By Priya

February 22, 2021


Show notes

🎙 In part 1 of my 3-part deep dive series, we’re taking a close look at the 50 / 30 / 20 budget method. It’s super popular because it’s quick, it’s easy and it’s simple. But does that mean it’s good enough for you and the life you’re trying to build? 🤔

This episode discusses topics like:

  • How to budget (the right way) using the 50 / 30 / 20 rule;
  • Who the 50 / 30 / 20 budget is good for and who it isn’t a perfect fit for; and
  • Why the 50 / 30 / 20 budget rule is dangerous for building wealth, getting control of your finances and building the life you were meant to live. 

Links from this episode:


Hello and welcome back to the Girl on FIRE podcast!

My name is Priya, I’m a Chartered Accountant, an analyst and the creator of Paper Money Co. 

I’m also the host of this podcast and I believe that a financially empowered woman is an unstoppable force of change in her own life and in the world.

This episode kicks off part 1 of a 3-part series where I’m taking a deep dive into three popular budgeting methods. 

In last weeks’ episode we talked about why budgeting is so important if you want to achieve financial independence.

So, if you think you don’t need a budget or that you can’t budget, I highly suggest that you go back and listen to that one, first. 

Today, we’re going to be talking about the 50 / 30 / 20 budget which is a popular budgeting method because it’s quick, it’s easy and it’s simple.

It was actually popularised by Senator Elizabeth Warren but it’s also been recommended by a bunch of financial experts out there. 

This is probably going to be a long episode with a lot of information, so go get a snack, get some coffee. If you’re able to, get a notebook and take some notes.

Bookmark this episode to return to it when you’re working on your budget. The transcript is also up on my website

So, what is it?

What is the 50 / 30 / 20 budgeting rule?

The 50 / 30 / 20 rule is a rule for how you should allocate your after tax income — it’s really important to note that this budgeting system is talking about your after tax income. It says that:

  • 50% of your income should be allocated to your needs like food and housing;
  • 30% of your income should be allocated to your wants like eating out and entertainment; and
  • 20% of your income should be allocated to savings and debt repayments.

So, as an example, if your monthly after tax income was $5,000, you’d be spending $2,500 on needs, $1,500 on wants and $1,000 on your goals.

Is this a hard and fast rule? Absolutely not — or at least it shouldn’t be but we’ll get into that in just a second. 

For now, I want to point out that there are some variations on the simple 50 / 30 / 20 rule. 

And I don’t mean in terms of adjusting the percentages, I mean there are similar methods out there which actually simplify things even more. 

Variations on the 50 / 30 / 20 budget

One of those methods is an 80 / 20 budget — for a budget like that you’d allocate 80% of your after tax income to spending and the remaining 20% to saving and debt repayments. 

It’s essentially the same thing as a 50 / 30 / 20 budget because you’re still allocating money into spending and saving. 

But the difference is that a 50 / 30 / 20 budget forces you to separate your needs from your wants.

An 80 / 20 budget still gets you the same results in terms of what you’re spending or setting aside for your goals. 

But you can’t differentiate between needs and wants.

Although, to be honest, if you’re going to be allocating a set percentage to savings and goals, then it doesn’t really matter what you spend the rest of your money on. 

I’m sure you’re not going to be saving money for a trip to Disneyland if you can’t feed yourself. 

So, I just wanted you to know that there are some variations on the 50 / 30 / 20 rule, but for the purposes of this episode and this deep dive series, those aren’t important.

Things to consider when setting your budget

Okay, so now that we’ve covered what the 50 / 30 / 20 budget is, I want to take some time to draw your attention to 3 important things you need to consider with a budget like this.

Are the percentages set in stone?

First, the most common question (or criticism, depending on who you ask) is whether the percentages are set in stone. 

And the answer is no. Your budget is never set in stone, unless, you know you’re prehistoric. It needs to reflect your life and circumstances and be realistic.

If that means that it doesn’t perfectly follow the 50 / 30 / 20 rule then that’s perfectly okay. 

In fact, I’d actually never recommend that you use the 50 / 30 / 20 rule as is — I always recommend that you figure out your own percentages, and I’ll get into how to do that a bit later in this episode.

And if you’ve been listening to Girl on FIRE for a while, you know how I feel about rules, it’s something I’ve ranted about in a few different episodes at this point. 

The 50 / 30 / 20 rule can be considered a good guide or benchmark, particularly when people are wondering how much they should be saving.

But that doesn’t mean it’s going to be the best budget for you. And it certainly won’t be if it doesn’t reflect how you actually spend your money.

So, the percentages are never set in stone — they can be 60 / 10 / 30 or 40 / 50 / 10 or whatever. But it needs to reflect your reality. 

