Is the 50-20-30 Budget a Good Rule of Thumb?


How can the numbers 50, 20, and 30 help you manage your finances? Today, we’re going to talk about the 50-20-30 rule of budgeting. A company called LearnVest popularized this rule of budgeting recently, but it’s been around long before them. I’ve seen many financial experts write about it, as well.

The bottom line is that the 50-20-30 budget has some advantages as a starting point, but, like most financial rules of thumb, it can also lead you astray. So today, we’re going to walk through this form of budgeting and talk about its pros and cons.

What is the 50-20-30 budget?

The 50-20-30 budget divides your money for spending and savings into three buckets. (It’s all based on after-tax dollars.)

The first 50% of your budget goes towards necessities, including shelter, food, utilities, transportation, clothing – the things you need to get by day to day. This rule of thumb says that those expenses should comprise no more than 50% of your take-home pay. So that’s the first financial “bucket.

The next 20% of your budget goes to long-term savings and extra payments on any debt you may have. For example, this bucket would include contributions to your 401(k) or IRA.

Also, if you have a car loan, for instance, paying the minimum payment would probably be considered a necessity because you need a car to get from point A to point B. But if you make extra payments on that car loan debt, that goes into the 20% bucket.

Basically, the 20% bucket is for your financial priorities – your long-term savings and some debt repayment. This bucket does not include short-term savings, like a vacation. That’s for the third bucket.

The 30% bucket is for your lifestyle choices. This includes things like vacations, entertainment, gym fees, hobbies, pets, eating out, cell-phone plans and cable packages. These are things you do not have to have to get by, but are lifestyle choices. So the remaining 30% of your take-home pay goes into this bucket.

To sum it up, with this budgeting rule, you put 50% of your money to necessities, 20% to long-term savings and debt payments, and 30% to lifestyle choices and non-necessities.

A personal shift in thinking

I do want to give you my thoughts, specifically, on the 50-20-30 plan for budgeting. But first, I want to talk about a shift in my own thinking on money that’s occurred in the past five or six years.

Before I started blogging about personal finance in 2007, I thought about money like most people do. I went to college, got a job, and started spending. We saved some, but our savings was typically in the 5-15% range. We’d contribute to our 401(k) and a little bit beyond that, but nothing more.

My attitude was that my job was going to finance our living expenses until we retired at age 65. It was all about the job. I’d go to work for 40 to 50 hours a week, earn income, save a little, and spend the rest.

With that mindset, I did what a lot of people do. I bought a new car, the expansive cable TV package, and the big TV. We bought a big house, and then a bigger one. We took expensive family vacations. We did things that most middle-class Americans do. In that sense, we were very normal.

But that all started to change when I started this blog and began to write extensively about personal finance. The change wasn’t immediate, of course. But as I wrote and blogged about personal finance, I started to save a little more money, pay off more debt, and watch my retirement nest egg grow. Then, I suddenly had this “aha” moment.

I looked at the money we were saving. It was starting to add up and become more significant. It takes some time because you need to benefit from the power of compounding. But after a while, I started thinking about how much my money was working for me. It was almost like sending out employees who were working for me. That money was starting to grow into something significant.

And then I started to see how that money could fund a fair amount of our expenses, particularly if we became more frugal with our lifestyle. And then I began to realize that the most important thing to me was not a bigger house, expensive vacations, 200 cable channels, or a new car. The most important thing was my freedom.

Don’t get me wrong. I didn’t want to quit and not work at all. But I wanted the freedom to work when I wanted to work, where I wanted to work, doing what I wanted to do. I didn’t want to be chained to a desk five days a week.

I realized that I could get there by giving up things that had once seemed important to me. I could trade in the bigger house, new cars, cable packages, and expensive vacations for freedom. I could trade those things for a lifestyle where I spend less money and save more, which would let me have this lifestyle where I have the ability to work where and how I want.

When you’re just starting out, this seems like an impossibility. When I graduated from college, we had no money and a lot of debt. I had about $55,000 in student loans, so we had a negative net worth. So if I saved $500 or $1,000 or whatever, it might help me when I turned 65. But how was that going to help me now?

