Household Budget: 60/20/20 vs 50/30/20

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In an age where many families are struggling to stay afloat financially, establishing and maintaining a household budget can be a tricky task.

For many years, the 2005 book ‘All Your Worth: The Ultimate Lifetime Money Plan’ was viewed as the definitive guide to money management.

Written by American politician and former law professor Elizabeth Warren, the book extolled the virtues of a simplistic 50/30/20 budget rule.

Read on as we take a closer look at the guide and assess whether it still remains relevant in the modern era.

The 50/30/20 Plan

Warren’s book effectively created a framework for households to split their income into three spending categories – 50% on ‘needs’, 30% on ‘wants’ and 20% on ‘savings’.

The rule was designed to help people manage their money more effectively to ensure they met their household commitments and saved for the future.

The 50% element of the budget is designed to cover the bills that must be paid each month – mortgage, rent, utilities, car payments, groceries and so on.

The 30% portion incorporates the little extras that make life more enjoyable and can include new clothes, non-essential travel and other outgoings.

Online gaming is another spend which falls into the ‘want’ category, with many people now using this as their primary form of entertainment.

By visiting the sites featured by, gamers can access a plethora of platforms offering endless hours of affordable fun.

This methodology ensures that people do not overspend on ‘wants’ and also applies to the final 20% element of Warren’s budget plan – savings and investments.

The savings slice of the pie is set aside to cover for unforeseen events such as losing a job or unexpected repairs to your home.

Investments are also a major consideration in this part of the plan, with shares in the stock market or personal pensions allowing you to save for later life.

However, while the 50/30/20 budget plan looks good in theory, it can be argued that it is no longer applicable to the majority of people today.

Why 60/20/20 Makes More Sense

Studies have shown that setting aside 50% of your after-tax income no longer ensures that all essential household bills are covered.

Increased expenses across the board have pushed this element towards 60% in some cases, which leaves a smaller percentage available for other outgoings.

In many cities it is impossible to find a mortgage or rental agreement at less than half your take-home salary, which leaves little room to manoeuvre for other household bills.

Some experts argue the 30% set aside for ‘wants’ is unrealistic in an age where the cost of living is heading in an upwards direction.

Others suggest that the 20% for savings and investments is also unrealistic as it will not provide the financial independence people crave during retirement.

While this argument may stack up for people who have failed to start saving for their future early enough, it does not apply to those who have thought ahead.

Generally speaking, a 60/20/20 budget plan may now be a more realistic guide for effectively managing your household finances.

The ‘needs’ is the key element, so it makes sense to work out exactly how much of your monthly income you must set aside to cover this.

If you discover that the 60% figure can be tweaked in either direction, the additional expense or savings can be applied equally to the other two categories.

Establishing identical percentages for ‘wants’ and ‘savings’ effectively says that both these elements have the same level of importance to you.

Denying yourself pleasures now in pursuit of a sizeable retirement pot may seem tempting, but is a budgetary tactic that will leave you feeling miserable.

By contrast, blowing all of your spare income on ‘wants’ and failing to consider the future is a mantra only the truly frivolous will adopt.

The Final Word

Using the 60/20/20 split as a budget template for your household is unquestionably more applicable than 50/30/20 right now.

Adjusting it to suit your individual requirements – even if only by a few percent – will allow you to enjoy your life today and in the future.

Striking that financial balance will give you peace of mind that your bills are paid, you have money for fun things and are saving for retirement.