It’s also important to note that your life isn’t the same every month either. You might be spending a lot more on wants this month and not so much next month. 

So, these high level percentages can fluctuate from month to month, as well, depending on what’s going on in your life.

I like to think of it more as a needs / wants / goals budget instead of set percentages.

Is 50% for needs too low?

The next thing to consider, which is probably the most important one, is whether 50% of your net income is too low for your needs. 

Depending on your life and your circumstances, or where you live, it could be. And for a lot of people it is. 

And this is why I don’t like the 50 / 30 / 20 rule, because you know that somewhere out there is someone who thinks they’re doing it wrong because they’re spending more than 50% on their needs. 

And that bothers me because when people think they’re doing it wrong, they think they’re failing. And that they suck at budgeting. They lose motivation and stop trying. 

They don’t get all the benefits that budgeting gives you like a roadmap to your financial success or the freedom and flexibility to spend. And I really hate that.

Now, if you were spending more than 30% on wants, then you can usually try to cut back somewhere to fit the rule. 

But there’s only so much you can change with your needs because, well, you need those things. 

You need somewhere to live, you need food, you need to be able to keep the lights on and drive to work or pay for your medication. 

It’s honestly a bit naive to think that everyone’s life fits into one specific rule where their expenses can be split by 50 / 30 / 20 percent.

So, if you create a budget like this and you’re spending more than 50% on your needs I recommend you just go back through and look over your spending. 

Make sure you categorised everything correctly according to your own definition of what’s a need and what’s a want in your life. 

But if you’re still coming up with more than 50% for your needs then that’s just the way it is. You’re not doing it wrong, you’re just doing it differently.

What should you do with the 20% goals portion?

Another thing to consider is what to do with the 20% goals portion of your budget. 

According to who you ask, it’s going to change. Some say you should be saving the 20%.

Some will say that the 20% goes to debt repayments, or a combination of saving and paying off debt. 

But another thing to consider is whether you’re going to be investing any of that 20% for your long term goals like retirement. 

Is 20% even enough for you and your goals? Or maybe it’s too much, maybe you aren’t able to dedicate that much of your income to goals. 

The way that the rule is set up also does’t give a lot of detail into what your goals are. Because some goals are going to be more important to you than others. 

You’ll have higher priority goals and lower priority goals. And you might not allocate money to them all equally. 

Also, the 20% savings is itself a bit vague. Is this relating to saving for your emergency fund or for investing? Or does it include sinking funds?

Your 20% savings might also be too low. I don’t like it as a rule that you should be saving at least 20% because you might decide to spend all the rest of your money.

But you could make a lot more progress on your goals if you were spending 20% on wants and 30% on goals. 

There isn’t a lot of room to reflect your values and your priorities in this type of budget.

So, these are some things to look out for it you’re trying to budget with the 50 / 30 / 20 rule.

Your definition of needs, wants and goals might be different

The last big thing to consider is what your definition of needs, wants and goals is. 

Because what you determine to be a need or a want is going to impact what your budget looks like. 

And it’s going to be different from how everyone else on the internet defines their needs and wants. 

For example, your gym membership might be a need for you. It’s how you stay healthy and relieve stress and its non-negotiable. 

But for someone else on the internet, it’s a want. Which means it’s one of the first things on the chopping block when they want to cut costs.

And I bring up comparisons like this because the truth is that people on the internet are mean — not all of them, of course, but the mean ones stick out.

They’re going to judge you for making too much, or not making enough, or spending too much or choosing one investment over another. 

All that judgement weighs on you. And it makes you think you’re not doing it right and that’s really disheartening. 

But it’s your life and your budget. It doesn’t need to make sense to anyone else but you.

Like I said in last weeks’ episode, the best budget for you is the one you can understand and stick with. It doesn’t matter what Joe Internet says.

Joe Internet doesn’t live your life, so he doesn’t get a say.

How to make a 50 / 30 / 20 budget

Okay, so let’s move on to how to actually set a budget using the 50 / 30 / 20 rule.

It’s a super simple way to budget. That’s why it’s so popular. You can have your entire budget set within a few calculations. 

And you don’t need to meticulously categorise your expenses. As long as you can tell the difference between a want and a need, you’re good to go. It’s like 2-minute noodles.

But I like to say that there are two ways to set a budget — any budget, for that matter, not just the 50 / 30 / 20 method. 

There’s the easy way, and the best way.

The easy way

So, let’s talk about the easy way first because there’s so much to say about it. 

First, you start with your after tax income. Now, this needs to be minus any mandatory deductions like retirement contributions as well. 

So, for my listeners here in Australia, it needs to be after superannuation, after tax and after HELP deductions.

It’s the money you receive in your bank account. That’s what you’re budgeting with. 