The truth is, that at that moment, it wasn’t going to help me much. And I think that’s a big reason why many people don’t save more money or cut back on expenses. They don’t see the advantage in the near term. The benefit is always 20, 30, 40 or more years away.

And eventually, that just shifted for me because I’d been saving for a while. As I learned more about personal finance, I started to look at money in a different light. Now, I don’t see money as a way to buy “stuff.” I look at it, instead, as a way to achieve freedom for myself and my family.

An example of financial freedom

Have you ever noticed that people you think have a lot of money seem cheap? I’ve had plenty of discussions with people about that idea. You know that the person is probably wealthy, but they watch every dime.

In some ways, my stepmother, who passed away a couple of years ago, was that way. She watched every dime. And you know why? She lived off her wealth. By retirement, she had done pretty well for herself. She had a part-time job, but mostly lived off her nest egg of about $1 million.

How much income can that generate in a year? Well, if you use the 4% rule of thumb, $1 million generates $40,000 in income. That’s not a lot of money, so my stepmother had to watch what she spent. But by making her nest egg last, she was able to enjoy freedom.

For instance, she was able to take a part-time job she loved. She was a pilot for years, and her part-time job was with a company that built things for pilots. It didn’t generate a lot of income, but she could do it because she loved it and had money saved to live on. And then she could do things in her community on the side, as well.

As I get older, that’s what I’m trying to achieve, too. And looking at money this way puts saving into a whole new category.

Changes in thinking lead to changes in doing

Now I’m stunned when I see someone I know is struggling financially pull in with a brand new, 100% financed car. I guess they can afford the payment, but what are they thinking? To me now, people just seem so casual about the money they spend. And I’m not perfect here, either. But I’m trying. For example, I’m reducing the cost of our cell phone plan by moving to prepaid plans with Republic Wireless. I’m also reducing our cable package. And eventually I want to downsize our home. I look at how much this big house costs us to heat and cool and maintain, and we just don’t need the extra space. So we’re working on those things.

The point to my ramblings is so you understand how I look at something like the 50-20-30 budget.

My thoughts on 50-20-30

So what are my thoughts on this approach to budgeting?

I actually think that 20% is a pretty decent savings rate. Sure, some folks could save more. For instance, Mr. Money Mustache, who saved upwards of 70% of his income and retired at age 30. This is kind of extreme, but it’s fun to read his blog and dream a little.

But here’s the thing: saving 20% of your income is hard for a lot of people, given their current spending habits. When you think of the 50-20-30 budget, the first thing to consider is just how much people spend on shelter and cars.

Like a lot of folks, if you’ve bought a home, you may have a large mortgage. And you may also have that $20,000 or $30,000 or $40,000 bank-financed car sitting in the driveway. Depending on your income, those two things alone could easily eat up 50% of your budget.

So if that’s you, then the 50-20-30 budget can actually be a good thing for you. It may help shine some light on these issues and suggest where you may need to make some changes. Fifty percent for necessities may seem like a lot, but a lot of families are spending far more than that. And if that’s you, you may need to look at ways to reduce your essential expenses as much as possible.

Rules of thumb are a starting point

The second thing to consider about this budget is that rules of thumb are fine – as a starting point. It’s okay to compare your current spending to the 50-20-30 budget, but it’s just a starting point. It isn’t one-size-fits-all.

Part of the efficacy of this rule of thumb depends on your income. Are you making $50,000 a year or $500,000 a year, or something in between? Let’s say you make $100,000 and you’re thinking, “I don’t know if I can get by with only 50% of my income going to necessities.” Well, how do you think folks making $60,000 do it? You can get by.

The first thing to recognize is that it’s all about the choices you make. I know that circumstances vary, but by and large, spending is a bigger problem than income for people. We all want to make more. I get that. And some of you may be in difficult circumstances – maybe unemployed or seriously underemployed.

But for most folks in the United States as a whole, our biggest problem isn’t that we don’t make enough money. It’s that we spend too much money. If you’re making anything above average in income, you should try to do better than spending 50% on necessities and only saving 20%.

