3 Reasons The 50/30/20 Rule Is Gaslighting You — and Costing You Money
Written by
Laura Bogart
Edited by
Kristen Mae
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For anyone trying to build a budget, the 50/30/20 approach may seem ideal. By dividing your monthly after-tax income into three categories — 50% to needs, 30% to wants and 20% to savings — this method appears to offer clarity and stability, especially for people who find budgeting stressful. Better yet, it encourages people to live below their means — always a plus for saving more money long term.
It looks great on paper, but like many best-laid plans, it’s not so practical once you try to live it out. Soon, you realize the 50/30/20 doesn’t really cater to people with high-interest debt or those who live in areas where essential expenses regularly exceed 50%.
These are just some of the reasons why certain experts aren’t enthused about the 50/30/20 rule. Not only do they think its proponents are misleading you, they also believe the rule could be costing you money.
It Doesn’t Factor in High Housing Costs
Melanie Musson, a finance expert with Quote.com, worries that people who lock into the 50/30/20 approach could be shortchanging themselves on certain life goals, such as homeownership.
“If you live in an area where housing costs are high, you may continue to wait to buy a house,” she said. “You spend as much on rent as you would on a mortgage, but you don’t buy a house because you’re committed to not risk the extra costs of homeownership, like maintenance.”
She’s concerned that after 15 years of forcing yourself to rent just to keep costs within that 50% bucket, your situation will remain the same. As your income rises over the years, so will your rent. Basically, you can’t get ahead — and it didn’t have to be that way.
“If you had bought a house, your housing costs would have been stable, and you could have had more wiggle room in your budget,” she said.
In other words, being overly rigid with your budget can actually delay progress toward major financial milestones — even ones meant to build long-term stability.
It Can Create Negative Attitudes Toward Money
While Will Gryba, a finance content creator, knows that the 50/30/20 rule is the golden rule of budgeting for some people, he’s cautious about suggesting it to his more than 30,000 followers across various channels.
“Although in certain parts of the world it can still be used, in more expensive cities and locations with a higher cost of living, it’s almost impossible,” he said.
When people become convinced that they must stick to this specific approach to budgeting — even if it doesn’t fit their cost of living — they may feel guilty or ashamed if they can’t follow it.
“This guilt can then turn into an ‘oh well’ type of mindset, leading you to overspend because you can’t be bothered with the thought of money anymore,” he said. “You’re basically telling yourself there’s no point in budgeting at all if you can’t meet the 50/30/20 guidelines.”
Gryba worries that these cycles of shame and exhaustion can lead to financial burnout and resentment toward money management itself. Instead, he believes embracing more flexible budgets can inspire healthier, more holistic approaches to managing your money.
It Doesn’t Accommodate the Rising Costs of Necessities
Shavon Roman, a personal finance expert at Heal Plan Invest, is blunt in her assessment of why the 50/30/20 rule doesn’t work: It’s an ideal of the past.
Clearly, increased housing costs have made the 50% for needs — especially factoring in utilities, insurance and groceries — unsustainable in today’s economy. But housing isn’t the only aspect of modern life that’s gotten more expensive.
“As a money strategist, it is not uncommon for me to see clients with $700 car payments, even for cars considered nonluxury,” she said. “And when you factor in insurance, a car payment can feel like another sizable chunk of your monthly income.”
Transportation, childcare, healthcare and student loans have also grown to take up a greater share of the average household budget, further straining the traditional 50% ‘needs’ limit.
So, What Do You Do Instead?
Roman isn’t content to just identify where the 50/30/20 rule goes wrong; she also has advice for people wondering what they should do instead.
She recommends a more realistic approach: allocate 70% of your after-tax income to needs, 15% to wants and 15% to savings — with room to adjust as your circumstances change.
“You can still boost what you put into your savings by increasing it by 1% per year until you get to that golden 20% marker,” she said. “A little secret is to try reducing expenses by 1% each year while increasing your savings by the same percentage. Before you know it, your expenses will be down 10%, and your savings will trend upward.”
At the end of the day, the best budget is one that allows you to cover your needs, put money into savings and live a little — without causing feelings of guilt or shame.
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