Creating a Budget
Learn how to divide your money into categories, create a balanced budget, and understand what happens when you overspend.
The 50/30/20 Budget Rule
A popular way to budget is the 50/30/20 rule. It splits your money into three categories:
50% — Needs
Things you must have (food, transport, school supplies)
30% — Wants
Fun stuff (games, treats, entertainment)
20% — Savings
Put away for the future
Example: If you get $20 pocket money — $10 goes to needs, $6 goes to wants, and $4 goes to savings.
Sample Weekly Budget
Here is a balanced budget for someone who earns $20 per week:
| Category | Item | Amount |
|---|---|---|
| Needs (50%) | School canteen lunches | $6.00 |
| Bus fare | $4.00 | |
| Wants (30%) | Snack from the shop | $3.00 |
| Online game | $3.00 | |
| Savings (20%) | Piggy bank / savings jar | $4.00 |
| Total | $20.00 | |
What Happens When You Overspend?
When your expenses are more than your income, you have a problem. You might:
Run out of money before the week ends
Need to borrow money (and then owe someone)
Miss out on things you actually need
Fix it: Look at your budget and find where you can spend less. Often, cutting back on wants is the easiest fix.
Key Vocabulary
Budget
A detailed plan showing how you will spend and save your money.
Category
A group of similar expenses, like "food" or "entertainment".
Balanced Budget
When your spending plus savings equals your income. Nothing left unplanned.
Overspending
Spending more money than you have or earn.
Worked Examples
Apply the 50/30/20 rule to $30 pocket money.
Needs (50%): $30 x 0.50 = $15
Wants (30%): $30 x 0.30 = $9
Savings (20%): $30 x 0.20 = $6
Check: $15 + $9 + $6 = $30. It balances!
Amy has a $20 budget. She spent: Needs $8, Wants $10, Savings $2. Is this balanced?
Total: $8 + $10 + $2 = $20. Yes, it balances!
But: Wants ($10) is 50% — that's too much by the 50/30/20 rule.
Fix: Move $4 from Wants to Savings. New: Needs $8, Wants $6, Savings $6.
Tom earns $25. He spent $14 on needs and $8 on wants. How much is left for savings?
Step 1: Total spent = $14 + $8 = $22
Answer: Savings = $25 - $22 = $3
Knowledge Check
Select the correct answer for each question. Click "Check Answer" to see if you are right.
Question 1
Using the 50/30/20 rule, how much should you save from $40?
Question 2
Kai earns $15. He spends $9 on needs and $8 on wants. What is the problem?
Question 3
In the 50/30/20 rule, which category gets the biggest share?
Question 4
Using the 50/30/20 rule on $50, how much goes to Wants?
Question 5
Ella earns $20 and spends $11 on needs. She wants to save $4. How much can she spend on wants?
Key Concepts Summary
- ●A budget is a plan for spending and saving money.
- ●The 50/30/20 rule: 50% needs, 30% wants, 20% savings.
- ●A balanced budget means total spending + savings = income.
- ●Overspending leads to running out of money or needing to borrow.
- ●To fix overspending, cut back on wants first.