Necessities vs. lifestyle choices

Saving 20% is a good start, but you should aim for more. This goes against the traditional rule of thumb to save 10-15% of your income. But saving 20% is possible, and it’s a good goal. It all depends on your priorities.

After my “aha” moment in my own personal finances, I wouldn’t be happy any more with a 20% savings rate. I want to save more. Sure, the 50-20-30 budget is a good rule of thumb. But many of us can do better – often without sacrificing all that much.

Part of the problem is that we don’t know the differences between necessities and lifestyle choices. For most of our spending, it’s really a lifestyle choice. For instance, you need a place to live. But the house you choose to live in is a lifestyle choice. Many of us could significantly reduce our monthly expenses by moving into a smaller place. The same is true with the cars we choose to drive and the clothes we choose to wear.

When we look at all of these necessities, we tend to spend more than we truly need. And I speak from experience here. So when you think about necessities in this 50-20-30 budget, be honest. You may find a few things that fit into the necessity bucket, but you’ve gone overboard and turned those things into an expensive lifestyle choice.

Consider using Personal Capital

I’m a big fan of Personal Capital’s free financial dashboard. Connect your checking accounts and credit cards and it automatically tracks all your spending. You can also connect your retirement and other investment accounts, and it will analyze your investments for you and analyze whether you are on track to retire.

To truly manage your money, you need to go beyond these rules of thumb, including the 50-20-30 budget. It’s fine as a starting point, but you need to look at the specifics of how you spend your money and how you can make better choices. It’s been a process for my wife and I, for sure.

The bottom line here is that once you start down the path of living like everyone else does and pursuing the American Dream (as it’s commonly defined), it’s hard to reverse course. It takes time. It doesn’t happen immediately. If you’re just starting out, keep this in mind so you don’t go down this road at all. But if you’ve already started spending more than you should, figure out where you can cut back on your expenses – sometimes with almost no sacrifice – and think about how different choices now can buy you financial freedom later.

Topics: BudgetPodcast

36 Responses to “Is the 50-20-30 Budget a Good Rule of Thumb?”

  1. Jaspreet

    Great topic

    Words that this rule is starting point is very clicking to me

    This is the first month when me and my wife are actually monitoring our spending habits from Day 1 of the month and it has brought us closer too 🙂

    Thank You Sir for ur articles

  2. Kenneth

    This is a fine goal for average Americans. Those caught up in the lifestyle choices fed to us by advertising. Expensive cell phones, cable tv, vacations, entertainment, alcohol, etc. For me, once I started down this road, it became more interesting to see how far I could reduce my expenses and still keep my home and nice cars. My current savings rate is 67 percent of net income. My second home is up for sale, and after it goes, my savings rate goes up to about 80 percent. Good thing, too, because I am retiring in 18 months so I’ll need every penny.

    I do NOT miss my expensive cell phone plan, car payments, cable tv or expensive vacations. You make choices and you learn to live with them. Happily!

  3. I have to say. I almost never comment on blog sites but I like your podcasts and this one struck a nerve. I read the Mr. MoneyMustache site and wish I could have early retirement but there are certain factors that allow for that. One is cutting expenses but there is a certain level of income needed. Anyway, my diatribe has to do with saving and the difficulty of pursuing a high savings rate when personal freedom from an accumulation of assets seems so far off.

    Were doing better than most with a paid off house and by next year would have 6 figures saved in taxable accounts but at age 40 financial freedom won’t happen until my mid-fifties.

    Still it feels good to know we have no debt and a good amount of savings.

    Keep up the Podcasts I like them. This one was nice because it revealed more of your journey.

  4. Emma M

    Firstly, WOW $1 million savings? Then another “$40,000 isn’t a lot to live on!”. I live in the UK and the conversion rate right now means $40,000 is approximately what we have to pay the mortgage, pay debt, pay the bills and raise 4 children on. I don’t just mean wages, I mean the extra support we get here in the UK for being a low income family, all of it adds up to that.

    I have to say that although things are tight, we manage on that, so I am sure a lady on her own can.

    Back to your point of 50-20-30, I think that is a sensible plan, one I would be adhering to if my debt wasn’t the 50 part.

