Why I Hate the 50/20/30 Budget

50-20-30 Budget Rule - picture of checkbook calculator and cash

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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?

Final Thoughts

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!

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  1. This budget idea is also nuts for low income earners. Who can afford that much “blow money”? Zero sum budgeting works for every income level.

  2. I completely agree-I don’t think it really saves as much time as people think it does. My transactions all pull into my zero-based budget in YNAB and are automatically characterized based on the past. So, I always have a good idea about how much I have left to spend without hardly any work.
    With a 50/20/30 budget, it seems like you would need to be constantly checking your bank account and tallying up your future expenses (groceries, etc) to make sure it’s all going to work out by the end of the month. I think you’re right about the risk of overspending using this method. At the least, I would hope that savings would be automated for this method so that the 20% is pulled out before everything else. Overall, I think it’s more mental stress and not less time than a zero-based budget.

  3. I agree with you. I feel like people should put savings first, and then fixed expenses, followed by flexible spending. I guess this would be an okay budget when you first start budgeting, but there are better budgets out there. Thanks for sharing!

  4. I think the 50/30/20 is kind of a fail safe plan. Not a great plan but a “worst case, if you can’t pull off anything harder, at least you won’t end up broke” plan. It helps make sure you living expenses don’t eat up 80% of your income and you are saving something. It falls into the something-is-better-than-nothing boat, but I agree it’s not ideal.

  5. I tend to prefer zero-sum budgeting myself. I used to like the 50/20/30, but it didn’t work for me personally. My housing costs were always pretty low, so that made me feel like I had extra “fun” money each month instead of extra money to save.

  6. It also doesn’t work if your DTI is high. For example, we spend (primarily because of student loans) that our “needs” are above the 50% so it squeezes out certain things.

    1. That makes sense, too! Yep, I’ve been there. When we were lower income and had debt, we easily paid more than 50% in “bills” (although some of our bills were debt and not real necessities).

  7. I’ll be the contrarian…sort of. We like 50/20/30 in that it doesn’t have to be 50/20/30. You can make it 30/50/20, maybe 70/20/10 if low-income high cost-of-living area, etc. It can be flexible. And the needs are essentials – basically expenses you would want emergency savings to cover if need be. Wants are everything else including better food and non-generic groceries, gas for the car vs bus ticket or using the bike, etc. So, it is something for the non paycheck-to-paycheck crowd that hates to budget.

    1. Hey, it probably works for some people! I’m just not sure it’s specific enough to truly help people who struggle to manage their spending.

  8. If you read the book, it is max 50, max 30, min 20. And the 50 is fixed expenses you can’t shed easily while the 30 is variable expenses you could cut in an emergency. She’s very specific that this is a budget to keep a family solvent in the event of a job loss.

    1. I get it that the 50/30/20 percentages are just guidelines, but I still think it’s too vague to really help someone. I also think the percentages are not realistic for high earners or low earners. But I DID NOT read the book. I’m only referring to the many, many articles on the web about the 50/30/20 budget from Forbes, Mint, etc. Each offers a very vague description of how this budget works. I don’t think they are helpful.

      1. Yes, there is literally a whole book with a lot of specifics including the research she did to come up with those guidelines. It’s by Elizabeth Warren and her daughter. And they are realistic guidelines for high earners (keeping in mind that nobody is forcing them to spend 50% on fixed expenses or 30% on variable, just that they need to save at least 20%). Low earners who can’t get to thise guidelines are in a world of pain if they lose half their income, which is somewhat common for low earning families. They are not realistic guidelines for people who want to retire early as early retirees need to save a much larger percentage of their income.

        JD Roth had some good articles on the 50-30-20 budget on his old GRS website. You can’t blame freelancers for writing vague articles summarizing general budget ideas. They’re not usually paid enough to do more.

        1. I’m not blaming freelancers for writing vague articles. I’m simply saying that I don’t think it’s the most optimal budget out there. I don’t need your permission to feel that breaking your expenses up this way may not be the best way to save more and get ahead. If the 50/30/20 budget works for some people, then great. But I’m not just not a fan.

