You Can’t Budget Your Way out of Poverty

The 50/30/20 rule is dead.

Photo by Chris Briggs on Unsplash

Here’s another one in the column of “financial articles giving bad advice.” Apparently, the 50/30/20 rule should be the 60/30/10 rule now — at least, while you’re getting a start right out of college. Of course, once you get a few raises under your belt, you can start moving toward that magic 50/30/20 ratio that everyone loves.

Let me back up a bit. For those unfamiliar, the 50/30/20 rule mandates that, to keep your personal budget balanced, you should dedicate 50% of your income toward “necessary” expenses, like rent, utilities, internet, food, and the like. Next, 30% goes towards “wants,” like upgraded streaming services, fancy coffee, or whatever makes you happy. Finally, 20% of your income should go into savings vehicles — your emergency fund, 401k, and IRA.

This magic ratio was formulated nearly 20 years ago by Elizabeth Warren of all people, and financial experts cling to it like billionaires cling to the parasitic form of capitalism that America has spawned. At this point, the 50/30/20 rule might as well be the golden rule of personal finance for a lot of people.

Of course, as this article says, the 50/30/20 rule is not super realistic for a lot of young people these days. Between the skyrocketing costs of rent and food, it’s much more likely that…