    I must admit that I was more frivolous in my 20s than I am in my 30s and indeed, if I had thought how I thought and acted now, I’d be in a better position today. I am still on the path to having my mortgage paid off by the time I am 42, which I don’t think is too bad in today’s market.

  5. This is an awesome post. I completely agree that the 50-20-30 rule should be a starting point, I also think that the best way to improve this is dropping the cost of your necessities. People need to realize that their 40K car isn’t a necessity. By dropping the cost of your necessities you are able to have a very flexible budget. I would also like to argue that your budget should reflect your goals.

    I have only just completed my first year in the work force with 34K salary. My budget is ~35-50-15. My goal right now is eradicating my student loan and fingers crossed it will be gone by the end of this year. Once that’s gone, I see my 2015 budget moving to 35-27-38 as my goal is to travel and see a bit of the world, build my emergency fund, start saving for retirement and repay a small loan to my parents. Whereas my 2016 budget will be 35-35-30 to continue some travel but also save for medium-long term goals such as getting serious about retirement and start saving for a down payment for a condo or townhouse.

  6. I was just reading the “Financially Fearless” that talks about this rule. This is a really dumb rule. It might be a good way to make people save at least 20%. She could’ve just said 20% rule. The necessities are fixed costs, it should not be a percentage of your income. When your income grows, your cost for essentials should not go up.

    I was saving almost 50% of my income. My wife just started working increasing our income by 80%, and her entire paycheck (minus job related expenses like commute and child care which is like 10% of her income) goes straight to savings.

  7. Bruce Wilbat

    Thoreau said something to effect that freedom was NOT having enough money to do what you wanted, but the discipline to live without material goods.

    I got a start on keeping track of all my expenses on a monthly basis as for the first 3 1/2 years of my career, I traveled 100% and had to do so to submit my expenses. When I came off the road, and first moved into a house, and having no experience with the total of my housing, utilities, insurances, and other monthly living costs would be, and being an accounting professional who knew that expenses should not exceed income, I continued recording my expenses by category each month, and at the end of every month, summarizing my expenses by category to review the plusses and minuses.

    I also kept a year to date budget summary by category (helped much by the coming of Lotus 1-2-3 and then Excel). It gave me great pride and satisfaction at the end of each month to see a) that my overall expenses were less than my income and that I had generated savings, and b) that I had the information to review my expenses, knew why I was overexpended (or under) in any category, but more important, why, i.e. over in Gifts in any month when a significant family member’s birthday occurred, or Christmas (but under in other months), or when a significant auto repair occurred. Of course, not to be overexpended ina any month when annual property taxes or insurance were due, I charged 1/12 of these amounts to each month’s budget also.

    Years later, when I first had my first meetings with insurance company representatives and financial planners, I was very proud and delighted that the first thing they wanted me to do to determine future insurance expense possibilites and investments was to record my actual expenses for a few months. Hah! I had a nice smile when I told them I had been doing that for years – and presented my latest spreadsheets.

    Sorry for the diatribe, but the lesson is that if you really want to save, you really have to know where your money is going, so that YOU can decide which expenses are most important to you, which you can cut back on, i.e. which are MUSTS and which are merely CONVENIENCES. Do you really need those $5.00 lattes you think you “deserve” each day,or woud you llike another $1,000 in savings each year?

    If you see where your monies are going, you’ll know where to get more savings!

  8. Marshell

    I didn’t get very far into this when I read something that didn’t make sense to me. If this is based on after tax money, which most would consider your tax home pay, why is your 401k contribution part of the 20% savings?

  9. Carol Lepp

    Rob, I need a lot of help and would like to get some advice from you/work out my budget with you. Would you be willing to guide me? I am giving you my work email so I will not be available at that address until tomorrow. Please consider helping me. I would really appreciate it.

    Thank you so much,

    • Rob Berger

      Carol, I’d be happy to help you, but I am completely booked with work through June. Feel free to reach out to me in July if you still need some help.

