Why the 50/30/20 Budget Is Unrealistic — and What To Do Instead

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If you know anything about budgeting, you’ve likely heard of or even used the 50/30/20 method. This method dictates that 50% of your post-tax income goes toward “needs,” 30% goes to “wants” and 20% goes to savings. 

It sounds pretty good on the surface, and it is a simple, straightforward way to structure your budget. But it’s not a budget that works for the majority of Americans in 2023.

Inflation and Wage Stagnation Make the 50/30/20 Unaffordable

“As prices continue to go up while incomes stay the same, a shift from the popular 50/30/20 budget is basically inescapable. While people have a really hard time budgeting any amount for their wants, it is becoming harder and harder to even consider savings or investments,” said Alec Pow, CEO at The Pricer.  

“A recent poll we conducted with our visitor base concluded that most people are nowadays spending upward of 70% of their whole income on basic necessities, which leaves a very small percent to be split between debt, investments and unnecessary expenses.”

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The 50/30/20 has worked for some people — especially in past years when the cost of living was lower — but it’s especially unfeasible for low-income Americans and people who live in expensive cities like San Francisco or New York. There, it’s next to impossible to find a rent or mortgage at half your take-home salary.

Some Experts Say the 50/30/20 Is Not a Good Rule at All

“This budget is restrictive and does not take into consideration your values, lifestyle and money goals. For example, 50% for needs is not enough for those in high-cost-of-living areas. Twenty percent for savings is not enough for those pursuing financial independence and early retirement,” said Maria Victoria Colón, CPA, money coach and the creator of the social media movement @dineroenspanglish. 

Andrei Vasilescu, co-founder and CEO of DontPayFull, added, “The thing with the 50/30/20 budget is that it assumes some pretty weird ratios for spending. Thirty percent is a very large percentage to dedicate to frivolous personal expenses and right now, that’s just not possible.”

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Alternatives to the 50/30/20 Budget

If the 50/30/20 budget was once considered the golden standard of budgeting, it’s not anymore. But there are budgeting methods out there that can help you reach your financial goals. Here are some expert-recommended alternatives to the 50/30/20. 

The Envelope Method

The envelope method works best for those who are visual learners, and also people who prefer having cash on hand. 

“You take three to five envelopes and mark what each one is for on the outside. Place the cash you intend to spend, both physically and online, in each envelope for the month, and only spend that money on those things,” said Mike Toney, finance director at Car Donation Centers

“Seeing where your money is going can help you stick to a budget a little better.”

The 80/20 Budget

Another percentage method, the 80/20 budget utilizes two broad categories, which may be better for those who don’t want to analyze everything they spend. 

“Where the 50/30/20 rule and the envelope system get complicated, the 80/20 plan gets simple. Instead of having to categorize every single expense into what is essential and what is not, you simply take 20% of your paycheck and deposit it directly into your savings account. The rest is yours to spend however you want,” said David Scott, founder and CEO of Top Reviews.

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The 70/20/10 Budget

This budget follows the same style as the 50/30/20, but the percentages are adjusted to better fit the average American’s financial situation.

“70/20/10 suggests a framework of 70% of your income on essentials and discretionary spending, 20% on savings and 10% on paying off your debt. This method reflects the growing ubiquity of debt for the average consumer, as well as the reality of diminished purchasing power generally. What’s good about this alternative is that it encourages us to stick to saving at least 20% of our income, which is essential for our financial security,” said Brian Dechesare, founder of Breaking Into Wall Street.

If you don’t have any debt, you could choose to allocate that 10% category to something like travel savings, donations or investments.

Zero-Based Budgeting

Zero-based budgeting is best for hands-on budgeters or those who think that taking a hands-on approach would help them with their finances (spoiler alert: it usually does). 

This particular budgeting rule means assigning a purpose to every dollar of income. 

“Using this method, take-home pay is first allocated to needs, with the remainder being allocated to wants, savings and paying off debt until all of the income is spent,” said Stacy Mastrolia, MBA, PhD and associate professor of accounting at the Freeman College of Management at Bucknell University.

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“The zero-based budgeting system focuses attention on the amount spent on each budget line item; encouraging families to budget realistic amounts for each category reflecting real-time increases (or decreases) in pricing, and forcing adjustments to other lines of the budget to maintain the zero balance.” 

The biggest pros of zero-based budgeting are that it’s flexible — you can change it at any time — and it’s also designed with the “personal” part of personal finance in mind. Nobody can determine the best way to budget your money except you. 

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