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What If I Can't Afford to Follow the 50-30-20 Rule?

Before we start, well done for making it this far, it's easy to give up when you realize there isn't always a quick fix to successful budgeting, so we commend you for getting to this point.

Chances are you're here because the 50/30/20 rule looks more like 84/49/0 or even simply 100/0/0, and your struggling to take care of just the basics let alone savings for a financial goal.

So here's what to do next to develop the personal finance skills you've already gained and turned your plan into the budgeting method that's right for you.

Remember, Needs Are Essential

Before we dive deeper, it's important to distinguish between your gross income and your post-tax income if you used the wrong figures. Remember that you should be using your after-tax or take-home income for the budgeting purposes because this is what you have to actually spend after obligations. Using gross income will skew your ability to follow the budget.

As you're reading the advice below, have in mind which part of the 50/30/20 plan is causing you issues, and that way, you can understand how to adjust the plan, or even change tactics completely to best suit your individual needs. As the original plan creators Elizabeth Warren and Amelia Warren Tyagi mention in the book All Your Worth: The Ultimate Lifetime Money Plan, the aim is to create a balanced financial lifestyle, not a restrictive one.

Low-Income Household

If you are a low-income earner and your current expenses can't get any lower, then you'll likely find an income-based pathway solution that will help you reach that end goal, which in this case, is earning more money. Your spending habits aren't the problem, but moreso your earning habits.

In this situation, you might find yourself running a 70/30/0 plan, or even 100/0/0 if you are in debt. By seeking professional help with your debts or seeking help from one of the countless government and charity services such as career coaches, there are ways to optimize for more income or reduced debts. There is no shame in asking for help, only support.

By getting the right help to earn more money or even claim support you didn't know was available, your essential spending amount stays the same. But it takes up less of your earnings, so you can finally start saving money for a retirement fund, invest in health insurance, or pay off debts faster.

High-Income Household

If you are a high-income household and have the luxury of choice with your income, you may find yourself running a 10/80/10 budget. While you may be able to afford it in the short-run, in order to build lasting wealth, it may be worth a reassessment.

If your essentials take up more than half your monthly income, ask yourself where are the root expenses? Is it an expensive car payment? Is there a way to buy a used car and save money there? Or what about your house; do you need five bedrooms when three will suffice? You can use that as a large downpayment on the smaller home and free up some equity while you're at it. Use the funds towards debt repayment or build a sizable emergency fund and start saving at least 20% of your income to get a financial cushion.

Your essentials should only be higher than 50% if you are on the poverty line. Remember, want is not a need. You need a car, not an expensive car. It depends how honest you can be with yourself. With respect to automobiles specifically, keep in mind the added cost of the insurance premiums which could be better used for savings as a warranty for future emergencies.

Medium-Income Household

What if your take-home pay is average? Where do your goals sit then? It might be that, like the low-income household, you have been sensible in your 50/30/20 plan, but you can't optimize it any further.

On top of the regular mortgage payments, social security, and healthcare, childcare could take up 20% of your income in the early years, resulting in a 70/30/0 budget. Once your child reaches school age, you may be able to redistribute 20% and even up to 30% or more back into savings to make up for lost time making for a 50/10/30 budget because your child is older at this point and can better tend to their own needs.

If you live a lavish lifestyle as a medium income earner, it may be worth second-guessing that lifestyle unless income can change. There are also simple things you can do to help with the budget such as getting bank fees back or auditing your recurring payments for unused services.

Wants and Savings

According to SmartAsset, the average salary in New York City is around $4815 per month before taxes. A 1-bed city center apartment alone costs around $2600 to rent. And that's without including bills such as car insurance, credit card debt, or any other monthly payments.

Now, if you can rent a property that's a 1-hour commute away for $1800 and only costs $200 to travel into the city, that's nearly $7,200 a year saved alone. As a starting point, that's one of the most significant savings you can make.

