You’re budgeting wrong now — why the 50/30/20 method no longer works and how much you should save instead (2024)
This financial plan may no longer make cents.
Sen. Elizabeth Warren’s 50/30/20 method was once touted as a gold standard for budgeting, fortifying followers for a strong financial future while still allowing them to enjoy their day-to-day lives.
Under the system — popularized by the Massachusetts Democrat and her daughter, Amelia Warren Tyagi, in their 2006 book “All Your Worth: The Ultimate Lifetime Money Plan” — workers ideally spend 50% of their after-tax income on needs and 30% on wants while putting the remaining 20% into stocks, savings or a retirement fund.
But amid ongoing inflation, the 50/30/20 method no longer feels feasible for families who say they’re struggling to make ends meet.
Financial experts agree — and some say it may be time to adjust the percentages accordingly, to 60/30/10.
“If you’re taking someone that’s just starting or living paycheck-to-paycheck, it can be unrealistic or overly drastic, especially as they’re beginning to really get a handle on their finances,” Brian Walsh, head of advice and planning at digital bank SoFi, told Time last week.
With housing costs mushrooming in recent years, some say they’re spending more than half of their after-tax income on rent or mortgage payments alone.
Then, there are the ballooning costs of other essentials, such as food, gas and utilities.
Being flexible with your finances in the face of such exorbitant expenses is okay, experts assert, as long as you’re still savvy with savings methods.
“It’s important to have rules of thumb and structures that can help guide us and get things organized, but there aren’t any rules that are written in stone, and that’s important to know,” Kevin L. Matthews II, founder of the financial education firm BuildingBread, declared to Time. “[But] it’s important to be flexible.”
“If you’re a young adult, 60/30/10 is just fine,” Michael Finke, professor of wealth management at the American College of Financial Services, chimed in. “Then you can gradually, as you reach middle age, increase that savings rate.”
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While cutting the savings portion from 20% to 10% might feel drastic, Finke says in particularly tight circ*mstances it’s even okay to put away as little as 6% of your income if you have an employer who will match your 401(k).
“Make sure you get every single cent of the employer match,” he implores. “It’s a 100% return on your investment.”
The Londoner has stopped spending $200 a month on clothes and has also opted not to buy daily coffees and lunch while working in the office. The latter tactic saves her $300 a month.
Finally, the spendthrift cut out fancy dinners with friends, choosing to make meals at home, something she says she actually enjoys.
“It is about getting to the root of what’s important,” Milan claimed to SWNS. “Stripping everything away and starting from zero helps you realize what you miss and what you don’t.”
The 60/30/10 budgeting method says you should put 60% of your monthly income toward your needs, 30% towards your wants and 10% towards your savings. It's trending as an alternative to the longer-standing 50/30/20 method.
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.
Depending on your income and where you live, earmarking 50% of your income for your needs may not be enough. For example, if you live in a high-cost area, you may have to put a large part of your income toward housing, making it difficult to keep your needs under 50%.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
The 20% rule is a good general guide, but it isn't the right fit for everyone. Some people can save above that rate, while others merely struggle to make ends meet. “Some people pay their rent and they have nothing left.
Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.
The 60/30/10 budgeting method says you should put 60% of your monthly income toward your needs, 30% towards your wants and 10% towards your savings. It's trending as an alternative to the longer-standing 50/30/20 method.
While the world of personal finance provides a percentage guideline for how much of your money should go toward housing, this rule is a little outdated in 2024. Rent prices are down from their peak in August of 2022, but they're still dramatically higher than before the pandemic.
Ready to talk to an expert? Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.
Housing is likely your biggest expense, so downsize or relocate somewhere with a lower cost of living. Opt for a small space or rental apartment rather than homeownership. Shoot for $700 or less in rent/mortgage. Utilities should run you no more than $200 in a small space if you conserve energy.
A 50 30 20 budget divides your monthly income after tax into three clear areas.50% of your income is used for needs.30% is spent on any wants.20% goes towards your savings.
The 50/30/20 rule is a budgeting strategy that divides your after-tax income into buckets to pay for needs, wants, and savings and debt payoff. It's a flexible budgeting option that doesn't require too much maintenance. But it also may be hard to implement if necessities take up a large portion of your income.
Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
“Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.” Just look at the story of former custodian Ronald Read for a perfect example.
The 50/30/20 rule was made popular by the 2006 book All Your Worth: The Ultimate Lifetime Money Plan. It is often referenced by David Ramsey. This popular budgeting technique suggests you put 50% of your income towards your needs, (necessary expenses) 30% towards your wants, and the remaining 20% towards your savings.
To start, averages, by definition, do not take into account the huge variations in what individuals do. Second, the financial obligations of today are vastly different than they were when the 30% rule was created.
Many departments may not have adequate human resources and time for the same. Time-Consuming: This Zero-based budgeting approach is highly time-intensive for a company to do annually as against the incremental budgeting approach, which is a far easier method.
Try a simple budgeting plan. We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, including debt minimum payments. No more than 30% goes to wants, and at least 20% goes to savings and additional debt payments beyond minimums.
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