Rethinking the 50/30/20 Rule for a Better Budget

If you go online for ideas on how to make a balanced budget, the 50/30/20 rule emerges as one of the first and most popular techniques.

The 50/30/20 rule gained fame over the past decade or so because it divides your spending into three neat categories. It offers a straightforward way to break down your income that ensures you spend your money on things of value.

But a lot can happen in 10 years — the past 10 years especially! The budgeting rule that worked in 2005 has started to show its age in the face of today’s dynamic economic landscape. Things like inflation and wage stagnation throw into question the one-size-fits-all nature of the 50/30/20 budget.

Breaking Down the 50/30/20 Breakdown


The 50/30/20 budget, popularized by US Senator Elizabeth Warren in 2005, streamlines your spending into three major priorities. Here they are below:

1. Needs

Your needs encompass all the non-negotiable spending you must make in a month. This list of spending varies from person to person, but it usually includes housing costs, groceries, insurance payments, and the minimum payments on personal loans, lines of credit, and car loans.

Under the 50/30/20 rule, your needs take half of your net pay.

2. Wants

Your wants get 30 percent of your take-home pay, giving you funds to cover discretionary spending. These items and services may not be necessary, but they bring joy and fulfilment to your life.

3. Savings

The remaining 20 percent of your savings is earmarked for savings and debt payments that go above the minimums. This 20 percent needs to get a lot of mileage, so you need to make every dollar count.

The Importance of Saving

If you would like more money for your wants, stealing money from your savings may be tempting. Knowing the role your savings play might change your mind.

Your savings provide a safety net to your needs because you might not accurately predict your essential expenses, even with a budget. Sometimes, an unexpected prescription or auto repair can push your essential spending beyond its usual 50 percent. An emergency fund flush with cash helps you cover these unforeseen expenses right away.

The reality is that not everyone has the luxury of savings. Building sizable savings can be challenging in a world where 64 percent of Americans and 51 percent of Canadians live paycheck to paycheck. That’s where personal loans and lines of credit come into play.

Finding out how to qualify for these financial safety nets takes no time at all. Just hop online and visit a few lenders. You can check in with each lender’s requirements page to make sure you have all the necessary information ready to apply. If approved, you can use a line of credit to fill in for savings until you rebuild your emergency fund.

Inflation’s Impact on the Rules

Inflation, currently surpassing the usual 2 percent, is causing prices on everyday items to escalate rapidly. From groceries to housing, the cost of living is making it difficult to follow the 50/30/20 budget.

While the 50/30/20 budget has been a reliable guide for many, its inflexibility poses challenges for those facing unique financial situations.

Your essentials may take up the lion’s share of your income, so a rigid 50 percent might not be realistic for everyone.

Alternative Budgeting Breakdowns:


By recognizing the limitations of the 50/30/20 rule, you don’t have to give up on the idea of a three-category breakdown altogether. Updates to this older rule have gained popularity over the years.

As you can see below, they don’t stray too far from the original rubric. They tweak the percentages to allow for more flexibility.

The 60 Percent Solution:

This variation provides a bit more flexibility for essential expenses while maintaining a reasonable balance between wants and savings.

  • Needs: 60%
  • Wants: 25%
  • Savings: 15%

The 70/10/20 Budget:

This breakdown allows for a more significant focus on covering essential costs, leaving room for both discretionary spending and savings.

  • Needs: 70%
  • Wants: 10%
  • Savings: 20%

The 75/15/10 Budget:

This rule sets aside three-quarters of your income for the essentials, while still allowing for discretionary spending and savings.

  • Needs: 75%
  • Wants: 15%
  • Savings: 10%

The 80/20 Budget:


This ultra-flexible approach splits your spending into two categories: savings and everything else. It takes a lot of discipline; you have to figure out how much discretionary spending you can fit into this 80% while still covering your essentials.

  • Savings: 20%
  • The Rest: 80%

What About Other Budgeting Methods?

Does the percentage breakdown cause anxiety? Don’t worry — it’s not for everyone, even if you tweak the exact percentages. Luckily, you have other budgeting methods to choose from. The ones below don’t rely on percentages at all.

Here’s a quick rundown of alternative budgeting methods. If you like the overview of one of the methods below, perform an Internet search to learn how to adopt it for your budget.

The Envelope Method

  • This old-school method gaining popularity on TikTok requires cash to stuff in envelopes, with each envelope representing an expense.
  • Once an envelope is empty, you can’t spend any more money on that envelope’s category until the next month.
  • This method encourages mindful spending and prevents overspending in discretionary categories.

Zero-Based Budgeting

  • Each dollar you earn plays a specific role in your finances, so your income minus expenses always comes to zero at the end of the month.
  • This method doesn’t give you clearance to splurge all your money to get to zero — most of the jobs your money does are practical, like paying bills, going into a savings, or creating a $1,000 buffer in your chequing account to avoid overdrafts.
  • This option is best if you want to track every dollar and prioritize certain spending categories.

The Pay-Your-First Budget

  • Your priority is to make saving money your first “expense” or transaction you make in a month.
  • Transferring your savings first builds a consistent saving habit, so you’re less likely to forget to move money into your emergency fund.
  • This option can be adapted to various income levels by adjusting how much you save each month.

The Key Takeaways

While the 50/30/20 budget has served as a reliable guide for many, it might not work for you. Personal finances are dynamic, and economic conditions can change. In the face of rising inflation and unique financial challenges, you might have to search for options better suited to your unique lifestyle.

The key is to strike a balance that works for you, whether it’s through alternative breakdowns like the 60 Percent Solution or the Pay-Your-First Budget. Remember, the goal of budgeting is not only to navigate current financial challenges but to also build a sustainable and adaptable financial foundation for the future.