FaharasNET
No Result
View All Result
  • Login
  • Finance
  • Investment
  • Crypto
  • Real Estate
  • Insurance
  • Legal Guides
Contact Us
SUBSCRIBE
  • Finance
  • Investment
  • Crypto
  • Real Estate
  • Insurance
  • Legal Guides
No Result
View All Result
FaharasNET
No Result
View All Result
ADVERTISEMENT
HomeFinanceBudgeting foundations

50/30/20 vs 70/20/10 budget choose best percentage split for you

Nodin LaramiebyNodin Laramie
6 May 2025 - Updated on 20 May 2025
Reading Time: 10 mins read
28
SHARES
110
VIEWS
Share on FacebookShare on Twitter

Finding the right percentage-based budgeting method is like searching for the perfect recipe. It must match your financial taste and lifestyle. Did you know 83% of Americans struggle with traditional budgeting?

“The best budget isn’t what experts say,” my financial advisor once told me. “It’s the one you’ll stick with.” This advice changed how I manage money.

When I started organizing my finances, I felt lost. But then I found dividing my income by percentages worked well. It gave me structure without the stress of tracking every penny.

Today, we compare two ways to split your monthly income. We look at the 50/30/20 rule and the 70/20/10 rule. The 70/20/10 rule is detailed in this article and is seen as more realistic by many.

By the end of this guide, you’ll know:

  • How each budgeting method works with your after-tax income
  • Which approach fits your financial situation better
  • How to start your chosen budget right away
  • How to adjust percentages for your financial goals

Origins and goals of each allocation model

The 50/30/20 and 70/20/10 budget models came from different times. They were made to solve money problems in different ways. Each one helps balance today’s needs with tomorrow’s dreams, but they started in different places.

The 50/30/20 rule started in formal money lessons. U.S. Senator Elizabeth Warren and her daughter Amelia Warren Tyagi wrote about it in 2005. They wanted a simple way to budget without getting lost in details.

Warren’s plan splits after-tax money into three parts: 50% for must-haves, 30% for fun, and 20% for saving. This has helped many middle-income families stay financially stable. It works well for those with steady jobs and not too much debt.

“The 50-30-20 rule is intended to help individuals manage their after-tax income, mainly for emergencies and retirement savings.”

The 50/30/20 rule is all about balance. It lets you enjoy life while working on your money goals. The 20% for savings and emergencies helps you move closer to financial security.

RELATED POSTS

Top Goal Based Investing Platforms Beginners Should Consider Today For Success

Top zero budgeting books every personal finance enthusiast should keep handy

What is zero budget method for creating consistent everyday money wins

The 70/20/10 budget came from real life. It’s not from a famous money expert. It started because housing costs went up and wages stayed the same. It shows that many people need to spend more on basics just to survive.

The 70/20/10 plan gives 70% to needs like housing and food, 20% for fun, and 10% for saving. It shows that for many, living costs take up more of their income.

Budget ModelNecessitiesDiscretionarySavingsBest For
50/30/2050%30%20%Moderate income, stable expenses
70/20/1070%20%10%High cost areas, lower incomes
Difference+20%-10%-10%Practical adaptation to reality

Both models aim to make money management easier. The main difference is how they balance today’s needs with tomorrow’s goals. The 50/30/20 rule is better for those with more money to save.

The 70/20/10 model is more realistic for those in expensive places or with less money. It says you might need to spend more on basics. Saving 10% is a start, but it’s better than not saving at all.

What’s great about these models is how simple they are. They’re not like complicated systems that track many things. These simple rules help make choosing how to spend money easier.

These models show how budgeting changes with the economy. Warren’s plan was for stable times, while the 70/20/10 came when housing costs rose too fast.

Choosing either model helps build good money habits. It’s about controlling what you must spend, not spending too much on fun, and saving for the future.

Side by side income distribution comparison

Let’s look at how each dollar is spent in two popular budgeting ways. These methods show big differences in what people value and how they manage money. They help organize your money into clear groups, but they do it in different ways.

Each system has its own way of dividing your paycheck. The 50/30/20 method puts half your money into needs, a third into wants, and one-fifth into savings. The 70/20/10 method, on the other hand, puts more money into needs and less into wants and savings.

