Breaking that down with the 50/30/20 rule, you’d have $2,509 to spend on needs.$5,017 is roughly a household’s monthly take-home pay (after taxes, Social Security and Medicare come out).$74,580 is the median household annual income.Average needs are more than 50% of the average income. Here’s the real kicker: If you plug in national averages for income and expenses, the 50/30/20 rule doesn’t work. It literally doesn’t work for the average American. That’ll mean adjusting how much you spend on wants at different stages of life. It should reflect where you are right now and where you want to be with your money-not be forced into some blanket percentage category. Do the hard work now so you can spend your money exactly how you want later.īudgets aren’t one-size-fits-all. One day, if you follow the 7 Baby Steps I just mentioned, you end up being so financially secure that you can live and give like no one else.ĭon’t box yourself into these three numbers forever. You might have to make sacrifices in your budget right now, and that’s okay. The 50/30/20 rule just doesn’t do that!įocusing on your wants keeps you from ever getting ahead with your money. It should adapt to your stage of life and to your money goals. Your budget should live and breathe with you. And that’s what I want for you-to make progress with your finances! Guess what happens when you use your budget to take those steps one at a time instead of struggling to do it all at once, all the time? You. You’ll be able to really focus as you save for emergencies, pay off debt, and build your retirement savings. Instead, line up your big money goals (using the 7 Baby Steps to guide you) and knock them down one by one. You shouldn’t try to hit so many major money goals at once! When you’ve got debt, you should cut down on extras so you can pay off the debt and get your income back in your control.Īlso, the 50/30/20 rule has you plugging along slowly on the same goals all the time. Here’s the deal: You shouldn’t spend 30% of your money on wants if you’re in debt, because debt robs this month’s income to pay for last month (or last year, even). Whether you have a mountain of student loan debt or you’re debt-free and investing in retirement, you’re stuck with 50/30/20. Those three budget percentages stay the same no matter where you are in life. So I do appreciate that the 50/30/20 rule values building that up. Our State of Personal Finance study shows 34% of Americans have no savings at all. When you make your first budget, using an outline or guidelines can help you feel less overwhelmed. On the upside, if you’re using the this rule to budget, well, you’re budgeting! You’re making a plan for your money, and that is so important.Īlso, the 50/30/20 rule gives you a starting point to help you decide where your money goes. Let’s talk about why.įirst, what’s helpful about the 50/30/20 rule? Okay, so you can probably tell by now that I have some problems with the this rule. That’s just 20% of your income to get you feeling safe and secure with money for today, tomorrow and down the line in retirement.
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