  9. I could see this budget guideline help in very specific situations and income levels, but even then it seems to amorphous to me. I think many struggle to define needs vs. wants (that would come from discretionary income). If this was clear to people, budgeting wouldn’t be such an issue. So allotting 30% for discretionary could get really out of hand, as you illustrated. I understand the need to budget for some fun money, but if you’re in a terrible financial situation, why would you spend more on wants than on savings/debt payoff? And if you’re well off, there’s no need to blow 30% of your income.

  10. Interesting points, Holly. Personally I’ve always looked at the 50/30/20 rule as a good guideline for those just getting their feet wet in budgeting. However, as you point out, there is a lot more than can be done once they (hopefully) get the basics in order.

  11. I only recently heard about this budget. I agree 20% is not enough to make any real movement with paying down debt.

  12. Stephen Valder says:

    I am sure there are many interpretations of the rule. Have you read Elizabeth Warren’s book about it? It has been a couple years but as I recall her take was that most people struggle not because of too many Starbucks, but because they overcommit on necesito. (Rent, cars etc…) For those limiting your purchases to the 50% limit is a vast improvement.
    The other area she seemed to define differently was the 30%. Yes it was desretionary, but included things like cable, internet, data, groceries over the USDA minimal guidelines (like $50 as adult a week), alcohol, gas not used for work, clothes, subscriptions, gyms, … Pretty much anything that if you did not have, you would not die. That is a far cry from blowing away money.
    I see it as a good place to start. . For myself I saved 50% and retired at 53. So I know one can do more, but if my kids avoid spending too much on a home or car, and save 20% that is a good start

    1. I definitely see how that could make sense for some people. But, here’s my point: It’s not really a budget.

      But I can definitely see where limiting your “necessary” spending to 50% could be huge for some people – especially those on low incomes. I remember in my early 20’s when I had a $500 car payment and barely earned anything. It was nuts, so I could have benefited from that advice. I just don’t think it goes far enough.

  13. I love the 50/20/30 concept and try to imprint it on any young person I can. The 50% for needs is a very important maximum. If your rent/mortgage, transportation, utilities, phone, and basic food is at the limit, you shouldn’t be considering any new long term obligations, like a new car, gym membership contract, etc. If you are just getting started with a budget it is important to get this category of expenses under 50%, otherwise it is going to be difficult to save regardless of the detail in your budget categories or diligence in recording . I agree the 20% savings/debt payoff figure is low for high income earners, but it should be the minimum for lower middle class or higher incomes. The discretionary income does not have to be spent every month, it can be accumulated for travel, or other larger wants. And it’s not just ‘blow’ money. For us, this includes kid’s activities, pets, church, charity, and less enjoyable things like deferable home maintenance. It also helps with the occasional emergency room visit, like I had last week along with a “BTW Dad, my $325 AP test fees are due tomorrow”. I’m so glad I heard of the 50/20/30 budget.

  14. Long time reader, but first time comment-er! Just wanted to say that I love your blog, and really all personal finance blogs, because the writers bring different opinions and perspectives to light that are often so different than my own. I would love to share how the 50/20/30 budget completely revitalized my husband and I’s budget two years ago and helped us pay back $100,000 in student loan debt.

    I didn’t read Elizabeth Warren’s book, but I did read Alexa von Tobel’s on this type of budget, and learning that I could categorize things into essentials, savings, and non-essentials/lifestyle totally transformed the way I looked at our money. When I wrote down all of our spending by category I was shocked to find we were only spending about 25% of our take home pay on essentials, and it was eye-opening to see where the other 75% was going! I had previously created a 10-year plan to pay off our student loan debt, based on the amount of money I “thought” we could throw at the debt each month — after breaking our expenses down by category, the 10-year plan became a 3-year plan because we found that we could actually throw around 60% of our take home pay at the loans each month instead by eliminating or reducing expenses that were detracting us from our goal to pay off the loans. I know we didn’t use the budget as it’s advertised, but since I found this article through Rockstar Finance, I wanted to share an alternative perspective on how the 50/30/20 can be used as a tool to strongly evaluate your spending and adjust your percentages based on your personal goals — our goal was to pay off the student loans as quickly as possible, and this budget exposed our high spending areas, so we could increase our percentage to pay off the debt.

    We actually did pay off those loans in 3 years, and have been student-loan-free for 3 months now, which means I’ve adjusted our percentages again to accommodate our new goal: expanding our family!