Think about that for a minute. $7,200 a year. That's enough to put into a retirement savings fund. That works out to nearly $14 for every hour of travel. That's almost the minimum wage in New York City.

What Happens If I'm Under Budget?

We haven't discussed this yet. You may have ended up with more money than you first thought, especially if you've been super-strict with your cost-cutting and your savings goals.

Well, the great thing about being under budget is that with money comes choice. You can choose what to do with that money. There's no right answer, but the best thing you can do is, like the other scenarios, take a pathway approach and put that money into the right areas.

As a rule of thumb, if your interest rates on any repayments such as student loans or credit cards are higher than what you would get from a savings account, pay off your debt. But if it's more beneficial to save your money in an IRA, or a savings scheme, put it there.

The Second Pair of Eyes

If you still aren't convinced, get someone else to look at your plan. And allow the individual to be honest with you. It is an excellent chance to step outside of your comfort zone and take on board any constructive criticism that might come your way.

Whether it's professional help or a friend who is in a very different position to you that you trust, that's your choice. Whoever makes you feel more comfortable. You may think it's normal to spend $1000 a month on groceries, but do they think you are overspending?

This way, you can trust your friend and have that honest discussion. They'll tell you to cut your Netflix subscription and gym membership and reduce your minimum payments by building your credit score. But if you're afraid to have that conversation, there is one more issue that needs consideration to help you live a life of financial happiness and accept your money woes.

The Elephant in the Room: Personal Issues

There's no shame in admitting you have an issue that may not feel like you are in control. And it's okay to ask for help if you are struggling.

Addiction in any form can be detrimental and often go undetected as a personal, private issue. That's why getting an honest friend on board for accountability purposes is a great idea.  If they can see your 50% of wants is taken up by lavish nights out, they can help you to bring that down by convincing or joining you to have a quiet night in (game night!).  And if your debt payments are increasing and your credit score is falling, they can help guide you in the right direction.

It doesn't have to be an apparent addiction, as a substance or alcohol abuse. Even something like a compulsion to eating out every single day can add up to a significant amount. Just $30 a day at a restaurant equates to over $900 per month. Think about what you can do with that money in your bank account.

Still Not Working for You? Try Our Alternative Instead

It's fantastic that you've put this much effort into doing the 50/30/20 work for you. And it's okay that it doesn't work for everyone. As you've seen, sometimes, a pathway plan is more appropriate than a numerical target.

Following a pathway plan such as a How To Build Wealth From Nothing guide as an alternative can help those with a more goal-oriented mindset. You'll notice the process is very similar to 50/30/20, but you aren't restricting yourself with allocations.

This method focuses on the journey, not the end goal. That way, it fits any lifestyle. You might even find yourself with a 50/30/20 distribution at the end!

It encompasses eight main steps:

  1. Understand How to Build Wealth
  2. Recover Acute Debts and "Find" Money
  3. Prevent Wasted Expenses
  4. Discipline Your Spending
  5. Reduce Conventional Debts
  6. Automate Savings
  7. Invest
  8. Pay It Forward

By following these eight steps, you'll be satisfied knowing that you are doing everything you can to enhance your quality of life and reach your life goals much sooner than expected.

Remember It's Okay To Ask For Help

Whatever your position, we always advise you to seek professional help based on your circumstances. We say so as a disclaimer because as much as we are here to help you in your financial life every step of the way, we know that the person who knows you best is yourself.

About the Author

Harvest helps increase the net worth of the 99% through artificial intelligence and financial automation. To date, Harvest has refunded over $2M in bank fees and interest charges to its members with the ultimate goal of increasing the net worth of everyday Americans by $1 trillion by 2030. Our platform starts with providing immediate relief through bank fee and interest charge refunds, orients a member's financial health with our proprietary PRO Index, and keeps track of net worth over time aided by our suite of financial tools. Check out our 8-step guide on "How to Build Wealth from Nothing" to get started on increasing your net worth.

Disclaimer: Harvest is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.