Have you ever felt like budgeting just wasn’t for you because every time you tried, it didn’t work out? You’re definitely not alone.

The problem is, there are too many complicated budgets that don’t take into account basic human error.

To make budgeting simpler, let’s look at what’s known as the “50-30-20” budgeting method—one of the most popular, easy-to-use budgets.

What is the 50-30-20 budgeting method?

The 50-30-20 budgeting method, coined by Elizabeth Warren and Amelia Warren Tyagi, is a super easy way to organize your money and budget.

Essentially, you’ll spend:

  • 50 percent of your income on living expenses (rent, mortgage, groceries, bills transportation, etc.)
  • 30 percent of your income on wants and lifestyle choices (fun and entertainment, dining out)
  • 20 percent of your income toward debt payments and saving

The formula seems simple enough and this is a solid option for beginners who are new to budgeting. It’s important to get into the habit of knowing exactly where your money is going by dividing your finances up into these three distinct categories.

The best part about this budget system is that you’re still able to budget money for fun. The goal is to properly manage your money while living a comfortable life.

For example, let’s say you earn $2,500 per month. If you were using the 50-30-20 budgeting method, you’d have $1,250 to spend on your living expenses, $750 on wants and lifestyle choices, and $500 to save and pay up any debt you may have.

While this is a very simplified and almost “fool-proof” way to budget, it’s not going to work for everyone—here’s why.

It’s quite vague

While the 50-30-20 budgeting method is easy to use, you may find that it’s all too easy to hide bad spending habits and make unnecessary purchases just because you can.

If you’re a high earner, spending 30 percent of your income on wants and lifestyle choices can actually add up to a lot of money that could be better spent elsewhere. This isn’t to say that you shouldn’t spend money on fun and entertainment, but it’s probably better to choose the expenses you value spending money on.

If you bring home $4,000 a month you can technically spend half of that on basic living expenses and still live a good life according to this budgeting method. What if you want to rent an apartment with your friend and only pay $400 monthly?

That leaves a lot of disposable income for you to blow through because it doesn’t really have a specific purpose.

It doesn’t favor debt payoff

The next drawback of using the 50-30-20 budgeting method is that it doesn’t leave much room for debt payoff. If we go back to the example of taking home $2,500/month, that only leaves about $250 for debt payoff if you split debt payments with savings so they each require a contribution of 10 percent.

Even if you decided to put the whole 20 percent of your income toward debt, it can still seem limiting especially if your minimum debt payments are higher than 20 percent of your income.

If your minimum student loan payment is $500 and you have a $300 monthly car payment, you might need much more than 10-20 percent of your income to make any financial progress.

Plus, you really should be saving some money for emergency expenses.

It’s not a forever budgeting method

Finally, the 50-30-20 budgeting method isn’t a long-term way to manage your money. I say this because it puts savings on the back burner and you can only do this for so long.

If you want to retire someday, handle an unexpected expense, or take your family on a nice vacation, you’ll need to boost your savings rate.

Your needs, wants, and interests will change over time. There may be a few months where you decide to put 30 percent towards saving, or periods in your life where you’ll need to spend more than 50 percent on living expenses.

The solution? Find a balance that works for you

The 50-30-20 budgeting method is not all bad, but it’s important to realize that there are other budgeting solutions to try, especially if you have specific financial goals.

It’s important to make your budget your own and create specific categories based on your current wants and needs. Realize that your budget will change often and you want to make it as realistic as possible so you can stick to it easily.

Everyone’s budget is different because everyone’s financial situation and needs are different. Therefore, you can’t fit everyone in the same 50-30-20 box.


The 50-30-20 budget is a decent method if you’re just starting out and want to get into the habit of giving your money a purpose, but don’t ever be afraid to customize and think outside the box.

Read more

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