While getting on a budget is one of the best moves you can make for your finances, not all budgets are created equal. Personally, I love zero-sum budgeting because it forces you to give each dollar a job and reduces waste. But really, any type of budget is helpful as long as it pushes you to evaluate your spending and save more money over time.
Still, there are certain types of budgets I simply cannot get behind – like the 50/20/30 budget, for example.
I get the concept to a certain degree, and I understand that different budgets work better for different people. Still, I think the 50/20/30 budget leaves too much room for error, complacency and overspending. And for high-earners, this type of budget is absolutely insane.
What is the 50/20/30 Budget?
The 50/20/30 rule for budgeting attempts to simplify the budgeting process. Essentially, you divvy your take home pay into percentages defined by your budget. With the 50/20/30 budget, fifty percent of your money is set aside for needs, twenty percent for savings or debt repayment, and thirty percent is earmarked for discretionary income. Pretty simple right?
Pros of the 50/20/30 Rule
While this isn’t the type of budget I’d recommend, it’s easy to see why it’s attractive to others.
- It’s simple. – When faced with a decision between simple and complex, most people are going to choose simple. The 50/20/30 rule is probably the easiest type of budget you’ll find. Just allocate your funds according to the rule and you’re done.
- It builds in fun money. – Who doesn’t want to have money for fun, right? If you’ve never budgeted before, knowing you don’t have to give up everything you want is super attractive. Just stick to the rule and you can use 30% of your money for fun, shopping, or whatever else you want.
- It’s better than nothing. – If you’re not on a budget, the 50/20/30 budget is better than what you’ve got. At least you’ve taken a step toward spending your money with purpose.
- It’s easy. – Did I mention it’s simple? It doesn’t get much easier than breaking your money down 50/20/30.
Why I Hate the 50/20/30 Budget
So, what’s not to like, right? At first glance, the 50/20/30 budget seems like a great financial tool. It’s easy to understand, quick to figure out, and simple to use. But, the 50/20/30 rule has a few problems that I just can’t look past.
It’s Not Specific
Why do most people struggle with their money? It’s because they aren’t intentional with their spending and they’re not specific with their dollars. Instead of planning for their expenses, they take a look at their bank balance and wing it. The 50/20/30 budget is a step in the right direction, but it isn’t much better.
To me, the 50/20/30 budget just isn’t specific enough to make a long-term impact. It’s like getting on a 2,000 calorie diet where all you eat is sugar and potato chips. Sure, you’ve cut down on calories, but are the calories you’re getting coming from healthy sources? The 50/20/30 rule can mask bigger spending problems and make it harder to find holes in your budget because it lacks specificity.
It Allows for Too Much Disposable Income
Allowing for disposable income is important, but 30% is a huge chunk of money. Do you really need that much cash to spend on whatever you want?
Think about it this way: With the 50/20/30 budget, you’re working 1/3 of each work day to earn money you can waste.
When you do the math, 30% can add up to a ton of money. This is especially true if you’re a high earner. Frankly, if you’re spending 30% on things you want, you’ve already found your biggest money problem.
It Makes Savings an Afterthought
My biggest complaint with the 50/20/30 rule is that it allows for more disposable income than savings. Saving 20% for goals and debt payoff is admirable, but not when you’re blowing 30%. I’m always trying to find ways to decrease my expenses and increase my savings rate. The 50/20/30 budget gives you a huge free pass.
If you’re going to use this budget, at least shoot for a 30% savings rate. That way, you’re prioritizing saving above spending. And, depending on your income level, spending 50% on needs can also be pretty high. Find ways to reduce your living expenses and use that money to save even more for things like travel, retirement, and college.
It Doesn’t Work Well for All Income Levels
There’s an earnings sweet spot where the 50/20/30 budget works best. The more you make, the worse it gets.
Let’s assume you take home $125,000. That’s a nice living, and it’s definitely attainable if you have two earners with college degrees. With that said, making six-figures doesn’t mean you have unlimited income, either. According to the 50/20/30 rule, you should be earmarking $62,500 for living expenses every year. That’s freakin’ crazy! In this case, you’d be spending over $5,200 a month in living expenses alone. You should also plan for $37,500 in disposable income for the year, or $3,125 per month. Really?
In my opinion, the 50/20/30 budget leaves too much room for error – so much so that it isn’t really a budget at all. Before you consider using this type of budget, you should make sure the 50/20/30 percentages make sense with your long-term goals. If you’re a high earner or someone who needs help taming unruly spending, this type of budget probably won’t leave you better off.
If you’re going through the hassle of creating a budget, and I highly suggest you do, try a budget that is going to help you be more intentional with your money. That’s the whole point, right? The reason you budget is to create a plan so that you’re being intentional with your money. And if a budget doesn’t help you make intentional spending decisions, what good is it?
What do you think of the 50/20/30 rule? Let me know in the comments below!