  10. Great item! I’m still a student (Finance) and i’m already planning forward my idea of spending my money in the three categories. My example is at 49% Needs, 18% Wants (includes a second-hand car) and 32% Savings (Emergency fund, Investing and a Buffer for other costs ). I always have been interested in numbers and different prices and I always will be. I’m from the Netherlands where the net income (approx €1.800 net/month for a starter) is lower than in the United States so it was quite hard to tweak the categories to make it as it is now. I’m happy with the result so far even though i’m not working yet.

    So now I know what I can do with a start salary after my studies without the worries of spending too much! More people should do it! Great site btw! Keep it going!

  11. I am one of those ‘cheap’ people – except when it comes to my kids. My parents were ‘cheap’ too. They grew up during the depression and had parents that were out of work. My mom remembers her dad walking 11 miles one way because he heard of a job. But they never considered themselves ‘poor’ because they had the necessities. My dad fixed things that broke – didn’t throw them out & replace them; picked up nails off the street, sanded & straightened them. After WWII there weren’t an abundant supply of materials. Generations since consider more & more things disposable. And we have become impatient – we want it NOW! The 50-20-30 rule is a good start, but many aren’t willing to forego the big SUV now for the freedom you describe or the freedom from worry when they retire.

  12. Hi Rob,

    I work in the public sector, and 10% of my gross income is automatically deducted pretax to my pension plan. Would you consider this 10% deduction already a part of my savings portion? Or should I disregard this, and save an additional 20%? Thanks in advance for your thoughts.

    • Rob Berger

      Pat, while there’s no “right” or “wrong” answer here, I would want to save 20% apart from the pension because you have limited control over the pension (if it operates like most do).

  13. This is impossible. My husband works in the tech industry. There are no family housing options that would fit within this type of budget where we live We can’t move because there are no graduate degree level tech jobs in cheaper areas. Our only debt is student loans, which is a lot, but between student loan payments, our HSA, 401K, and savings, we meet the 20% most months. We spend much less than 30% on extras, though. I’m guessing most Americans spend more than 50% on necessities and less than 30% on extras. Either the cost of housing and healthcare must come down, or the 50% rule is completely unrealistic.

    • “This is impossible. There are no… We can’t… We can’t… Either…or…. ” You have defined your present reality. Perhaps you might take a few deep breaths…relax, and allow facts from the rest of the country to seep in….keeping in mind that the price of labor in a given region generally is fairly commensurate with the price of housing in that area. This is not a surprise ! Having one child in northern CA, one child in southern CA, others close to me in Madison, and living in Mpls, I know that this is so: You choose to live where you live ! MN is full of tech people with graduate degrees, and they live in very fine houses, thank you very much. Breath deeply.

