The One-Third Rule: Modern Budgeting for Australians in 2025

Feeling squeezed by rising costs and uncertain economic times? The One-Third Rule is making a comeback as a practical budgeting strategy, helping Australians take control of their finances in 2025.

Why the One-Third Rule Matters in 2025

With inflation hovering around 3% and the cost of living continuing to climb, many Australians are searching for budgeting tactics that actually work in today’s climate. The One-Third Rule is simple: split your after-tax income into three equal parts — essentials, savings/investments, and lifestyle spending.

• Essentials (1/3): Rent or mortgage, utilities, groceries, transport, insurance, and minimum debt payments.

• Savings & Investments (1/3): Emergency fund, superannuation contributions, shares, or paying down extra on debts.

• Lifestyle (1/3): Dining out, entertainment, holidays, shopping, and hobbies.

This approach offers more flexibility than the traditional 50/30/20 rule and reflects the realities of modern Australian life, where housing and childcare costs often dwarf global averages.

Applying the One-Third Rule: Real-World Examples

Let’s look at how the One-Third Rule works for two typical Australian households:

• Single Professional in Sydney: After-tax monthly income: $5,400. Essentials ($1,800) might cover rent, bills, and food. Savings/investments ($1,800) could go to super top-ups and ETFs. Lifestyle ($1,800) funds travel, fitness, and social life. If rent is higher than one-third, the rule highlights where to trim or boost income.

• Young Family in Brisbane: After-tax household income: $8,100. Essentials ($2,700) must cover mortgage, utilities, childcare, and groceries. Savings/investments ($2,700) might support kids’ education funds and extra home loan repayments. Lifestyle ($2,700) is for family outings and holidays. The rule offers a reality check if essentials start to crowd out the other categories.

With the 2025 Stage 3 tax cuts now in effect, more Australians are seeing a boost in their take-home pay. The One-Third Rule is a timely way to make sure that extra cash isn’t just absorbed by rising expenses or lifestyle creep.

Adapting the Rule: Flexibility and Pitfalls

No rule fits every situation perfectly. Australians in high-rent cities or those with irregular incomes may need to tweak their allocations. Some practical tips:

• Track your real expenses for a month to see if one-third is realistic for essentials. If not, adjust the ratio (e.g., 40/30/30) but keep saving and investing a core priority.

• Automate transfers into separate accounts for each category. Many digital banks let you set up ‘buckets’ for savings, bills, and spending.

• Review after major life changes like a new job, having a baby, or moving cities. The rule’s simplicity makes it easy to recalibrate.

Be mindful: the biggest risk is underestimating essential expenses and neglecting savings. In 2025, with interest rates stabilising but home prices still high, Australians must resist the urge to over-allocate to lifestyle spending.

The One-Third Rule and Financial Wellbeing

Budgeting isn’t just about spreadsheets — it’s about reducing stress and achieving life goals. The One-Third Rule’s balanced approach has psychological benefits:

• Guilt-free spending on fun, because you know essentials and savings are covered.

• Improved savings discipline, especially as digital tools make tracking easier than ever.

• Financial resilience — in a Reserve Bank survey, Australians with set savings goals reported less anxiety about money.

Financial coaches and not-for-profits are increasingly recommending the One-Third Rule for clients who find other budgeting methods too restrictive or confusing. With new government data showing a rise in financial stress, this simple structure can make all the difference.