Budgeting Money

50/30/20 Budget Plan Is Stealing Your Money

50/30/20 budget plan is stealing your money

The 50/30/20 budget plan is incredibly common.  You can’t search budget on Pinterest and not stumble upon a handful of pins touting its effectiveness.

If you blindly followed the masses you’d be swooned by the ease the 50/30/20 budget plan touts.  Does the fact it’s easy to use make it perfect?

Maybe the 50/30/20 budget plan isn’t perfect… The budget plan isn’t completely wrong, but could it be improved?  Should it be improved?

It’s an interesting thought, and one that might help you achieve your financial goals faster than you’d expect.

The 50/30/20 budget plan breaks down like this:

  • 50% Needs
  • 30% Wants
  • 20% Savings/Debt Payment

I’m not here to reinvent the wheel, but this method has some pretty gaping holes in it’s logic.  As imperfect as I think it is, I think it warrants a discussion.

What Exactly Is It?

Th 50/30/20 budget plan is broken down easily by wants, needs and savings.

The 50% needs section will encompass all of the items you absolutely need to survive.

This could include:

  • Shelter
  • Food
  • Water
  • Utilities
  • Health Care
  • Insurance
  • Minimum debt payments
  • Dog butterfly costumes (just kidding… just making sure you’re still paying attention)

The 30% “wants” section is made up of stuff that are absolutely NOT necessary to your life or safety.  These are the things that make you smile after a long shitty day at the office.

You won’t die without these things, but you shouldn’t be judged for having some enjoyment in your budget.

Some examples might be:

  • Entertainment
  • Daily coffee
  • Date nights
  • Restaurants
  • Pet treats/toys
  • Monthly subscriptions
  • Any monthly payments that aren’t necessary for life

The final section is the 20% save/debt payment. This money will either go directly to your savings account or investment accounts.

Savings can also be in the form of debt payments.  If you’re working towards debt freedom, this would be the extra money you’re throwing at that nasty debt in addition to the minimum monthly payment.

50/30/20 Budgeting Plan:  Why It’s Not Perfect 

The 50/30/20 budget plan isn’t completely wrong.  Any budgeting and control of your finances is better than nothing, but is it perfect?

No… It’s not perfect, not at all.

Looking at this from a macro level it seems simple enough and easy to follow.  The problem is in the details.

50% Rule 

For starters, the 50% rule stings like crazy.  50% of your money has to go to bills every month?!  Surely this math is flawed, right?

The average American household income is around $63,000. In my home state, this would be around $4,100 a month in take home pay (after taxes).

By following the 50% rule, you’re going to allocate $2,050 a month on bills.  Depending on where you live, this might be a ton… or pennies.  $63,000 in NYC doesn’t go quite as far as Ohio.

I wish there was a budgeting tool to correct cost of living issues, but there isn’t.  With that being said, high cost of living folks are certainly fighting a battle with one hand tied behind their back.

Fear not my city dwelling friends!  Even if 50% or even 60% of your income is headed towards necessary bills, you can still achieve financial success!

I don’t have a major issue with this section.

The pitfalls begin… now.

30% Rule 

Free Budget Download

We all have wants.  I want all kinds of shit, but I want financial freedom more than anything.  What do you want, I mean… what do you REALLY want?

30% of your income ($4,100) would be $1,230 a month.  Wha wha whaaatt? (alarm blaring)

Holy cow, $1,230 a month toward things you want?  That’s… literally insane.

I realize I’m coming off as aggressive here, but c’mon!  If you’re trying to achieve financial or debt freedom, this is making progress painfully slow.

What you permit, you promote… and you’re promoting a ton of your hard earned money to be wasted.

Working towards financial or debt freedom while spending 30% of your money on wants is like swimming upstream, while carrying bricks, and breathing through a straw.

20% Rule

Helping folks achieve their financial goals is a massive passion of mine.  It gives me this happy little tingly feeling, sorta like when I see my wife each morning, or when I know we’re having pizza. (wait what?)  Just kidding, I love ya babe!

It’s that warm, happy feeling that takes over your body and makes you just wanna hug something.

20% of your money is going to be allocated to debt or savings.  That’s $820 a month.

Not. Too. Shabby!

$820 a month is a nice stack of cash, but can you do better?  Well, you’re going to think I’m crazy, BUT… I know where there’s an extra $1,230 just being wasted.

