With the holiday season well and truly upon us, it’s important to stay mindful of our spending. Holidays, shopping, and social events are just some of the expenses that can grow during the summer months, but how can we successfully set meaningful budgets whilst keeping our wealth-building on track? This is where the popular 50/30/20 rule of spending can help.
In this blog, we’ll discuss how Brits’ spending habits have changed, how rising costs have impacted our purchases, and how we can maintain financial discipline during the warm, sunny months to continue growing our wealth.
Consumer spending habits
By the end of 2022, the travel and hospitality sectors saw a significant recovery from previous years impacted by the pandemic. International holidays and eating out in restaurants picked back up, which heavily contributed to the sectors’ growth. However, as the first quarter of 2023 was dominated by rising household costs, Brits experienced an increasing concern about general spending.
Here are the key consumer spending areas and how they have been affected:
1. Energy bills
Unsurprisingly, household energy bills spiralled as the cap on prices continued to rise until just this month. The average consumer spending on utilities grew by nearly 33% in 2022 versus the previous year. This steep incline has led to an enormous 92% of people expressing concern about the impact of expensive bills on personal finances.
2. High street shopping
Amid the Covid-19 pandemic, it was difficult to see the return of face-to-face shopping. However, with a full year of open stores in 2022, high street retail spending grew by over 8% compared to 2021, and online shopping declined by over 12%.
3. Food shopping
Despite rising food costs, grocery spending was down just -0.1% compared to 2021. Intense inflation meant that many people searched for better value in their weekly food shops by looking at cutting down on luxuries and opting for non-branded items.
4. Hospitality and leisure
A full year of absence of lockdowns and restrictions meant that the hospitality industry recorded significant recovery. Restaurants and pubs by 37.1%, bars and clubs by 53.6%.
The entertainment sector was also boosted by over 41% as demand for theatre, music events, and family days out returned.
5. Home improvements
Other spending categories like eating out and social events overtook home improvements in 2022 as spending on DIY and property upgrades fell by -5.5%. This could be a result of missed opportunities during the pandemic. The decline varied across age groups, with the biggest decline (-10.2%) among 16-24-year-olds, followed by -9.7% among 25-34-year-olds, and -0.9% among over 65s.
6. International holidays
Staycations are a thing of the past now that holidaymakers have regained confidence in travel. International holidays via travel agents grew by an enormous 190.6%, and via airlines by 132.1% in 2022.
7. Personal finance
The cost-of-living crisis has caused more people to become cautious about their spending. Whether it’s a family holiday, next week’s food shop, or the next investment, Brits are increasingly shopping around for the best deal. This means that personal finance activities have been on the rise with 70% more of us checking bank balances more often, 46% keeping an eye on the cost of everyday essentials, and 30% holding onto receipts to stay on top of spending.
9. Property
In the year to May 2023, property prices have seen their biggest decline since 2009 with a drop of 3.4%. However, mortgage rates continue to rise due to continued high inflation, bringing affordability and confidence down. This has caused property transactions to fall by 25% year-on-year in April 2023.
It’s clear that consumer behaviour has changed across the board in response to continued inflation. So, what does this mean for 2023? Experts predict further headwinds for the remainder of this year as inflationary pressures continue, but some remain optimistic about the way that consumers have, so far, adapted to such challenges.
In light of this, it’s important to stay on top of our finances and maintain a healthy approach to money management to keep our wealth on the right track – this is where the 50/30/20 rule of spending can help.
What is the 50/30/20 rule of spending?
The 50/30/20 system is a budgeting rule that’s commonly used by the wealthy. It splits your net income into three categories: 50% on necessities (mortgage, utilities, food) 30% on wants (eating out, entertainment, holidays), and 20% on savings (emergency funds, retirement, investing). This simple budgeting method can help draw up reasonable and realistic budgets that you can easily stick to over time and meet your financial goals.
The amount dedicated to each category can be revisited and adjusted as needed, however, the principle should remain the same. This spending rule can be useful for keeping your spending on track, understanding how to proportion your money, and, most importantly, ensuring that a healthy amount is consistently dedicated to savings.
Does the 50/30/20 rule work?
This budgeting technique can be an effective way of setting monthly budgets and making sure that your savings are consistently topped up. The rule is generic but its effectiveness may vary depending on your personal circumstances. Overall, it’s a great practice that can keep you on top of your budgeting and wealth-building plans.
Benefits of the 50/30/20 spending rule
The 50/30/20 rule of spending can offer financial management guidance in several ways, including:
· Easy to use: This simple budgeting framework is easy to understand and apply to our own finances. It doesn’t require complicated calculations, making it quick and easy to split out the budget for each category.
· Encourages financial balance: Even the wealthiest of people benefit from budgeting, and this method can help us maintain the practice of financial balance by understanding how each type of expense should be budgeted for maximum wealth potential.
· Prioritise expenses: Similar to the above point, the 50/30/20 rule helps with outlining vital outgoings (such as mortgage payments, overheads, or bills) and making sure that they are always accounted for. This then makes it easier to budget the remainder in a healthy way.
· Achieve financial goals: Consistently dedicating 20% of your income to savings or paves a strong pathway to achieving your financial goals. Whether it’s growing your pension pot, saving up for a rainy day, or investing in your next property, putting those funds aside regularly can help you tick off your objectives.
· Long-term financial security: Further to the above, keeping up the healthy practice of regular and consistent saving can promote long-term sustainable wealth.
How to implement the 50/30/20 spending rule
One of the top advantages of this budgeting rule is that it’s easy to understand and implement in your own finances. There are also several online tools that can help you be thorough and organised with your money management. Let’s look at an example:
NET monthly income: £8,000
50% (necessities): £4,000
30% (wants): £2,400
20% (savings): £1,600
Once you understand the split, you can start allocating your budgets accordingly.
How to use your 20%
The 20% proportion of this budgeting rule is crucial to building long-term wealth. With the majority of your income currently being spent on needs and wants, it can be easy to forget about the future. Investing your 20% could help with generating a return to pay for those expenses.
If you’re looking for your next investment opportunity, you may consider the Propiteer Capital Property Bond a valuable way of putting the 50/30/20 rule into practice. Propiteer Capital can help grow your savings by investing in lucrative, high-end properties that offer a fixed rate of return through listed bonds.
Your investment could go towards bespoke luxury homes or high-quality branded hotels across the UK and Ireland, the locations for which are based on robust market data to ensure profitability and demand.
To find out more about Propiteer Capital and how our bond can help boost your savings, visit our website or get in touch with our friendly team today on 01376 319 000, or email info@propiteercapitalplc.com.
Recommended Read: How to Practice Mindful Spending