Category50/30/20 Budget70/20/10 BudgetKey Difference
Necessities50% of income70% of income+20% for essentials
Discretionary30% of income20% of income-10% for wants
Savings/Debt20% of income10% of income-10% for financial future
Monthly Example ($5,000)$2,500/$1,500/$1,000$3,500/$1,000/$500$1,000 shift to necessities

Fixed Expenses Coverage Across Both Methods

The biggest difference is how each method handles fixed monthly costs. The 50/30/20 rule limits your needs to half your income. This makes you spend more carefully on essential things.

With the 50/30/20 method, your needs bucket must cover all these fixed expenses:

  • Housing (rent or mortgage payments)
  • Utilities (electricity, water, gas, internet)
  • Groceries and essential food
  • Transportation (car payment, insurance, gas, public transit)
  • Healthcare (insurance premiums, regular medications)
  • Minimum debt payments

This 50% cap works well in areas with moderate living costs. But in high-cost places like New York or San Francisco, it’s hard to stay under 50%. Housing alone can take 40-45% of your income.

The 70/20/10 method offers a more realistic approach. It lets you allocate 70% of your income to needs. This acknowledges the high cost of housing, childcare, and healthcare. The extra 20% helps families cover basic living costs.

Choosing between these methods means understanding what you can afford. List all your fixed expenses first. Then decide which percentage split fits your needs better.

Discretionary Spending Freedom Comparison Overview

How you spend your “fun money” shows a big difference between these methods. The 50/30/20 method gives you 30% of your income for non-essentials. This is money for dining out, entertainment, hobbies, travel, and small luxuries.

For someone earning $5,000 monthly after taxes, that’s $1,500 for wants. This big discretionary budget lets you enjoy life while staying financially disciplined. You can have that daily coffee, subscribe to streaming services, and go out regularly without ruining your finances.

The 70/20/10 approach cuts your discretionary spending to 20% of your income. With the same $5,000 example, your wants budget drops to $1,000 monthly. This is a $500 difference that makes you think harder about what you really want.

People adapt to this tighter budget by:

  • Prioritizing experiences over material possessions
  • Choosing free or low-cost entertainment
  • Being more selective about impulse buys
  • Focusing on hobbies that bring the most joy
  • Using the cash envelope system to avoid overspending

The key to success is knowing what’s a need and what’s a want. That gym membership? Unless your doctor says so, it’s a want. Premium cable? Definitely a want. By knowing where your money goes, you can spend more wisely.

Remember, the goal is not to deprive yourself but to spend on what truly adds value to your life. Both budgeting methods can help you do this. They just offer different balances between enjoying now and securing your future.

Spending Category50/30/20 Approach70/20/10 ApproachBest For
Dining OutMore freedom ($300-400/month)More limited ($200-250/month)50/30/20 offers more flexibility
EntertainmentMultiple subscriptions, eventsSelective choices, fewer options50/30/20 for entertainment lovers
ShoppingRegular non-essential purchasesMore thoughtful, occasional treats70/20/10 encourages mindfulness
Travel/HobbiesLarger budget for passionsRequires more saving/planningDepends on personal priorities

How percentages influence savings growth rate

Choosing to save 10% or 20% can change your future a lot. It might seem like a small choice now. But it can really affect your financial security later on.

If you make $60,000 a year after taxes, saving 20% means setting aside $12,000 each year. Saving 10% means setting aside only $6,000. That’s half as much saved each year.

Over time, this difference grows a lot. Let’s say you get a 5% return on your investment. Here’s what happens:

Budget MethodAnnual Savings5-Year Total10-Year TotalGrowth Difference
50/30/20 (20% saved)$12,000$69,600$155,000+$77,500
70/20/10 (10% saved)$6,000$34,800$77,500–
Hybrid (15% saved)$9,000$52,200$116,250+$38,750

After 10 years, saving 20% can mean having about $155,000. Saving 10% means having only $77,500. That’s a big difference of $77,500! This gap grows every year because of compound interest.

More savings means you can handle unexpected costs better. This gives you peace of mind. It’s hard to measure, but it’s very valuable.

For big goals like buying a house or retiring, saving 20% helps you reach them faster. You’ll get there months or years sooner than with saving 10%.

But even saving 10% is better than the national average of 3.4%. As of June 2024, Americans save very little. So, 10% is a big step up.