Then, you multiply that by 0.5 to get 50% of your income. Super easy, right? That’s the portion of your income that will be allocated to your needs.

And then you do it again to figure out how much to allocate to your wants — take your total after tax income and multiply it by 0.3 for 30%. 

For your savings portion, you take your after tax income and multiply by 0.2 for 20%. 

And that’s your 50 / 30 / 20 budget done!

The best way

But the easy way to set your budget isn’t always the best way. 

We talked about this in last weeks’ episode but in order for your budget to work for you, it needs to reflect your life and how you spend your money. 

And that means that you can’t just rely on the 50 / 30 / 20 percentage split and call it a day. 

You need to figure out those percentages for yourself. How much do you spend on wants? How do you classify what’s a want and what’s a need?

When you’re starting a new budget, it’s likely that you don’t know the answers to those questions. 

So, that’s something you’re going to need to figure out for yourself. How? By going through your expenses, categorising them and calculating them.

You can either do this over the next 30-90 days, or you can go back through your transaction history on your bank statements now to figure it out. 

You can either go through each expense individually, or you can define certain expense categories as being needs and certain ones as wants, that’s often an easier place to start.

Just be mindful of infrequent bills like quarterly or annual bills. 

Calculate how much that would be per month if you were to turn it into a sinking fund and set money aside for it every month until it’s due.

For example if your utilities are $450 per quarter, that would be $150 per month.

Also remember that you need to be consistent with how you classify things as a want or a need. For example, your Netflix subscription can’t be a need this month and a want next month. 

You won’t be able to see accurate trends in your budget if you mix up the classifications like that. 

But being consistent with how you classify things does’t mean that your percentages need to stay the same. You can change them up when you need to, as long as it’s still realistic.

Once you know the real percentages you spend on needs, wants and goals, you can allocate your income accordingly. 

Then, you’d track your expenses during the month and classify them as needs, wants or goals. And again, you can do each expense individually or entire categories.

In preparing for this 3-part series, I actually ran my budget using the three different methods in one month to see how my budget changes and see how my understanding of my money changes. 

The thing that stuck out to me the most was that my actual percentage split between needs, wants and goals was very different, but I’ll get into that a little later in the episode. 

Benefits of the 50 / 30 / 20 budget method

So, in the next part of this episode comes the fun part. We’re going to be making a pros and cons list for the 50 / 30 / 20 rule. 

Then, we’ll go through who this method is good for and who should probably keep shopping around for a more suitable budget. Let’s start with the pros.

Quick and easy

The first pro, of course, is that the 50 / 30 / 20 budget is really quick and easy, really low effort. Once you’ve figured out your own percentages, it honestly takes 2 minutes and 3 simple calculations to set your budget.

Needs vs wants

It’s also a really good way of tracking your expenses because it forces you to consider what’s a need and what’s a want. 

You can see, at a glance, whether you’re spending more on essentials or lifestyle costs. 

I actually categorise all my budget categories as needs, wants or goals, even though I don’t use the 50 / 30 / 20 method in my normal budget.

It just gives you a nice, really high level overview of whether or not your spending reflects what matters to you.

Consistency without being strict

The 50 / 30 / 20 method also allows you to be generally consistent with your finances without being overly strict or having a lot of control. 

If you just want to know that you’re spending a portion of your income in a certain way, then this method gives you that. 

For example, if you want to be spending 30% on lifestyle costs, then you can easily see whether you’re heading in the right direction. 

A good budgeting & saving system for beginners

And all of this means that the 50 / 30 / 20 method is actually a good budgeting and saving system for absolute beginners. 

If you’ve never budgeted before and you’re feeling overwhelmed and lost, then it’s a good place to start, but I don’t recommend this as a long term option and I’ll get to why in just a second. 

But having those percentages as guidelines is kind of like having the guard rails on so that you don’t screw up too badly when you’re just figuring things out.

And then as you get better at budgeting and more confident in yourself and your own choices, then you can graduate to more advanced and, in my opinion, better methods, which is what I’ll be covering in the next two episodes of this series.

Disadvantages of the 50 / 30 / 20 budget method

Okay, so now for the cons of the 50 / 30 / 20 budget.

Doesn’t prioritise your goals

The first one is that the 50 / 30 / 20 budget doesn’t prioritise your goals. Yes, your needs should come first, I don’t dispute that. 

But unless you make the conscious effort to adjust the percentages, you’re spending more on your wants than your goals. 

Which is kind of like enjoying the moment now (which I fully support, don’t get me wrong) but at the expense of your future.

Not only that, but when you’re only allocating a certain percentage to your goals, you’re not cutting expenses left and right in order to have more money for your goals. 

