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Pros and Cons of the 50-30-20 budget method

Money Bites Pros and Cons of the 50-30-20 budget method
Before you reach for the excel spreadsheet, here’s how to work out if the 50-30-20 budget method is right for you to help you save money.

Bite-Size Read:

  • Budgeting is a great way to know where your money goes.
  • The 50-30-20 budget method is simple and doesn’t feel like a diet.
  • However, it may not suit your circumstances and could limit your financial progress.


Have you been wanting to try a budget?

A budget is a method of saving money. A budget is a good idea because by knowing where your money goes, you can plan ahead to save some for later.


But what is the 50-30-20 budget method?

It’s a budgeting rule which creates three spending categories:

  • 50% for non-negotiable living expenses like rent or your power bills
  • 30% for your lifestyle choices like a Netflix subscription and wine
  • 20% for savings goals or debt repayments

This is a one-size-fits-all framework. And to help you determine whether it will fit you, we’re considering the pros and cons of using this budgeting method.


Here are the pros and cons of the 50-30-20 budget method: 


1. PRO: It’s simple

The benefit of the 50-30-20 budgeting method is that it’s simple. Budgeting can seem hard and complicated. Instead, you only have three spending categories to worry about. You allocate your income to those three categories and then make sure you’re on track.


2. PRO: You learn where your money goes each month

A whopping 86% of us don’t know where our money goes each month. If you’re in that 86%, you’re in good company. The 50-30-20 budget method will help you learn where your money actually goes each month.  


3. PRO: It’s doesn’t feel like a diet

The word budget sounds like a diet, and most of us recoil when diets are mentioned. Instead, the 50-30-20 budget gives you permission to spend 30% of your income on whatever you want. That’s right, you get fun money, which might make it easier to stick to the budget long-term.  


4. PRO: It pushes you to reduce your fixed costs

The 50-30-20 budget prescribes 50% of the budget for needs. Many households spend way more than this on their rent, mortgage, and power bills. The 50% cap can push you to reduce your fixed costs like power bills and negotiate a better deal.


5. PRO: You don’t need to monitor every single purchase

Most people think a budget equals excel spreadsheets and monitoring your bank account every day. The 50-30-20 budget instead allocates three buckets to your spending. You allocate money to those three buckets and you’re away! No excel spreadsheet required.


But the 50-30-20 budget isn’t right for everyone…


6. CON: It doesn’t take into account your circumstances

The 50-30-20 budget dedicates 50% of your budget to fixed needs. However, you might need to spend more than this on bills if you’re in financial difficulty or if you’re on a low income, including students who could be on a low income but high rent costs.


7. CON: It doesn’t prioritise debt repayment

If you’re managing debt, you likely want to pay it off as soon as you’re able to. The 50-30-20 budget puts a restriction on how quickly you can do this. Under this budget method, only 50% of your money can go towards fixed essential costs, including debt repayment. You may want to vary this if it’s important to you.


8. CON: It can be difficult to determine the difference between needs and wants

For some of your expenses, it can be difficult to determine whether it’s a need or want. For example, your Netflix subscription is a fixed cost you must pay for if you’ve used it that month but it’s also not an essential ongoing expense. Determine what these spending categories mean to you and be consistent in your approach.


9. CON: It allocates too much of your money to stuff you don’t need

Setting aside 30% of your income for things you don’t need is a lot of money. If you earn $1,000 a month, that’s $300 going towards things you don’t need. You may want to look at those percentages and consider what the right mix of spending vs saving is right for you.  


10. CON: It only expects you to save 20% of your income

Saving 20% of what you earn is a great achievement. Many people can’t save 10% of their income so if you save 20%, you’re doing well. But you could save more than 20%. There’s a whole community around financial independence that focuses on saving more of your income.  


The 50-30-20 budget is the one-size-fits-all jumper of finance.

That’s because like all budgets, it’s just a framework for managing your money. To have an impact on your life, you need to apply it to your circumstances. You know your life better than anyone else so choose the budget that works best for you.

Written by Kate Crowhurst

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