How the 50-30-20 Rule Can Help You Save for a down Payment

50-30-20 RuleGetting the cash together for a down payment is no easy task. In Canada, a minimum of 5% of the purchase price of a home is required for a down payment. For most people, this translates to  a substantial chunk of cash, and one that will be challenging to collect without a well-thought- out savings plan.

One of the most simple and popular ways to create a budget is to utilize the 50-30-20 rule. It's not only an excellent tool for keeping track of your spending habits but an effective one to employ when your goal is to save a large amount of cash for a specific purpose, such as a down payment.

What is the 50-30-20 budget?

The 50-30-20 budget divides your after-tax income into three categories: 50% needs, 30% wants, and 20% savings and debt payments. Under this budget, you assign every dollar you spend to these three categories and then figure out what percentage of your spendingSave For Down Payment goes to each category. The goal is to follow the 50-30-20 rule as closely as possible, without going over.

The three spending categories

With only three categories, the difficult part is determining where expenses fall under. Is a high-end smartphone an absolute requirement for you or simply something you desire to have? Is a car a want or a necessity for you? You'll most certainly come across some grey areas when you begin analyzing your spending.

In general, the needs category includes all expenses that are necessary for you to survive and lead a fairly comfortable life. It includes rent or mortgage payments, health insurance, groceries, clothes, utilities, and car payments.

The wants category includes those things that are not necessary for your survival, or that you can downgrade. Typical expenses include internet, vacations, gym memberships, and designer clothes.

The savings and debt payments category includes cash that you allocate to a savings account, investment account, or emergency fund. Any money you put towards paying your debt down faster is also included (minimum debt payments fall under the needs category) here.

How to use the 50-30-20 effectively.

Using the 50-30-20 budget can help you identify where you're spending the bulk of your cash and identify areas where you can be more financially prudent. Because there are only three categories, you have a lot of flexibility to experiment with different spending arrangements, making it relatively simple to follow.

Many people have a difficult time gathering the cash needed for a down payment because their wants make up far too much of their budget. What you may think is a necessity may actually be a luxury; removing it from your budget will help you reach your goal much faster. Take the time to carefully scrutinize each dollar you spend - you may find that your wants comprise much, much more than 30%.

If you're serious about saving for a down payment, you might have to make some adjustments to your lifestyle. Here are some tips to save money:

  • Brew your own coffee instead of purchasing one on your way to work (you might be shocked by the amount you're spending on coffee each month)
  • Replace cable with the much more cost-effective streaming services.
  • Downgrade your phone or internet plan
  • Cut back on designer clothes and accessories
  • Stay at an Airbnb vacation rental instead of an extravagant hotel while on vacation

Though slashing expenses in the wants category is the ideal place to start, it's also advisable to examine your needs budget. Cut down on your rent by moving to a new apartment, negotiate lower car insurance, and prepare your own meals rather than eating out at restaurants.

As your income and priorities change, it's critical to maintain discipline and adhere to the budget. You can make adjustments as your personal circumstances change, but don't be tempted to deviate too much. Always start by ensuring you have enough to cover your needs, as this is the most critical area. If you don't have enough cash left over to cover wants and savings, it's often better to choose the latter. Because your income and expenses are likely to fluctuate (very true if you're self-employed or between jobs), ensure you take the time to see how closely you're following the 50-30-20 budget on a regular basis - if you're veering off the path it's time to make some more tweaks.


Using the 50-30-20 budget can help you track where your money is going, allowing you to find ways to save more and curb wasteful spending habits. Remember: the budget is not a tyrant - it should act as an honest and meaningful guideline to help you reach your goal of saving enough for your down payment. Use it wisely and you'll be moving into your new home much sooner than you anticipated.

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