Editor’s Note: This story originally appeared on The Penny Hoarder.

Figuring out and sticking to a budget isn’t super fun for most people, but it certainly is a smart way to handle your money.

The 50/20/30 rule is one of many budgeting plans that help us get spending under control.

This plan works well for households where no more than 50% of the money coming in is spent on living expenses. As housing prices rise across the country, this is becoming more difficult for many Americans.

The 50/20/30 budget plan was popularized by U.S. Sen. Elizabeth Warren of Massachusetts, a bankruptcy expert and creator of the Consumer Finance Protection Bureau, and her daughter, business executive Amelia Warren Tyagi, in their co-authored book, “All Your Worth: The Ultimate Lifetime Money Plan.”

The book was published in 2006, prior to the Great Recession and the housing bubble burst.

Since that time, income inequality has risen, and recently inflation has gotten out of control.

How to Use the 50/20/30 Budget Plan

Using this budget plan isn’t particularly difficult but will require you to assess monthly expenses in comparison with household income.

The goal of the 50/20/30 budget is to break down your monthly after-tax income and focus your spending in three broad categories: Essential living (50%), financial goals (20%) and personal spending (30%).

While this budgeting method might have worked for many middle-income families when it was published, the number of households it actually applies to is shrinking.

However, if you live in that sweet spot, the 50/20/30 budget can still be a great strategy to implement.

Essential Living: 50%

 

With the 50/20/30 budget, you should spend 50% of your income on essential living expenses. These can include:

• Rent or mortgage
• Utilities
• Groceries
• Car insurance and/or car payments
• Phone and internet
• Gas for your work commute
• Credit card and loan minimum payments
• Other: Bills that are essential and probably no fun at all. Examples include prescription medicine or daycare costs.

Let’s take a closer look at these numbers and see just why they can be so unrealistic for so many people.

The average American brought in $1,070/week in the third quarter of 2022 That averages out to about $55,650/year, or about $4,637/month before taxes.

According to Realtor.com, the average rent in October 2022 was $1,734/month across the top 50 metro areas. According to the USDA, a thrifty family of four can currently expect to pay over $967.70/month for groceries.

These two expenses alone push you well above the 50% threshold for essential living expenses.

So if you have utilities? Car payments? Insurance or phone bills? If you’re the average American household — or, heaven forbid, lower-income — you can forget about it.

The 50/20/30 budget won’t work for you because your basic expenses take up more than 50% of your take-home pay.

Financial Goals: 20%

 

Let’s say you are lucky enough to have your basic expenses account for 50% or less of your monthly take-home pay. You’d then want to look at your financial goals, allocating another 20% of your monthly budget to the cause.

Financial goals can include things like:

• Investments: This includes your 401(k) and all other investments. Don’t have any yet? It’s never too late to start investing.
• Savings: One of the biggest steps to financial health is having emergency savings so you don’t step backward every time an unexpected expense pops up.
• Debt-reduction payments: This is for payments on your credit cards, student loans and any other debts that are above the minimum payment.

Personal Spending: 30%

This is the category that makes this budget work for the budget-averse — when they have a high enough income, that is.

Personal spending is all of the stuff you like to spend money on but don’t really need. And at 30% of your monthly income, that can mean a lot of freedom. These expenses can include things like:

• Dining out
• Vacations
• Going out for movies or drinks
• Netflix and other in-home entertainment options
• Shopping for clothes, decor, etc.

Now, here’s where you have to get careful at higher income levels. Let’s say both you and your spouse pull in $200,000/year each. That makes your monthly household income about $33,333/month.

That means 30% of your monthly budget would be $11,111.

Could you spend that much on personal spending every month?

Maybe.

But odds are you’d really have to try. For high-income households, you’re probably going to want to readjust your percentages so they’re more oriented towards your financial goals rather than pursuing lavish expenses every single month.

Getting to a place where the 50/20/30 rule could work

Most people don’t fit into the 50/20/30 budget because their income is too low and their essential expenses are too high. If you find yourself in this boat, here are some things that can help on the saving money side:

• Explore ways to save money by trimming the fat off of your basic expenses and discretionary spending.
• Utilize apps that help you save money automatically.
• Learn about innovative ways to lower your grocery bill.
• Educate yourself on ways to combat inflated prices on items like used cars or gasoline.
• In some states, you can shop around for utility providers to get the most competitive price on your bill.
• Check to see if you qualify for free or discounted internet service.

Ways to make extra money

And here are some ways you can side hustle to increase your income:

• Make up to $500 to share your opinion.
• Get paid $15-$20 an hour by starting your own laundry business.
• Rent out your pool for up to $135/hour.
• Make a five- to six-figure income flipping sneakers.
• Turn your second language into a side hustle.
• Capitalize in the uptick of weddings by starting one of these matrimonial gigs.

When the 50/20/30 Budget Works

This method works well for those within certain income limits who are new to budgeting, or are put off by rigid spreadsheets.

Splitting your expenses into these three broad categories will get you thinking about the value of your purchases, while providing flexibility as you find your frugal footing.

And by building discretionary spending into your financial plan, you’ll be able to enjoy what’s most important to you while you find places to cut spending.

When the 50/20/30 Budget Doesn’t Work

For some, the numbers simply won’t add up.

Maybe you have two jobs and still can’t earn double the price of rent in your area. Maybe your daycare options are limited. Or maybe your student loan debt eats up most of your paycheck.

For others, you may need to adjust the percentages if you make so much money that 30% on personal spending would be ridiculous.

If the 50/20/30 budget isn’t for you, that’s OK.