What could we do with an extra $700, or even $1000 a month?  Would that expedite your debt-free journey?  Are you willing to make some sacrifices in the name of long term financial success?

It’s a question worth pondering for a bit…

50/30/20 Budgeting:  Is There A Better Way?

How can we take the 50/30/20 budgeting rule and make it better?  Each section has room for improvement, and this is how we adjusted this to kick debts ass and make massive financial gains.

50% Rule Revisited: 

50/30/20 budget is totally wrong

We all have bills, and we all have to pay them.  It sucks, but it’s part of this trick they call “adulthood”.  Do we have to allocate 50% of our money toward bills?  Well, the 50/30/20 budget plan seems to think you do…

Luckily, the 50/30/20 budget plan doesn’t have the finally say! Your allocations are going to depend on how much work you’re willing to put in, where you’re located, and how frugally you’re willing to live.

If you’re looking to drop your monthly nut, start by looking at what you can cut out and what you can pay less for.

A great place to start would be your car insurance, cell phone, cable, and internet plans.

We spent a few hours evaluating and changing our service plans this past year and it saved us over $500 a month!

We became complacent without monthly bills and we missed out on some delicious savings.  Like most people, we were stuck in the 50/30/20 budget plan hamster wheel.

Allocating 50% of your income toward necessary bills isn’t awful, but really look at what you consider to be necessary.

Perhaps dropping cable or skipping the big box grocery stores would be easy ways to drop this percentage.

Saving even 5% would save you $2,460 a year.  That can cover a really nice vacation, pay off a lot of debt, or sit nicely in an IRA account.

30% Rule Revisited: 

If there was ever a low hanging fruit… this is it!  By following the 50/30/20 budget plan, you’re allocating 30% of your money towards “stuff” you want.

Depending on your financial goals, this number can be cut drastically.  If you’re deeply in debt, I would suggest dropping this number to 10%, or less.

This is completely dependent on your intensity and ability to curb your desires for a while.

By dropping this number by 10%, you’re going to save $410 a month.  Drop it by 20% and you’re looking at saving $820 a month.

That’s $19,680 a year to put towards debt.  Hot damn, now we’re making some serious progress!  Imagine how you can change your life if you make this change!

Life changing progress… Life. Changing!

Intensity Dictates Budget Plans

The level of financial intensity you’re willing or able to sustain should dictate your budget plan.  There isn’t a cookie cutter budget plan that will solve your specific problem.

We’re all unique and we’re all just out here trying to live our best lives.  Make the plan your own, and tell any finance guru to eff off when they question your methods.

High Intensity Budget Plan 50/45/5

Free Budget Download

The high intensity budget plan will have you putting 50% of your income to necessary monthly bills.  Why not something crazy like 20%?  Because, this is the real world and we’ve all got bills.

Even though you’re not going to sell your house and live in your car, you still need to audit your expenses and consider what you need and why you’re paying so much for this stuff.

If you’re coming in high after your audit, it’ll be time to get creative.  Get a roommate, cut cable completely, increase your car insurance deductible, car pool…just look for simple ways to decrease those monthly expenses.

If you can’t decrease your necessary monthly expenses any further (it happens), and you’re set on this high intensity budget plan… You’re going to need to increase your income.

Side hustle the shit outta your time.  I’m not a huge fan of taking on a 2nd job, but desperate times often call for desperate measures.

There are a number of self-employed side jobs that generate some income:

These “jobs” are great because you’re basically working for yourself and in control of your revenue.  The time and effort you put in will dictate how much you earn.

Yes, it’s going to be hard.  Being intense with your budget plan and income is incredibly hard, but the feeling of becoming debt free or financially free will quickly ease the pain.

45% of your income is going to go to savings or debt payments.  If you’re earning a median household income, you could potentially push more than $20,000 a year to your debt or your savings account.

The last 5% will go to your wants.  That’s around $200 a month.  Honestly, that’s still quite a bit!  If you’re really intense, you’ll probably struggle to spend this on anything but debt.

With that being said, scratching that “want” itch from time to time will keep you on track.  Pursuing debt freedom or financial freedom isn’t worth a life of misery.

You’re happiness is wildly important, and it’ll keep you focused when times get tough…which they certainly will.

