If you do some research about budgeting, you are sure to come across the 50-30-20 rule. This is the budgeting rule that a lot of people swear by, but I’m not really a fan. Here’s why- It kind of works under the assumption that one size fits all.
The 50-30-20 rule states that you should spend 50% of your income on essentials like insurance, car payments, mortgage/rent, and more. 30% is spent on discretionary expenses like eating out and buying new clothes, and then 20% goes to savings. While I think this could work in some situations, I also don’t think one size fits all when it comes to finances. Let’s look at some examples.
Sally and Jim: Sally is a personal trainer and Jim is a financial advisor. They don’t have any kids and live in a small one bedroom apartment. I mean, that’s all they feel like they need. Since they are both in career-type jobs, they make $7,500 a month together (lucky). If they lived the 50-30-20 rule this would be their budget:
- 3,250: Essentials
- 2,250: Discretionary Expenses
- 1,500: Savings
I don’t think I have to be the first to say that those numbers are just unnecessary. I don’t think I could spend $2,250 a month on shopping and eating out if I tried! Using the 50-30-20 rule would probably create unnecessary spending habits and limit the amount they could be saving.
Now a second example is Megan and John: Megan is a stay at home mom and John recently got a job in retail. Since they have a child, they are living in a two-bedroom apartment and have a lot of extra expenses- diapers, food, doctor visits, and more. John makes $2,700 a month. If they used the 50-30-20 rule this would be their budget:
- 1,350: Essentials
- 810: Discretionary Expenses
- 540: Savings
From Megan and John, maybe it’s more realistic that they cut back on discretionary expenses and use that for essentials.
Whatever your circumstance, I think it’s important to look at your own income and expenses, and think of a realistic breakdown that fits with your situation. The point is, figure out what works for you, whether that is the 50-30-20 rule or something else.