I’ve helped many families change their savings over time. They start with 70/20/10 and then move to 60/25/15 and 50/30/20 as they make more money or pay off debt.

If saving 20% is hard right now, don’t worry. Start with what you can, even if it’s just 5%. The goal is to save regularly and increase your savings over time.

Remember, saving is not just for fun later. It’s about having options and security for your future. Every extra percentage point you save grows your money faster through compound growth.

“The best time to plant a tree was 20 years ago. The second best time is now.” This old proverb applies perfectly to saving money – start where you can, but start today.

For those with irregular income, save a percentage of each paycheck. This way, your savings adjust with your income each month. It makes saving easier during tough times.

How much you save shows your commitment to financial freedom. Whether it’s 10%, 20%, or something in between, saving regularly helps you reach all your financial goals.

Adapting splits for irregular income earners

When your income goes up and down like a roller coaster, budgeting is harder. I learned this when I was freelancing before Fahras. You need to adjust the 50/30/20 and 70/20/10 methods to fit your income.

First, find your average monthly income. Use at least six months of data. This average helps you decide how to split your money.

When you make more money than usual, spend normally. But save most of the extra money.

Freelancers and those with variable income should try a three-tier approach:

  • High-income months: Use a 40/20/40 split (40% needs, 20% wants, 40% savings) to save more
  • Average months: Stick to your chosen method (50/30/20 or 70/20/10)
  • Low-income months: Use 80/10/10 or 90/5/5, using savings if needed

What you spend on fixed costs like rent and utilities helps decide your budget. If these costs are high, the 70/20/10 method might be better. Freelancers with lower costs might prefer the 50/30/20 method for saving more.

Automating savings is key for variable income. Set up automatic transfers to your savings when you can. This helps you save without spending extra money.

Buffering Variable Months with Reserves Built

Building a buffer is important, no matter your budget method. The 50/30/20 method already saves 20%, which helps build reserves. For variable income, save 10% of your income in a special fund.

This fund is for smoothing out income changes. It’s different from your emergency fund. Once it covers 3-6 months of expenses, you can save more for long-term goals.

The 70/20/10 method has less for savings. You need to plan carefully. Here’s how to split your money:

Income PeriodNeedsWantsSavingsBuffer Strategy
High Income70%10%20%Double savings rate temporarily
Average Income70%20%10%Split savings: 5% buffer, 5% long-term
Low Income80%10%10%Use buffer funds if needed

Use your buffer only when really needed. I suggest using it when your income drops 20% or more. This keeps your savings safe for emergencies.

Zero-based budgeting works well with variable income. It means every dollar has a job. This helps avoid spending too much in good months. Many apps now help with variable income.

If you have credit card debt, adjust your budget to pay it off faster. Use 15-20% of your high-income months for debt. This will help you get out of debt quicker.

Remember, these are just guidelines. The goal is to be financially stable and reach your goals. Adjust your budget based on your unique situation.

Long term sustainability pros and cons

Any budgeting system is tested over years, not just months. I’ve helped many families with percentage-based budgeting. I’ve seen patterns in how each method works over time.

The 50/30/20 method is great for long-term money health. It saves 20% for savings and debt, helping you grow wealth and prepare for emergencies. Clients often build big emergency funds in 18 months, feeling safer than before.

This high savings rate also helps pay down debt fast. One client paid off $24,000 in credit card debt in two years. After paying off debt, they use that 20% to grow their wealth.

The 30% “wants” category in 50/30/20 also helps. It stops you from feeling too deprived. This way, you’re more likely to stick with your budget because you have room for fun.

But, 50/30/20 can be tough in expensive places. Housing and basic needs can take up more than 50% of income. Families in San Francisco and New York often struggle to stay under 65% without big lifestyle changes.

“I tried forcing our family into the 50/30/20 model for six months, but with Bay Area housing costs, we were constantly stressed and felt like failures. Switching to 70/20/10 brought immediate relief and we actually stuck with it.”

– Client from San Francisco

The 70/20/10 method works well in high-cost areas. It lets you keep more money for essentials, reducing stress. It’s good for those with big fixed costs like housing or childcare.

But, 70/20/10 saves less, slowing down your financial growth. You might face more unexpected costs and need to work longer for retirement.

