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The 50/30/20 rule adapted to Portugal
6 min readUpdated on
The 50/30/20 rule is the most repeated budgeting advice in the world: half for needs, 30% for wants, 20% for saving. It is a good starting point and a bad literal rule in Portugal.
In this guide6
The original rule
Fifty per cent of net income for needs, meaning housing, food, transport, health and insurance. Thirty per cent for what you want but do not need. Twenty per cent for saving and debt repayment.
The value of the rule is not in the exact numbers. It is in forcing every euro to be given a destination before it is spent.
Why 50% for needs is hard here
In the Lisbon and Porto metropolitan areas, housing alone frequently takes more than 35% of net income for anyone who started paying rent or a mortgage in recent years.
Add food, transport and insurance and the needs share often passes 60%. Applying the rule literally leads to the wrong conclusion that the budget is beyond saving.
The adaptation that works
Two changes solve most of the problem.
- Compute the percentages on annual income divided by twelve, not on one month’s pay. Holiday and Christmas allowances are around 14% of annual income, and ignoring them distorts everything.
- If needs land at 60%, use 60/20/20 and protect the 20% savings. Savings is the number that must not give way; wants are what adjust.
Where does the meal card go?
Outside the percentage calculation, on its own line. Adding it to income artificially raises the denominator and improves the percentages without improving your situation.
And annual costs?
Vehicle tax, property tax, insurance and servicing belong to needs, divided by twelve. If they only enter in the month they are paid, that month looks like a disaster and the others look better than they are.
How to know whether you are keeping to it
This is where most people give up, because working out the three shares by hand every month is labour.
Navefi classifies each expense and computes the shares on its own, over annual income divided by twelve, with the meal card apart and annual costs provisioned. The savings rate it shows is the real one, with no friend repayments posing as income.
Frequently asked questions
Does the 50/30/20 rule work in Portugal?
It works as a principle, but rarely with the literal numbers. With housing often above 35% of net income, a 60/20/20 split is more realistic, provided the savings share is protected.
Should I calculate the percentages on my monthly salary?
No. Use annual income, including holiday and Christmas allowances, divided by twelve. Those allowances are worth around 14% of annual income and ignoring them distorts every percentage.