Why the 50/30/20 Budget Method is Dead

Amy S.
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The 50/30/20 budget method used to be a great guide to know that you are on track financially. But with rising home costs, healthcare costs, and student loan payments, it's no longer the helpful budgeting tool it used to be.

My team does not use the 50 30 20 budget method.

We've never used it. It was something that I tried to use early on when I was coaching and quickly realized that it does not work anymore. So for those of you who don't know, the 50 30 20 budget method says that you put 50 percent of your income towards needs, 30 percent towards wants, and 20 percent towards savings.

This method of budgeting was made popular by Senator Elizabeth Warren and her daughter. In the book, they wrote together All Your Worth, which came out in 2006. Please note that in 2006, I was 19. I am now 35. 2006 was not 10 years ago. It was closer to 20 years ago. And here's what's happened since then.

Wages have increased, yes, but mostly with inflation. Sometimes. And if we adjust for inflation, our purchasing power, or what our salaries can afford, has stayed relatively the same. So the increase in wages has not meant that we can increase what we can afford. In the meantime, the cost of living increased by more than inflation, and in really critical areas.

So here's a few kind of disturbing examples of what has impacted budgeting 👇

👀 After accounting for inflation, home prices in the last 50 years have jumped 118%, while income has only increased by 15 percent in that same time frame.

🤦🏽 Hospital services are 225 percent more expensive than they were 20 years ago.

😱 And a 2020 study by the Congressional Budget Office shows that between 1995 and 2017, the balance of outstanding federal student loan debt increased more than sevenfold.

The sooner you can start budgeting realistically, the better.

Now, I remember a college in 2019 asked me to come in and present the 50 30 20 budget method to their students. They had received a lot of questions about it. They had read the book. And they wanted me to come show them what this looks like.

So I started putting together some examples, and quickly realized that as soon as I added in potential student loan payments to all of the examples, there was nothing left for savings. And so the conversation that I ended up having with these students, which was maybe not what they asked for, but what I felt very strongly that they needed, was about looking at the details of your first salary.

And how that's actually going to break down after taxes, after savings, to see what you can actually afford. Because while we used to say, just put 20 percent of your salary into savings, and that'll be enough to have 50 percent towards your needs and 30 percent towards your wants, that's not the case anymore.

We can't split it up in that way, because our needs are more like 70 percent of our income. Here's an amazing site that shows this visually: http://fiftythirtytwenty.com/

So here's how we actually help you budget.

We're not worried about you sticking to the same standard as somebody else: Instead, we look at where your money is currently going, and help you make small changes to get to the point where you are putting as much money as possible towards your goals.

This helps take off the shame and approach budgeting with empowerment. We actually don't even call it budgeting. We call it intentional spending.

In your Intentional Spending Plan, we put every dollar of income towards expenses and goals that matters to you. We decide where your money should go in terms of your values, in terms of what you want your life (now and in the future) to look like, and in terms of meeting your financial goals.

We acknowledge the emotions associated with your spending to give us clues into what changes you might want to make, to re-route money from a guilt or embarrassing spend into a spend that feels amazing.

So if sticking to a percent of needs and wants and savings feels good to you, great, we can work with that. But if it doesn't, just know that it's not because there is something wrong with how you're spending money. It's because the world has changed since the 50/30/20 budget method was created, and we have to take that into consideration.

Looking for a safe space to budget and spend with intention? 

We've got a team of coaches and a powerful community ready to support you. 👇

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