It’s 2025, and the state of personal finances and budgeting feels significantly different from what it was a decade ago. Inflation is skyrocketing, the cost of living is at an all-time high, and the next recession always seems to be looming. So, does your approach to your finances have to adapt?
Let’s examine whether the popular 50/30/20 budgeting rule remains the optimal approach to budgeting in 2025 and beyond.
What is the 50/30/20 Rule?
The 50/30/20 rule is known as a budgeting approach that recommends splitting your after-tax income as follows:
- 50% to “needs” such as mortgage or rent, utilities, food, gas, and bills
- 30% to “wants” such as gifts, eating out, subscriptions, vacations, and any other discretionary spending
- 20% to “savings and debts” which includes retirement savings, emergency fund, and debt repayment
The rule is simple and easy to follow, making budgeting feel less overwhelming. It is also a realistic approach to your finances, which balances all the areas of your life.
What are the Criticisms of the 50/30/20 Rule?
While the 50/30/20 rule is one of the most popular budgeting tactics, it isn’t perfect. There are several criticisms of this approach, including:
- High-Cost-of-Living (HCOL) Areas: Unfortunately, in high-cost-of-living areas, the 50/30/20 rule may not be realistic. In cities like New York or San Francisco, it’s common for people to be spending up to 50% of their take-home pay on rent or a mortgage payment alone.
- Non-Salaried Employees: Individuals with fluctuating incomes may struggle to follow the 50/30/20 rule, particularly when their income falls below the average. Additionally, these individuals should set aside more than 20% for savings to ensure they have a buffer for months when their income is lower.
- Lack of Tracking: Although you’re encouraged to track your budget into the three categories, the 50/30/20 rule doesn’t require individuals to examine their spending. Anyone with a budget should regularly review their expenses to identify areas for improvement.
- High “Wants” Category: Spending 30% on “wants” can be considered high, especially if you have competing financial goals you’ve yet to compete. Someone who needs to pay off high-interest debt or save for an emergency fund should allocate less than 30% of their budget to wants.
- Savings vs. Debt: The 50/30/20 rule doesn’t provide guidance on how to allocate the 20% between savings and debt repayment.
Does the 50/30/20 Rule Make Sense in 2025?
If you’re new to budgeting, the 50/30/20 rule can be a great option. Take a moment to review your expenses for the past 90 days. Divide everything into those three categories to see how close you are to this breakdown.
If it seems feasible for your current lifestyle, consider following the 50/30/20 rule and see if it helps you achieve your financial goals.
Truthfully, for many people in 2025, the rule may simply feel outdated. As of 2022, the average American household was spending 47.7% of its income on household expenses, transportation, and food. This doesn’t even cover everything under the “needs” category, such as healthcare costs, daycare, and childcare, among other expenses.
In fact, Bankrate’s 2024 Side Hustle Survey found that 36% of Americans with a side hustle had to use their extra income towards regular living expenses. So, it’s likely that a lot more than 50% of an average American’s salary is going to needs in 2025.
If you find the 50/30/20 rule is unrealistic or doesn’t provide enough guidance, you can always consider a different budgeting tactic.
Alternative Budgeting Approaches
Here are some different budgeting options to consider:
1. Personalized Budget
Consider creating a personalized budget tailored to your financial goals. Decide what you want to prioritize right now: saving, debt repayment, or reducing your expenses. Whatever your goals may be, a budget can help you achieve them.
Luckily, many apps sync with your bank accounts to make tracking as easy as possible. Some of the most popular choices are You Need a Budget (YNAB), PocketGuard, and Monarch.
2. Cash Envelopes
Struggle with overspending? One effective way to create a budget and stick to it is by using cash envelopes. This is where you create a budget and allocate a cash allowance for each category. It can be so easy to mindlessly tap a debit or credit card and not realize when you’re overspending. But with a cash envelope, you know exactly when you’re out of money for the month.
3. Debt Repayment
If you want to prioritize getting out of debt, create a budget that focuses on your debt repayment journey. This will enable you to have a clear plan for getting out of debt and a timeline for how long it will take.
There are two common approaches to budgeting for debt repayment:
- Debt Avalanche: With this approach, you list out your debts from the highest to the lowest interest rate. You prioritize paying off high-interest debts first, so you pay less in interest over the entire debt repayment journey.
- Debt Snowball: The debt snowball method involves paying off your debt from smallest to largest. The idea is that you’ll achieve your first wins earlier, providing the motivation and momentum to continue paying down your debts.
Budgeting is like a diet. What works for one person isn’t necessarily what’s going to feel right for you. While the 50/30/20 rule might be a good fit for someone with low expenses, it might not necessarily be a realistic option for the average household in 2025. So, if you’re struggling to follow the 50/30/20 guideline, know that this isn’t the only option.
The most important step to take is to find an approach and take action. The sooner you identify a budgeting style that works for you, the sooner you can make progress toward your lofty financial goals.
You might also be interested in: Your Financial Guide for Every Month in 2025
