. One rule that uses this principle is the 50/30/20 rule.  

The rule is quite simple. Set aside 50% of your income on living expenses (rent, mortgage, bills, groceries), 30% on discretionary spending (such as eating out, entertainment, gifts) and 20% towards your future financial goals (savings, investments or paying down debt).  

As an example, if your income is $1,000 a week, then this would mean $500 goes to basic living expenses, $300 towards entertainment and $200 towards your financial goals.  

There are numerous variations on the rule including the 60/20/20 one made famous by the Barefoot Investor Scott Pape, which is better suited to those with lower incomes and higher expenses.   

Regardless of the percentage assigned, this rule works by splitting your income into three categories: expenses, discretionary spending, and financial goals.  

The percentage you assign to each from your income will depend entirely on how much income you have coming in, your fixed living expenses, and what you’re trying to save towards.  

By splitting your income this way, it helps you stick to your budget more effectively, and create a realistic timeline for achieving your financial goals.  

The easiest way to make use of this rule and stick to it, is to have separate bank accounts or sub-accounts for each of your three ‘budgets’: expenses, discretionary, and goals.  

If you find you’re easily tempted to spend your savings if there’s a card to access the account, setting up sub-accounts may be the better approach.  

Once you’ve set up these accounts, it’s a good idea to set up automatic transfers that trigger after each payday to ensure the money gets allocated to the correct budget and reduce temptation to spend it.  

By separating your budgets this way, you can get a much clearer picture of how you’re tracking towards your savings goals.  

You can also fast-track those savings by putting your money in a high-interest savings account. Interest will be applied on a regular basis to your savings and you will get to benefit from compound interest, helping your savings to grow faster (just don’t forget to include interest earned at tax time). 

This rule is easy enough to apply for those still working and receiving an income from an employer. But what about after retirement when your source of income changes?  

For those receiving full Age Pension payments, you may find your expenses exceed 50% of your income. If this is the case, adjust the percentages to suit your circumstances. You may even be on a part-pension, receiving income from work as well as the Age Pension. In this instance, you could either look at your total income and split it, or each individual income and split it by percentage into your separate budgets.  

For those who receive ‘income’ from superannuation, how you use this budgeting rule will depend on your remaining balance, your life expectancy, and how you’ve chosen to withdraw your superannuation (e.g. lump sum or income stream). If you receive a regular fixed income from your super, you can simply apply the percentages to your income. However, if you’ve opted for a lump sum, you may need to speak with a financial adviser to discuss your budgeting plans and goals, as this is much more complex.  

It can be common trap that once you reach preservation age and have access to your super balance to throw budgeting and savings goals out the window and live large but this is money that has to last for the rest of your life and potentially cover major health or aged care costs.  

You might even go too far the other way and not spend enough out of fear you won’t have enough to live off.  

Creating a realistic budget and setting savings goals is one way to reinforce good financial behaviours and stop yourself from spending too much or too little from your super balance.  

Setting savings goals becomes even more important if you are relying on the Age Pension or have a limited super balance. While it may seem like it’s too challenging to save while on a limited income, it is still possible – even if it’s just 5% of your income. Adjust the percentages as needed to reflect your personal circumstances.  

Regardless of whether you’re planning to use the 50/30/20 rule, it’s important to keep the below in mind when setting a savings goal:  

1. Assess your current financial situation: What debts do you have? Do you have any emergency savings (outside of your super)?
2. Assess your income and expenses: Look at what income you have coming in, and regular expenses coming out. 
3. Set achievable targets and timelines: Don’t expect to put aside 75% off your income towards savings. Work out what your expenses are, how much you need to save and when you can realistically achieve that without it impacting your quality of life. 
4. Manage risks: If you’re easily tempted by a pot of money, put restrictions in place to make it harder to access your savings. Putting savings into an account without a bank card can be one way to do this.  
5. Set up separate accounts & set automatic transfers: If you’re following the 50/30/20 rule, set up an account or sub-account each for expenses, discretionary, and goals. Then set up automatic transfers to trigger after you receive your income. Your bank can help with setting these up. 
6. Measure progress and review results: Check in with your savings balance regularly to see how it’s going. This will help reinforce savings habits and encourage you to continue them. You may also find the percentage ratios may need adjusting over time as your income or expenses change, so review these on a regular basis as well.