There are plenty of other budgeting methods to choose from:

• Zero-based budgeting
• Envelope budgeting
• Bare-bones budgeting
• Bullet journal budgeting
• Kakeibo
• Calendar budgeting
• Half-payment method
• Paycheck budgeting

What’s most important is that you zero in on eliminating debt and growing your personal wealth, regardless of the budgeting method you choose to use.

 

Financial planning and budgeting can be tough. So, let’s keep it simple.

Here are a bunch of quick and easy tricks to help you save money — on videos, groceries, gas for your car and more. Keeping it simple can be one of the most practical paths to saving.

1. Use an app to stop impulse buys

If your shopping habits feel out of control, get your phone on your side by installing an app like Opal. (There is also a version for the Chrome internet browser, if you shop on a computer.

Opal is designed to block apps that eat up too much of your money — or time — during certain times that you can customize. About 22% of users use Opal to block shopping apps like the Amazon app, according to The Wall Street Journal. So if you know a certain boring time of day lends itself to virtual window shopping, put a stop to it.

The basic version of the app is free, although there are paid options for finer control or professional coaching to manage your habits.

2. Fill reusable bottles with tap water

What are we doing, buying fancy water when it’s available for free out of our home taps?

Avoid that fancy French water in wasteful plastic bottles. Just pick up a solid, refillable water bottle and fill it with fresh, cold water before you head to the gym or out on a walk.

We’ve got more to say about bottled water, in “41 Things You Should Never Buy.”

3. Check out the library for movies and more

We all know that libraries lend books for free. But you might be surprised by the other things available to borrow from your local branch. Depending on the library, it’s possible to borrow movies, CDs and e-books.

Some libraries even offer things you may not know of: paintings, cake pans, tools and online language lessons, for example. All free.

As your librarian might say, “Check it out.”

4. Learn your ATM’s ABCs

Read the ATM rules at your bank or credit union to help avoid fees. ATM and other bank fees drain your finances.

Some financial institutions have deals with other businesses. For example, I once banked at a credit union that allowed free use of ATMs at all 7-Eleven stores.

Some financial institutions waive ATM fees if you maintain a minimum balance or make a minimum number of transactions in a specific time frame. You’ll find ATM rules at your bank’s website. Or, just call and ask.

5. Keep an eagle eye on automated payments

Setting up an automated payment can be handy for recurring payments — to your gym, for instance, or to online services for streaming entertainment or for charitable donations.

As the months go by, though, it’s easy to forget about the payment while money is being regularly sucked out of your account. Take a few minutes to log in to all each of your financial accounts — including PayPal — to track down and cancel recurring deductions you no longer want.

Even easier, use Truebill, a Money Talks News partner, to easily find and cancel payments with little effort.

6. Use reward points to save on gas

Pump up the savings! Many grocery stores partner with gas-station chains in programs that let shoppers accumulate points for gas when buying groceries. Punch in your phone number or scan your membership card at a participating gas station to save some serious money per gallon, depending on the points you’ve piled up.

If gas is a major expense for you, consider getting a credit card that earns extra reward points at gas stations. Money Talks News’ Solutions Center makes it easy to comparison shop for gas rewards cards.

7. Plant a garden

Grandma and Grandpa knew best: When it comes to fruits, vegetables and herbs, nothing tastes as good as homegrown.

Think about what you love best at the local farmers market, and assess whether it’s reasonable to grow those treats at home. Plant nurseries, county extension offices and libraries often have classes and lectures on how to get started.

Live in an apartment with no garden space? Those same experts often can tell you how to lease space in a community garden.

8. Stick to your grocery list

Mmm, that cake sure looks good! Hey, is that a new breakfast cereal?

Don’t go grocery shopping without a list. (And eat something before you go, so hunger doesn’t drive your decisions.)

If you have a list — on paper or on your smartphone — you’ll be more focused. You’ll be less likely to suddenly realize you’ve spent your whole budget and forgotten to get milk.

Check out: “The 27 Absolute Best Ways to Save on Food.”

9. Sign up for grocery coupon programs

Grocery stores typically offer electronic coupons through their loyalty programs. These can be great ways to save on grocery costs.

If you shop at the same chains often, signing up may be worth the effort. Often, the only membership identification you’ll need is your phone number. Look for more savings by logging into the program’s website or app before shopping.

10. Be a coffee achiever

Realistically, the occasional latte isn’t going to break your budget. But there are ways to trim your coffee costs.

If java joints are your soft spot, consider joining their rewards plans or pick up one of the shop’s punch cards.

11. Stock up on Forever stamps

When the U.S. Postal Service first issued Forever stamps in 2007, each stamp cost 41 cents. In 2023, they’re 63 cents.

But you can still use those 41-cent ones today, saving 22 cents off the current cost. Every little bit helps, and this tip pays off especially when you’re sending holiday cards.

12. Compare costs for paying annually versus monthly

People and businesses like to be paid in advance. By paying your balance due upfront — on insurance premiums, for example — you often can save.

So, compare costs before opting for monthly payments.

13. Join a local giveaway group

If you’re a Facebook user, perform a search for the name of your neighborhood. You’re likely to find a barter or giveaway group, in which neighbors offer each other used items.

Rules vary. Buy Nothing groups require everything to be offered free. Freecycle groups, as the name implies, also enable users to give and get stuff for free. Other groups allow trading or bartering.

If you’ve got a hobby — from tending fish to collecting Pyrex — seek out Facebook fans who share your passion. They often know where to find the best deals, coupons and trades.