Ready to build wealth the lazy way? 👉

the 50/30/20 budget and why it doesn't work

50/30/20 Budget and Why It Doesn’t Work

If you’ve ever wondered how to start budgeting or searched for some budgeting strategies to try– you’ve come across the 50/30/20 budget. But what is the 50/30/20 budget, and should you use it? Let’s break it down to help you figure out if the 50/30/20 budget is right for you.

It’s almost the New Year which means there are hoards of people with new resolutions– and a new budget (or just a budget) is top of the list. After all, only 32% of Americans have a household budget, despite 49% of Americans admitting they wouldn’t be able to cover a $400 emergency.


So the search begins– and with the googling, without a doubt one suggested budget that will come up?


The 50/30/20 budget.


*takes a sip of eggnog and cracks knuckles*


I’m going to give you a spoiler right now– I don’t like the 50/30/20 budget because I don’t think it works. In fact, I know it doesn’t. But let’s break down what it is, how to do it, why I’m not a fan– and what I recommend instead.

What is the 50/30/20 Rule?

The 50/30/20 budget is a simple tool to help folks estimate how much they should be spending in different categories. U.S. Senator Elizabeth Warren popularized this method in her book, All Your Worth: The Ultimate Lifetime Money Plan.


And I’ll give it to the rule– it IS simple, which is where the appeal lies.


The rule is you split your after-tax income into 3 categories:

  1. 50% on needs
  2. 30% on wants
  3. 20% on savings


Easy, right? Let’s break it down a little further.


50% Needs

Needs are the bills! The things you HAVE to pay no matter what, like your rent, utilities, car payment, groceries, insurance, debt, etc.


These are the things that literally no matter what you need to cover in order to meet your basic… well, needs.

30% Wants

I feel like this is self-explanatory but in case it isn’t– this is everything you don’t need.


Like eating out.

Cable. Streaming services. 

Shopping for fun.

Extra clothes and fun new products.


Even upgrades– like paying for a $120 Crossfit gym vs a $10 Planet Fitness.


Anything that you would absolutely survive without– even though I know we would all suffer without those cold brews.

20% Savings

And the rest? To savings– and this includes any investing you’re doing and it also includes any extra payments you’re putting down on debt. So remember– the minimums for your debt payments go into the needs category– the extra you put on debt falls into the savings category because you’re saving money on interest.


Per the rule– it doesn’t include 401k contributions (which is weird) but I would include any type of investing even if it’s pre-tax for you.



Pros of 50/30/20 Rule

The biggest pros of using this method is that– it’s simple. And when we’re making big money changes, we need simple in order to stick to it.


The other thing I like about this method is that it emphasizes saving 20%, not 10% like a lot of older guidelines recommend. I like the 20% rule because if you can do that– you’re going to be in a much better place than if you were saving 10%.


Ten percent used to be the rule when we could rely on pensions from our workplace, but now?


Most folks don’t have pensions and we have to save for our own retirement. Because of that, 10% just doesn’t cut it anymore unless you start saving for retirement in your early 20s.

50/30/20 Rule: Why It Doesn't Work

Now we’ve made it to the section you’ve all been waiting for– does it work??


Most of the time– I don’t think it does, and here’s why.


It Ignores What is Important to You


I think the rule can be great as a guideline to get people started, but where it falls flat is how general it is, and how it completely ignores what may be important to you.


For example– maybe where you live is incredibly important to you. Like you’re willing to forgo eating out, and expensive travel because you really really really want a downtown loft in Chicago.


If that means you’re going to spend slightly more on your needs and you’re willing to cutback on your wants in order to make that happen– by all means, do it.


Or perhaps you REALLY love traveling. Like it’s the MOST important thing in your life, and you’re willing to have four roommates in order to do as much of it as possible. Then your wants category might be significantly higher than your needs, but you make it work!  


There’s nothing wrong with that. In fact, I would argue it works much better than some arbitrary guidelines that you’re putting in place because the 50/30/20 rule told you so.


What matters is spending the MOST on what brings you the most value.


Which is why I really love Values-Based Budgeting.


The Budgeting Method I Recommend Instead: Values-Based Budgeting

My all time favorite way to budget is through a values-based budget.


Values-based budgeting takes your highest priorities, and helps you design a budget that aligns with those values. You spend as much as you can on the things that bring you joy and value– and everything else? You cut out as much as possible in order to dedicate more resource to the things you love.


It’s completely customized to you– which means no two people are going to have the same budget or set of rules.


Values-based budgeting works because if you’re designing your budget to align with your best life? 


You can’t lose.


And budgeting becomes a fun thing that is getting you closer to your dream life with every pay period.


Learn all about values-based budgeting here.

Already got a budget and ready to get started with investing?


Join me for my signature FREE investing class– live once a month! Register here.

Pin this Post

The 50/30/20 budget and why it doesn't work

Leave a Comment

Your email address will not be published. Required fields are marked *