  15. My beef with the 50/30/20 is which category do your minimum student loan or other debt payments fall into? Are they considered just the 20% debt, or part of the 50 % and any extra payments in the 20%? I definitely see a mortgage in that category. For a point of reference, my student loan payment = mortgage payment (thanks Med school) and takes up the 20% take home easily without “extra” for retirement savings or loan early payoffs.

    Yes, I’ve refinanced.

    1. Minimum payments belong in the 50%. The point of the budget is to make sure you are leaving room in your spending to allow a savings (retirement or extra dept payoff) rate of at least 20%. If that is not possible, then take a hard look at what you are considering ‘needs’; to reduce or eliminate them, not recategorize them. And if it is still truly impossible because of past decisions, then keep the rule in the front of your mind when making future decisions.

  16. Mr. Zero @ The Divide by Zero says:

    Completely agree. 50/20/30 is ridiculous advice. I understand the desire for advice givers to make some simple, catchy, magic formula but I believe it is a disservice to those that they are trying to help. It reminds me of the thousands of ridiculous diet programs that so called weight loss experts create and SELL to people desperate to lose weight. The science of managing your weight is not complicated. Eat fewer calories than you burn through daily activities and exercise and you will lose weight. That doesn’t mean it is easy to lose weight because it requires a change in behavior and perhaps overcoming some inherent disadvantages individuals may have, but the basic rules that govern whether you gain or lose weight are quite simple.

    I think a much better formula for money management is:
    1. Track your expenses and your net worth. Know where your money goes and know where you stand financially. [weigh yourself]
    2. Educate yourself on the basics of money, debt, investing and retirement. [know how many calories are in what you eat]
    3. Set goals and track your progress against them. [set your target weight]
    4. Make a budget based on your goals and your frugality tolerance. [decide how fast you want to achieve your target weight]
    5. Repeat

    There you have it. Mr. Zero’s magic wealth building [and weight loss] formula. TESMR. Catchy, amiright?

    Obviously I am being silly, but I think it is really counterproductive to give beginners the idea that there is a one sized formula for achieving “financial success.” They end up spending their time trying to figure out how their spending fits into the allotted categories in the formula rather than focusing on educating themselves and optimizing their behavior based on their goals. If you told me I had to eat grapefruit and kale for the next 3 months to lose weight, I would never start. If you tell me it’s up to me to decide how to spend the 2000 calories per day I am allotted, I am set for life.

  17. Really fascinating post. I guess I mostly disagree with it. First of all Warren and Tyagi’s All Your Worth is the most underrated personal finance book. I have found the insights from the book invaluable. That being said, I never quite used the 50/20/30 formula. I used something that you might find even more objectionable called the the 60% solution by Richard Jenkins. That formula is 60% is declared needs %10 Retirement 10% Long term savings 10% Short term savings and 10% Fun spending – so the formula here is 60/30/10 with 30% being savings. I used this method to get going and it has been great and not very stressful. It creates a framework that you can set up with automatic deductions. I gradually amped up my savings over time, so the savings rate is now closer to 50% (it helps once the mortgage is paid off). For me the constant itemizing would be exhausting and I would lose interest and give up. This has been both effortless and intentional! By the way here is the link to the 60% Solution (I think I originally found it on Yahoo Finance, but that link is long gone): http://web.utah.edu/basford/personalfinance/handouts/budgeting/The60Solution.htm

  18. The 50/20/30 rule for budgeting is too vague. With additional guidelines or rules it could be an ok rule of thumb but there’s waaaay better options for budgeting out there.

  19. I despise the 50/20/30 rule. This inane one size fits all guideline doesn’t allow for individual situations. For example, let’s take two families with the exact same take home pay of $80,000. Family A has $30,000 in student loan debt, $15,000 in credit card debt, $7,000 in medical debt and two kids in daycare. Family B has no debt and Grandma keeps their one child during the day. Are you really telling me they need to allocate their budget in the exact same way?! I immediately discredit any financial blogger or “expert” who thinks this rule is good advice. Thanks for sharing your perspective, too!

  20. Seriously agree. This may be good for someone looking for a quick fix budget, but you’re right. There’s too much disposable income and not enough savings.

  21. Fo me, not just 50/20/30 rule. We have to make it part-by-part. Let say for 20 percent, inside that contains all your investments plans and the same with the 50 and 30 percent budget. We’ll just make it simple but in reality, there should be plenty of percentages to be cut from your monthly income.

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