Is the 50-30-20 Budget the Best Plan for Your Money?
Not everyone likes to budget. In fact, only two in five Americans say they keep a budget, according to a 2018 study by the National Federation for Credit Counseling.
"No one likes working on budgets," said Dennis Nolte, certified financial planner and vice president of Seacoast Investment Services. "It’s always about what you can’t have and having discipline. It’s difficult."
The 50-30-20 budgeting plan is meant to fix this problem. While many budgeting tactics focus on making drastic cuts to save money, this plan stresses balance.
What Is the 50-30-20 Budget?
The idea was coined and popularized by U.S. Senator Elizabeth Warren, a Democrat and presidential candidate from Massachusetts, in her 2005 book, All Your Worth: The Ultimate Lifetime Money Plan. Warren views her plan as a lifestyle change, much like the way you would approach healthy eating:
"If you don’t have a master plan, then trimming a few expenses in one place while you overspend elsewhere won’t do you any more good than cutting out doughnuts while you gorge on cupcakes."
The Breakdown
This plan organizes your budget into three simple categories:
- Needs (50%): Half of your budget goes to necessities like housing, food, car payments, and health insurance.
- Wants (30%): The next 30% is allocated to non-essentials like shopping, dining out, and hobbies. If cutting it out won’t impact your survival, it’s classified as a "want."
- Savings (20%): The remaining 20% goes toward savings, including your retirement fund (like a 401(k) or IRA), a general savings account, and debt repayment (such as student loans and credit card payments).
Is It a Good Money Plan?
Financial professionals have mixed views.
"I’m a huge proponent of the 50-30-20 and recommend it," said Samuel Boyd, certified financial planner and senior vice president at Capital Asset Management Group. "It acts as a guideline for decision-making with a target for financial goals, personal goals, professional goals."
However, Nolte isn’t as convinced:
"30% discretionary spending is way too much, and 50% on essentials is too little," he said. "It’s popular because of who’s running for president but mostly because there seem to be few rules of thumb for budgeting."
Nolte suggests that the 50-30-20 plan likely appeals more to younger people with fewer financial responsibilities. He recommends adopting a more conservative approach to budgeting as one grows older.
Whatever budget plan you choose, it’s important to stick with it. You can always adjust it later on to better fit your spending habits.
Want to try the 50-30-20 plan yourself?
Description: A person calculating their budget with a laptop and notepad, applying the 50-30-20 budgeting rule.
