50-30-20 budget strategy under threat from rising inflation


This guide outlines the 50-30-20 budget strategy and why it will change as inflation bites the cost of everything.

The 50-30-20 budget has been one of the most popular guides to spending your money, but it might be showing its age this year. First popularized by U.S. Senator Elizabeth Warren in 2005, the 50-30-20 budget splits your spending into three categories. It then assigns the titular 50, 30, 20 values to each category. These numbers represent how much of your take-home pay should go towards each category.

  • Needs: 50% of your income goes towards the essentials that keep your business or household running safely, like rent, daily supplies, and line of credit minimums.
  • Wants: 30% of your income goes towards discretionary spending.
  • Savings: 20% of your earnings should be saved for a rainy day, retirement, and debt payments beyond the minimums.

This budgeting strategy helps strike a balance with your spending, so you save as well as enjoy your earnings. It can provide guidance for those who aren’t sure how much they should spend on any of these major categories. However, you might find dividing your business revenue or paycheque this way feels impossible today.

50-30-20 budget and inflation

Over the past year, inflation has soared to dizzying heights. While economists are certain it will come down later this year, their forecasts expect inflation will remain higher than its usual 2%. That means inflation will continue to push prices on everyday items higher and faster than most wages can keep up.

With everything from bread to business equipment, wages, lumber, electronics, and clothes costing more, your budget is under pressure. You’re spending more money, even if you aren’t buying more things. If you feel like you’re struggling to make ends meet, you wouldn’t be alone. Some 64% of Americans live paycheque to paycheque, while 51% of Canadians admit they can’t keep up with the cost of living.

What Happens if Your Percentages Are out of Whack?

Your essentials may take a greater share of your income. As a result, you might find it impossible to cover your needs with just 50% of your income. If your essentials take up 70, 80, or even 90% of your paycheque, you naturally have less money to spend on the remaining categories under the 50-30-20 budget.

Living without takeout is a disappointing sacrifice, but you could encounter tough times ahead without savings. You might have to put your financial goals on pause. But if you’re stuck making essential repairs or paying unexpected medical expenses, you can turn to an online lender for help.

Online lenders offer new ways to borrow an emergency line of credit. You can comparison shop between several different lenders and their rates without ever leaving your home. You can also apply using a convenient and fast online application to see if you qualify without unnecessary delays.

An online line of credit can fill in the gaps when your savings fall short of what you need in an emergency. But it isn’t a long-term solution to an unaffordable cost of living. For that, you might need a better budgeting system than the 50-30-20 budget. Some alternative strategies include the envelope method, zero-based budgeting, and the pay-your-first budget. You can even improvise your ways of spending as long as you manage to sock away savings.


Ultimately, there’s no easy answer until inflation levels out and wages grow. Until then, you might have to make the tough decision to downsize (by moving, for example) and get a new job to earn more money.

Image: drobotdean via FreePik

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