      • Now that I’ve thought about it for a minute…it occurs to me that you are overwhelmed by attempting to do the dreaded TOO MUCH, i.e., everything at once, and so have driven yourself to distraction. (Or as I heard a young man say this morning about needing to pay down his debt, “feeling crazier than a sack of young owls.”) I’m working under the assumption that when younger you bought the Tooth Fairy Myth on Student Loans in Lieu of Work and now you have an exorbitant amount to pay back. That’s only my inference from all the drama. My humble suggestion would be to always keep the HSA funded (for now) ONLY up to that point needed to reach the deductible you are required to pay before your catastrophic care kicks in. Just for now, set aside ONLY a month or two of emergency living expenses. NO other savings. Put anything else you have saved onto the debt right away. As a temporary expediency, sell any vehicles/any other possessions that have payments or leases; use the proceeds to buy a Grampa car from a garage sale so you can get to work. [e.g., 75k miles, been sitting in the sun for 12 years, the rubber hoses and belts need replacing, 12 yrs old. Pay a reputable garage to test the oil to verify the engine condition, and check the tranny and mechanicals, etc.] So now you have a new car for maybe $2,500 with NO payments and no trouble. So you have a place to live, you’re keeping the water and electric paid, you have food, you have transportation, and you have health care. Don’t forget to pay your TERM life insurance, car ins., renter’s/house ins., long term disability.
        In my opinion, you aren’t in a position to fund much of anything else. But I’m only guessing, given the depth and breadth of the drama. No restaurants. You take your lunch to work. No cable. (For less than the price of one MONTH of cable TV, you can get all the news, sports, talk, and music you could possibly imagine, with a full YEAR’s subscription to satellite radio.) You don’t need to pay $100/month for each of those iPhones either. You really can get a $40 throwaway for those purported emergency calls from the car you’re not supposed to be talking in anyway.. And one $30 house phone. Or a $35/ month cell phone. (But…but…but…)
        Right now, were I you, I would not be saving or adding to retirement. FOCUS is the only thing that is going to keep you motivated to get you out of debt, because focus is the only way you’re going to gain significant headway. Personal finance is about 85% personal and about 15% dollars and sense. The personal psychology has to remain calm and stay MOTIVATED in order to keep hold of the sense. You’re not going to stay calm if you’re attempting to accomplish eight things at once. You can’t stay motivated if you don’t see some real progress. Choose one debt goal. PAY IT OFF AS SOON AS YOU CAN by giving up ALL other unnecessary things. Then you will feel in control because YOU WILL BE IN CONTROL. Then choose the next goal and PAY IT OFF AS SOON AS YOU CAN. You are a human being. You cannot do everything at once. Of course you need to pay minimums. But there are many things you do not need to spend money on at all, and there are many things you’ll be better able to pile huge sums of money into later — after your income is freed up because NONE of it is going to debt. Your debt is what’s holding you back. Financially. Psychologically. (And it’s probably even affecting your health.) Get rid of it. Even if you have to move to where the cost of living is less…But you may not need to, if you learn to breath, eliminate the unnecessary waaaaaahhnts, and FOCUS your resources.
        I wish you the very best.

    • I don’t know where these people get these rules. A quick check of any facts-based news source will turn up articles showing that in most areas of the country, the disparity between housing and living costs, and wages, means this rule is a fantasy for all but the wealthier portions of the populace. To the poster who says it’s impossible: You are correct, that in many high-employment areas, housing costs are out of line with salaries. Don’t buy into the snide comments about “you choose where to live”. No, you go where the jobs are and those are rarely cheap areas. Tech folks in Minnesota, I don’t doubt, do okay, but I suspect that Minnesota probably hires more locally than nationally. If they were hiring from outside, the housing costs would go up.

      For right now, I’d breathe. Ignore the people suggesting you cut out things you may not have in the first place, or who have no idea what you need for your life. Most of this advice is made for people who had salaries and housing costs that are now a distant memory, who live lives where they still get calls on the landline (which many Americans have ditched). Cell phones: a necessity, not a luxury – you probably don’t have a landline, I suspect, except for internet, and you use your smart phone to access work email, connect with coworkers via Slack etc., find directions, and get transit routes. I also suspect that unlike the poster, you know that iPhones (or your pick of Android phones) do not cost $100/month each, and that a $30 throwaway phone may not run the apps that you use to connect to coworkers and conduct business on. You may already not have a car, and you live in an area where anything costing $2500 is a fantasy or so old that it’s unlikely to pass emissions, and will then take up about the equivalent of a car payment monthly in repairs. Been there, done that. The well made ones that actually run at 12 years of age will cost! And term life insurance? I suspect that you get your life insurance through your employer.

      Keep the 401 K, keep paying the loans and the HSA. You mention savings so I suspect you’re already putting aside something for the one-month salary. Enjoy the graduate degree and job you have worked so hard to get. Be sensible about your costs, (I suspect you bring lunch already). Don’t cut your life down to fit someone else’s narrow vision of what it ought to be. You’ll come out right in the end.

  14. Hi, I only make about 10k a year, but my car was paid cash an I saved 20% every month, an now I’m saving 54% every month! I think it’s very important to budget an to think of the future! I always economize my money an budget an am frugal! I always look to get discounts on anything usually I get 10% off everything! So that’s just more money that can be saved an invested! I always keep a security balance of 1000 in my checking account an have much more in my savings! But my main concern is my IRA! So I think of ways to put the most I’m able into it a year! You think it’s tough budgeting 50k or 40k, try 10k! Anything is possible if you put your mind to it! I’m also the one family turns to when they need to borrow money even though they make way more than I do! So moral of my story its not how much you make, its how much you keep that counts! Only 168 hours a week, usually 40 is spent working leaves 128 hours, 40 hours sleeping leaves 88 hours to do an get everything else done! But if you use your money an invest it, it grows exponetially! Very powerful stuff interest is! Have a good one!