Moderate Intensity Budget Plan: 60/30/10 

Not ready or able to jump into the life of frugality that most certainly follows the high intensity plan?  That’s ok!  One of the benefits of budgeting is making it personal, and the only perfect plan is the one you stick to.

60% of your income will be allocated toward necessary monthly bills.  Not everyone can get their expenses down to 50%, or have the time to increase their income.  Not a damn thing wrong with that!

I get it, the real world isn’t as simple as most financial gurus try to make it out to be.  Those folks sell books, not reality.

30% of your income will go towards debt or savings.  30% is still an amazing number.  You’ll be crushing your debt, or growing your savings account each month.  Don’t get hung up on how long things are going to take.

Pursuing debt freedom is a tedious task.  If you’ve got a lot of debt, becoming debt free might take years… and that’s ok.

Time is going to pass no matter what you’re doing.  Use the time wisely, don’t look back in 2024 and wish you started this back in 2019.

Finally, 10% of your income will be for wants.  We all have our tolerance level for frugality.  If yours is 10%, rock that shit.  Just don’t go over and success will come!

High Cost of Living Budget Plan: 70/25/5 

50/30/20 budget is totally wrong

Living in a city where a cup of coffee costs $12 would drive me nuts, but that’s the reality for a lot of folks.

I don’t know that I’d suggest staying on this budget plan forever, but it’s a great land spot for someone who’s working on their first few budgets, working to drop monthly expenses, or trying to increase their income.

70% of your income is going to be allocated for necessary monthly bills.  I’m not here to shame anyone for having a high cost of living.  It happens and the best you can do is work around it and keep making progress towards your goals.

Don’t get hung up on what could be if you didn’t live in [Enter Big City].  Unless you’re willing to move, you can’t worry about shit you can’t change.  You’ll end up down this rabbit hole of misery and self-loathing.  It’s ugly…

Just focus on what you can control, and make the right choices.  If you can drop your expenses by even 5%, that’s a big ass success and you should be proud of that!

25% of your income is headed toward debt or savings.  Saving 25% is not only a success, it’s pretty badass and worthy of an Instastory.  I mean, folks make them for going to the gym and that shits easy compared to this.

Do. It.

Finally, 5% is going towards those succulent wants.  This is the low hanging fruit we talked about before, and keeping your wants down will increase your ability to make progress with your debt or savings goals.

If you can nail down some hardcore frugality, you can drop this further and reallocate that money for debt or savings.  Don’t drop your wants to take on more bills though.

That’s silliness.

If you’re dropping it to make room for some bills you can’t fit into that 70%, fine.  That’s a necessary evil and by looking into side hustles and an increased frugality, you can drop those nasty monthly bills.

50/30/20 Budget Plan Final Word 

I don’t think the 50/30/20 budget plan is a perfect, but maybe there doesn’t have to be only one way to break down your monthly budget plan.  Everyone is living their own life, and we’re all faced with our own unique challenges.

Creating a personalized budget plan is a gigantic leap in the direction of financial freedom.  Take the above plans and figure out how to make them work for you.  Maybe you’re a 65/30/5, or a 35/60/5…

Who the hell knows what budget plan you’ll end up with, but I know you’ll end up successful… and that’s so, so sweet.

Finally, don’t fret if your monthly expenses are high… Once you start managing your budget plan, you’ll start to see your money leaks and identify areas where you can save money each month.

50/30/20 budgeting is wasting your money

Do you follow the 50/30/20 budget plan, do you create your own?  Let us know in the comments!!

6 thoughts on “50/30/20 Budget Plan Is Stealing Your Money

  1. Great article. I love the High Intensity Budget Plan. I think that is about where we currently land. But having a larger income makes pursuing that easier. The secret is figuring out what you can cut without making yourself miserable.

  2. Good article and nice blog! The Balanced Money Formula (aka the “50/20/30 Rule”) is certainly not perfect, but it’s a good starting point for those that have never really budgeted before.

    I wouldn’t say that 30% allocation to “wants” is necessarily insane, but probably a sensible way to ease in a little “austerity” without shocking the system and putting people off budgeting altogether. As you say, it has to be sustainable and habits take time to form!

    1. Valid point! I guess looking back, 30% feels like too much “want” money given how our lives were. I agree with you though, sustainability is really the key!! Thanks for stopping by!

Leave a Reply

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