I Tried the 50/30/20 Budget for 30 Days — Here’s What Actually Worked
It seems that every passing week brings a new money philosophy, spending program or savings theory that promises to stabilize your finances. Do they actually work, though?
That’s the question regarding the 50/30/20 rule. This is a budgeting framework that splits your income (after taxes) into three divisions: 50% for essentials and needs, 30% for wants and 20% for savings (as well as paying down debts above their minimum requirements). The rule is designed as a simple and easy way to organize and adhere to a sustainable budget.
To test its efficacy, Cody Schuiteboer, president and CEO at Best Interest Financial, recently went through a 30-day 50/30/20 exercise to test the budgeting advice he gives his mortgage clients before they apply for financing.
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What Works: New Focus
Schuiteboer found that the rule helped him define his financial needs and wants.
“One of the things that struck me most in my first 30 days of 50/30/20 budgeting was not so much that there were areas where I needed to spend less," he said, "it was that many of the items I listed under needs turned out to be unnecessary expenses that I didn't even notice anymore.”
The rule's strength lies in the clarity that it brings to budgeting, in his experience.
“The 50/30/20 rule forces you to put every single [expenditure] into the spotlight and consider whether it should be classified as a need or a mistake you made through inattention.”
In sitting down to organize all of his expenses, Schuiteboer discovered several subscription services he no longer used or needed that totaled $310 monthly.
“By the end of the 30th day, my 50/30/20 budget helped me see one thing very clearly: It shows me where every dollar goes,” he said. “It helped me spend less, but even more importantly, the act of documenting my spending helped me do so automatically, without relying on discipline or deprivation.”
Indeed, Schuiteboer found the process so helpful that he has each of his clients undergo a 30-day 50/30/20 audit in preparation for applying for a mortgage.
Emily Collins, family finance advocate for Money for the Mamas, has used the 50/30/20 rule extensively. She found it especially helpful in allowing herself an occasional splurge without worrying it would break the bank.
“The 50/30/20 framework gave me permission,” Collins told MoneyLion. “When I had a number attached to ‘wants,’ I stopped guilt-spiraling every time I bought something that wasn’t strictly necessary.”
What Doesn’t Work: Dependents
That said, no budgeting principle is a 100% perfect fit for everyone and even something as simple and user-friendly as the 50/30/20 can come with a few catches.
“The 50% ‘needs’ category is where this budget gets complicated fast for families,” Collins said. “Childcare alone can eat 20%-30% of take-home pay in many markets. Add a mortgage, insurance and groceries for a family of six, you are now living in a 65%-70% needs reality before you’ve bought a single 'want.' The math doesn’t work the same way for households with kids as it does for a single person or a couple without children.”
Collins also suggested that 30% for wants year-round may be too generous in the summer months, while too stringent during the holidays, noting that such expenses “don’t land evenly across the year.”
The Bottom Line
Ultimately, the 50/30/20 will likely be found as perfect for some and less-so for others — especially those with an extremely high outlay for needs and necessities.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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