  15. I’m curious where giving would fit into the 50-20-30 rule?
    I have committed to a 10% giving rate to my local church. Would I remove this amount from my take home pay and use the remaining 90% to split up the 50-20-30? I know I could do this any way I like…just curious if anyone has thought about this. I view giving the same way I view taxes…non-negotiable.

    • Melissa

      Chance, I always include my charitable contributions in the 30 category. It is my choice to give money to charity and I feel that sacrificing meals out, or new clothes makes the donation that much more meaningful.

  16. Kirsten Hanner

    Hello Rob! I am currently only 19 and was wondering if this is a good plan to start with for my age. I’ve never thought of money in a organized state and now that I’m about to go through college I’m just realizing how much we actually spend and don’t really think about it. I’m just wondering if this is a good plan for the young adult group? Anyway, thanks for the post very good read!

  17. I’m actually a grown up and always been spending most of my money. However this year we had laid offs in the company I work for and the position I worked in was cut out and I was offered (which I took) another job on ower level and with quite less pay and my income shrunk. So being in the situation I’m in now, I finally decided to take control of my finances. I like the idea of 50/30/20 rule but I am little bit confused since my necessities are actually adding up to more that 50 %. So does that then mean I have to shrink my budged from the 30 % of lifestyle choices in order to still save 20 %?
    I’m of course hoping to find a higher paying job in the future, I’m only 37 so I still have a career ahead of me but for now I have to face the reality and try to get by with what I earn.
    When it comes to lifestyle choices and necessities, I live in a city and commute to work every day which adds up on my transportation cost. On the other hand, since I see my situation and current earnings temporary situation, I don’t see the point of moving closer to my work place and that way only saving 100-200 because the rents are expensive near my work place also.
    However my long term goal is to buy my own apartment and thus I am finally budgeting my income and expenses.
    So thank you very much for your advise! I think this 50/20/30 rule is ideal starting point for me to clear out my debt, save and keep a track of my expenses although it won’t be exactly 50/20/30.

    • Stephanie Colestock
      Stephanie Colestock

      Hi, Annie, and thanks for your comment!

      I’m glad to hear that you’re taking control of your finances and thinking about these important issues, especially in the midst of a less-than-ideal pay cut. This will be a process for you, but with dedication and enough determination, you can get to the point of saving as much as you want/need to.

      Yes, getting your expenses down to that 50% threshold is ideal. Here’s an article that may help you evaluate your expenses: Look into trimming your necessities– are any of them actually luxury expenses? Can you take public transportation to work instead of paying for parking/gas? Could you find a less expensive apartment to rent?

      Look into cutting expenses such as your cell phone ( and cable ( Use a rewards credit card to earn some extra cash on the money you’re already spending, especially on groceries and gas. Maybe even consider a side hustle, if you have the interest and time. If it’s absolutely impossible to get the necessities below 50% of your income, get them as low as you can and adjust your savings accordingly. Pull from the lifestyle choices as much as possible — you may not have as much play money as you’d like, but you’ll be padding your savings for the more important things.

      Yes, you’re still young at 37, but don’t forget: the most important factor in savings/retirement is compound interest. Putting money into immediate luxuries rather than letting it accrue interest for longer will have big effects on your savings. It would be far more beneficial to trim corners now, let that money grow in an interest-bearing account, and ride out the sacrifices until a better paying job comes around.

      I hope you’ll stick around Dough Roller… we cover this sort of thing all the time and are always publishing articles on how to save a little extra cash or cut your expenses. With due diligence, you’ll be well on your way to 50/20/30 and eventual financial freedom.


  18. Enmanuel

    Thank you Rob,, keep it up. I like all your podcasts so far but this really rocked, got me thinking about what I am doing right now. Thank God I am not in a bad shape, financially speaking but I can do better and I will.

Leave a Reply