Personal Finance

Does the 50/30/20 Budget Rule Still Work in 2025?

Joey Frenette

Published: January 31, 2025 8:01 am

Many people love rules of thumb, like the 50/30/20 budget rule, which entails spending 50% of one’s income on needs and necessities (must-haves), 30% on wants (nice-to-haves), and 20% for paying oneself (savings, investments, debt repayment). Undoubtedly, it’s a pretty simple rule to understand, and for many, it just works.

However, as is the case with many overly simplified one-size-fits-all solutions in personal finance, it’s probably not going to be right for everyone. At the end of the day, such arbitrary rules of thumb take the “personal” right out of personal finance. And that’s why I’d advise anyone looking for a quick-and-easy solution to put in more homework (and perhaps a visit to a financial planner) to find a formula that may be better-fitting for their personal financial situation.

While something like the 50/30/20 rule may do the job fine, it may not be the most effective solution for those whose personal financial situation differs drastically from the norm. Whether that entails a load of student debt, a concerningly sizeable mortgage, or lifestyle expenses that aren’t all too high, I think the average person can do a heck of a lot better than settle for some arbitrary rule.

After battling inflation for the past few years, such a rule may not make sense, given the cost-of-living adjustments that may cause “needs” (which comprise 50% of one’s paycheck) to comprise a higher percentage of the pie. In some cases, needs stand to eat into amounts dedicated to wants and savings. Undoubtedly, needs come above all else. In this piece, we’ll look at examples where the rule of 50/30/20 may not be practical or ideal.

It may not be practical for one with high “needs” expenses.

For someone living in a big city, with sky-high rents and rising food costs, one’s monthly necessities expenses (think rent, food, transportation, and all the sort) may be closer to 100% of one’s paycheck than just half. Undoubtedly, there’s only so much you can do (at least over the near term) if you live in a high-cost city and rents are heading higher. In any case, the 50/30/20 rule may seem impractical, as inflation and stagnant wage growth cause one’s “needs” to cut into “wants” and “savings.” Undoubtedly, there’s only so much one can do in such a situation.

For someone who’s (close to) living paycheck to paycheck, “savings and debt repayment” should take precedence over “wants.” Either way, someone in such a situation, like many Americans in 2025, shouldn’t feel down about not being able to achieve a budget such as the 50/30/20 rule. Should inflation stay down and one gets a raise or promotion, perhaps the 50/30/20 rule or something similar could be something to shoot for at some point down the road.

It’s probably not the best move for someone who’s heavily indebted.

For someone who’s drowning in student loans, mortgage debt, medical debt, or credit card bills, spending 30% of your budget on “wants” or discretionary goods seems like a pretty bad call. Sure, you should aim to achieve a good balance between joys in the present and saving for the future.

But if you’re on the hook for high levels of interest, I’d argue that most, if not all, of your “wants” budget should go towards paying down debt. Indeed, why use only 20% of your income to chip away at debt when you could pull back on lifestyle expenses and allocate 40-50% towards paying off debt? My big issue with the 50/30/20 rule is that it prioritizes wants over debt repayment. For someone heavily indebted, I believe it’s not the best call.

It isn’t right for someone who prioritizes savings and investments over needs (and perhaps some wants)

Finally, if you’re someone who lives modestly or frugally, you may not care to spend 30% of your income on wants. And if your costs of living are low, you may not even want to shoot for 50% spent on wants. Indeed, perhaps you’re an over-achiever who wants to aggressively save and invest, in which case a larger percentage of one’s budget (let’s say 50-70%) should go to the piggy bank that the 50/30/20 rule calls for just 20%. Indeed, perhaps the 50/30/20 rule is backward for such an individual.