Often, the best budgeting method changes as your finances do. Many start with 70/20/10, then move to 60/25/15 or 50/30/20 as they earn more or pay off debt.

Budget ModelLong-Term StrengthsLong-Term ChallengesBest For
50/30/20Faster wealth building, stronger emergency fund, balanced lifestyleDifficult in high-cost areas, may require lifestyle downsizingModerate cost-of-living areas, debt reduction focus
70/20/10Less daily budget stress, accommodates higher fixed costsSlower progress to financial goals, less emergency capacityHigh cost-of-living areas, early career stages
Evolving ApproachAdapts to changing circumstances, grows with your journeyRequires regular reassessment, adjustment periodsLong-term financial growth, changing life stages

The key to lasting success is not sticking to one plan but making steady progress. Your budget should grow with you. Many use budgeting apps to track and adjust as needed.

Remember, these are tools, not strict rules. The best plan is one you can keep up with and reach your financial goals. Sometimes, starting with 70/20/10 and moving to 50/30/20 is the best way to go.

Choosing percentage balance based on goals

I’ve learned that the right budget split depends on your life. Your budget should match your current situation, not just follow a formula.

If you’re fighting debt hard, the 50/30/20 rule helps. It lets you save 20% for savings and extra payments. This is great for saving for a house or growing your retirement.

In expensive cities, the 70/20/10 rule is better. It gives you room to breathe. You save 20% for the future and enjoy 10% of your income.

Your income level also plays a part. If you earn more, 50/30/20 might work for you. But if money is tight, you might need to save 70% for basics first.

The key is to start with a method that feels right. Then, track your spending for two months and tweak as needed. You might end up with 55/25/20 or 65/15/20. What’s important is saving regularly and enjoying life too.

Remember, these are just guidelines. The best budget is one you can stick to every month. It helps you build the future you dream of.

Tags:beginnerbudget design methodszero-based budgeting
Share11Tweet7
Nodin Laramie

Nodin Laramie

Dr. Nodin Laramie is a Portland, Maine CFP who erased $80k debt then guided a bank’s budget clinics. For 15 years he’s coached 1,200 families, turning behavior science into simple Maine‑savvy tips that stretch paychecks and build steady savings.

Related Posts

Budgeting foundations

How to make 50/30/20 budget with clear practical step by step

Budgeting foundations

How to stick to 50/30/20 budget without constant willpower battles

Budgeting foundations

50/30/20 budget for beginners simple steps toward money confidence today

Budgeting foundations

50/30/20 needs vs wants categories for confident everyday spending choices

Budgeting foundations

50/30/20 budget for college students easy campus money management plan

Budgeting foundations

50/30/20 budget for teens explained step by step for beginners

Leave a Reply Cancel reply

Your email address will not be published.Required fields are marked *

I agree to the Terms & Conditions and Privacy Policy.

Recommended Stories

Why budget before buying protects your first home investment decision

Investment Goal Planning Basics Every Beginner Should Master Early On

House poor meaning and steps to avoid becoming financially strained homeowner

Popular Stories

  • Dr nodin laramie-photo landscape

    Should I use 50/30/20 budget versus other personal budgeting styles

    54 shares
    Share22Tweet14
  • How to verify blockchain transaction check every transfer on chain easily

    43 shares
    Share17Tweet11
  • What is zero based budgeting and why beginners gain control fast

    38 shares
    Share15Tweet10
  • What is zero paycheck budget and why irregular earners need it

    35 shares
    Share14Tweet9
  • Characteristics of a good investment goal every beginner should know

    33 shares
    Share13Tweet8
FaharasNET logo Small

FaharasNET is an online hub that delivers clear, practical guidance across finance, investing, real estate, insurance, legal, and crypto topics—tailored for readers in the all region.

Categories

  • Blockchain basics
  • Budgeting foundations
  • Crypto Wallet
  • Home-buying steps
  • Investing fundamentals
  • Policy fundamentals
  • Tenant & landlord law

© 2019 - 2025 Faharas.net - Personal Finance & Investing magazine by FaharasSITE.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
No Result
View All Result
  • Finance
  • Investment
  • Crypto
  • Real Estate
  • Insurance
  • Legal Guides

© 2019 - 2025 Faharas.net - Personal Finance & Investing magazine by FaharasSITE.

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.