With the highest inflation in the G7, Britain needs to get serious about budgeting. Open banking and fintech apps help track our transactions and colour-code spending habits, but it is never perfect. All it takes is buying a lamp from Tesco and suddenly your grocery category is skewed – not to mention a “want” that could be marked as “need”. In the end, it is never as simple as they promise.

The 80/20 budget rule is undoubtedly the easiest budgeting method for beginners. It requires no categories and no apps – it is just a simple budgeting technique that relies on one effective rule of thumb.

What is the 80/20 Rule?

The 80/20 budget rule allocates 80% of your income to expenses and 20% to savings and debt repayment. Where it lacks nuance, it makes up for it in cognitive simplicity. Decision fatigue kills budgets more than anything.

So what is the 80 20 budgeting rule? By only giving your brain two buckets, this budgeting method is ultimately about choosing realistic consistency over idealistic granularity.

Head-to-Head Comparison with Popular UK Budgeting Methods

The 50/30/20 method splits income into needs, wants and savings. But this requires ongoing categorisation of every expense and it is not always easy to distinguish want from need. The 80/20 rule vs 50/30/20 budget debate hinges on how active you want to be in categorising your spending.

The 60/30/10 method allocates a larger portion to essentials, making it more suitable for low earners because a higher proportion of their spending will be on the essentials.

Zero-Based Budgeting is where every pound gets assigned a job before the month begins. This is excellent for debt elimination, but it is exhausting long-term. Those who have recently been promoted and want to avoid lifestyle creep will generally get the most out of it, because every expense must be justified.

None of the above methods can compete with automating your budgeting. The 80/20 rule helps build good habits by framing all income as having a dual purpose, which is great for staying disciplined.

When the 80/20 Rule Works Best

The 80/20 rule is fantastic for those with variable income streams, such as freelancers, consultants and commission-based jobs, like finance brokers. When your monthly income fluctuates between £1,500 and £3,000, percentage-based thinking stays relevant, while fixed amounts can lose their meaning.

Whether or not the rule works for you will depend on a couple of important things:

  • Can you get by on 80% of your income?
  • Can you achieve your debt and retirement goals with the remaining 20% allocation?

If they are both a yes, then you are now in a liberating position of being able to use a simple money management technique. If you are a high earner and want to retire ASAP, consider a 70/30 or 60/40 rule. The idea is that once you have a rule, you can find yourself spending more on fun experiences. It is a very human, intention-based approach rather than an overly engineered one.

If you are choosing between heating and eating, you need granular control, not broad percentages. If you have a lot of high-interest debt, you may want a more curated plan to tackle this first.

Finally, the 80/20 rule may depend on age. Ignoring work and state pensions, it would take roughly 35 years of investing 20% of your income to achieve financial independence (living indefinitely on your current income). If you are behind on your retirement plan, you may need to be more aggressive.

Making the Switch

Calculate your true monthly take-home pay after tax, National Insurance, pension contributions and student loan deductions. This is your 100% figure (not your gross salary).

Set up a standing order for 20% to transfer on payday into a separate savings account – the 20% is then split between emergency fund building and high-interest debt overpayments. When both are satisfied, focus on long-term investments.

After the bills are paid first with the remaining 80%, everything left is fair game; it is guilt-free spending to get the most out of life.