Is The 50/30/20 Budget Rule Actually Realistic For Most Americans?

Like a lot of budget "rules" and techniques, the 50/30/20 budget offers an idealized way to manage your monthly expenses. Created by Senator Elizabeth Warren and her daughter (from their book All Your Worth: The Ultimate Lifetime Money Plan), this rule was created with the hope that it could help Americans better manage their monthly income by easily splitting their expenses into three categories: needs, wants, and savings. The rule goes that 50% of your monthly expenses should go to things you need (i.e. rent/mortgage, utilities, healthcare), 30% should go to your wants (i.e. shopping, travel, eating out), and 20% should go to your savings.

While, in theory, this rule could definitely help people categorize and manage their budgets, it suffers from the fact that when it was written, in 2006, the country's economy was in a vastly different place than it is today. The 2008-2009 economic crisis and "Great Recession" not only pushed people out of their income brackets but also fundamentally changed the country's economic growth. This recession, coupled with the COVID-19 pandemic, has created economic factors that have left many Americans in tighter financial situations than ever before. These different economic factors can and do affect someone's ability to adhere to the 50/30/20 rule, and they each come with their own unique challenges. Let's dive into these contributing factors and see how they might make following budgeting rules like 50/30/20 unrealistic.

Cost of living (geographic area)

Cost of living is the amount of money a person needs to have in order to maintain a certain lifestyle in a given geographic place. This metric is determined by combining a variety of different factors and potential expenses. Factors like housing prices, utilities, transportation, healthcare, and even entertainment all go into determining the cost of living in a specific city or metropolitan area. It goes without saying that certain places can and do have a higher cost of living than others and this can be important in determining if a geographic place is right for you.

Budget-wise, different elements used to calculate the cost of living can apply to all three categories of the 50/30/20 budget. Housing and transportation costs can affect your needs, entertainment costs can affect your wants, and not having enough left over can negatively affect your savings. The biggest concern for Americans is that cost of living has been increasing across the entire country at an accelerated rate. From soaring housing costs, inflation, and even utility hikes, no place in the U.S. is immune to a rise in the cost of living. These spikes in prices even prompted Social Security cost-of-living benefits to increase by 8.7% in 2023 (after 2022's 5.9% increase which was, at the time, the highest increase in 40 years). As of August 2023, the Consumer Price Index showed an overall 3.7% increase in goods in the 12 months prior while the food index increased 4.3%.

Income & wages

Part of what makes post-pandemic increases in cost of living so detrimental for so many Americans is tied to wages and buying power. Despite the fact that many workers had more opportunities and even higher wages immediately post-pandemic, supply issues and inflation ultimately created a gap between wage growth and subsequent inflation prices on everything from goods to housing to utilities to gas. This gap ensured that, despite receiving a raise or a new higher-paying job, many Americans did not actually experience an increase in their purchasing power. Since early 2021, prices have increased 15.8% compared to wages increasing only 12.8 percent. In fact, if wages and inflation continue at their current pace, the gap between them isn't estimated to close until the fourth quarter of 2024. This also assumes that you or your family actually experienced a wage increase or new job opportunity post-pandemic.

Regardless of post-pandemic opportunities, if a family's income is not able to keep up with the increase in consumer prices, then keeping expenses like wants, needs, and savings within the confines of the 50/30/20 rule becomes increasingly difficult. With utilities, transportation, and food costs eating a higher percentage of the needs category than ever before, it becomes nearly impossible to keep the needs category within 50% of your budget allocated by this budgeting rule. This increasingly pushes people to rearrange their finances, with the wants category typically being the first to get shortchanged.


Inflation has the unique ability to affect all categories of your budget, making a budget plan like 50/30/20 nearly impossible to adhere especially when all categories cost more money for the same lifestyle. Inflation is the rate at which goods, services, and just about everything else in our lives increase in price. This can have a noticeable impact on our purchasing power as well as our ability to stay within a regulated budget like 50/30/20. While slow and steady inflation can be a sign of a healthy and growing economy, unpredictable or large changes in inflation can hurt many Americans. For instance, 2022 saw the highest average annual inflation rate in over 20 years (8%) which disproportionately hurt low-income families.

As of August 2023, the average U.S. inflation rate for the year has slowed down to 4.5%. While this is an improvement, it still adds an extra strain on many Americans who might be struggling financially. This is especially true when wages and income do not simultaneously rise to offset increased costs. Needs, wants, and savings are all negatively impacted by a loss of buying power, and facing higher costs on the same income can lead to increased stress and pressure on families. It's also important to recognize that certain geographic areas can be affected more strongly by inflation and rising consumer prices than others. Much like cost of living, a specific geographic region can end up costing you, as a consumer, more.

Debts & student loan repayment

The official 50/30/20 website lists student loans and credit card debt under the 20% of your budget intended for your savings. This means that, for those of you with student loans and/or credit card debt, paying off your loans might end up having priority over saving for your future. Another concern is that, depending on the amount of your loans and/or debt, your payments can easily exceed 20% of your budget. This can be especially true for borrowers of color who face higher socioeconomic barriers to repayment.

About one in five U.S. adults (or 45 million Americans) have student loan debt. Whether they are loans for your own education, or Parent PLUS loans used to help your child, the average household (with student debt) owes $58,238. When you factor in interest rates and the time it will take to pay this amount, the total that student-loan households will end up needing to pay to be debt-free is substantially more.

This means that, if you follow the 50/30/20 budget, not only will you not able to save money for emergencies or retirement, but you will also more than likely have to take money out of other budget categories to offset the discrepancy between your loan/debt payments and income. With that being said, recent changes to income-driven repayment plans (and the introduction of the new SAVE Plan) through the federal government's Student Aid Department have made important improvements for those who qualify.