So, for example, let’s say you’re trying to build your emergency fund or pay off your debt.

And you know that every dollar helps. But whether you’re allocating 20% to your goals or 35%, you’re not necessarily putting every dollar towards your goals that you can realistically afford to. 

So, while you’re still allocating some money to your goals, it’s still on the back burner. It’s not your highest priority. 

And if your goals are your highest priority after making sure your survival costs are met, then this isn’t the budget for you. But I’ll get into that a bit later in this episode.

Doesn’t specifically account for retirement and long term investing

Following on from that, the official 50 / 30 / 20 rule says that 20% should be allocated to savings and debt repayments. 

It actually doesn’t say anything about investing for long term goals like retirement, as far as I’m aware. Feel free to send me an email if I got that wrong.

And that’s a huge disadvantage of this system in my eyes. Because, if you listened to episode 2, you know how important it is to be investing. 

Saving your money isn’t enough. And especially as women, investing is super important. 

But I don’t think the 50 / 30 / 20 method really highlights that. Because the truth is that within that 20% of income for your goals, you need to save, invest and pay off debt. 

You need to be able to balance all these goals while still paying for your essentials and living your life now. 

And I really don’t think this method allows for that. Now, don’t get me wrong, balancing all those things is more of an advanced budgeting issue. 

So if you’re new to budgeting and that scares the hell out of you then don’t worry. 

Everyone has to start somewhere, and that’s the most important thing — starting.

I just want you to know that while the 50 / 30 / 20 budget is a good starting step at the very beginning, it’s not what I’d recommend for the long term.

Doesn’t include organising your bills

Also, the 50 / 30 / 20 budget system as it stands doesn’t include any way to organise your bills.

Yes, ideally everything is on auto-pay or direct debit but you still need to understand what’s due, when and how much. 

Because you need to make sure you actually have that money in the account ready to go when the automatic payment is processed.

If you wanted to use this budget method, you’d need to have a separate system for actually managing your bills and making sure they’re paid on time.

Harder to identify problems or expenses to cut

Another big con is that the 50 / 30 / 20 method is a very broad, high level overview of your finances. 

All you know is how much you spend in each general area but it’s not specific enough to allow you to identify any problem areas.

And that means that it’s also not specific enough to really cut costs. Let’s say that you want to put some more money towards your goals.

Your income isn’t changing so you know you need to make cuts somewhere. How much can you cut? Where can you cut it from?

It’s going to be really hard to answer those questions without the transparency and awareness of where all your money is actually going.

The kind of analysis that you need to be able to do that and to see trends isn’t possible with a budget like this.

Because it’s not enough to just say you’ll cut back on your wants. You need to know where those cuts are coming from.

Are you cutting back on shopping, or eating out or travelling? It’s important to know that because you need to make sure that your budget will still be realistic. 

Because a realistic budget is the only one that you can stick to. It’s the only one that doesn’t feel restrictive and miserable.

But it’s a lot harder to make realistic cuts when you can’t see where the money is actually going.

Can’t get intentional about your spending

And following on from that, when you can’t see what you’re spending your money on, it’s hard to be intentional about your spending. 

The goal with intentional spending is to spend your hard earned money on things that really matter to you — things that bring you joy or add value to your life.

You eliminate everything that doesn’t fit that description. And it’s hard to do that when you can’t see where your money is going. 

Yes, you’re still tracking your spending with a 50 / 30 / 20 budget. But if your budget is that simple, chances are that your not going to spend time looking over your transactions. 

If that’s what you want to do, then this isn’t the right budget for you because that’s not what this method is about. 

Determining your needs vs wants vs goals is subjective

Onto our next con — and we talked a little bit about this before, but how you define what’s a need and what’s a want is subjective.

And yes, you can avoid people on the internet who judge you for your choices — in fact, I encourage it. 

But what if you’re trying to run this budget as a couple? You might both have different ideas about what classifies as a need or a want. 

Or even your shared goals might have a different priority level. 

The 50 / 30 / 20 budget really isn’t flexible and sophisticated enough for all that complexity. 

Sure, you can try but it’s going to be a lot of work to manage it, and at that point you may as well try a different approach. 

One that’s more suited to your life and your circumstances.

Only works for an average income earner

And now for what I think is the biggest con of all — this budget only works well for an average income earner. 

It penalises you if you earn above average income and also if you’re a low income earner.

Unrealistic for low income earners

When you earn a low income, then the proportion of income you actually spend on needs, wants and goals looks very different to the 50 / 30 / 20 rule.

You might be spending a much higher percentage on your needs. And you don’t have a choice. You need a roof over head and food on the table. 

That’s non-negotiable. Your needs might take up 60% or 75% of your income. Maybe even more. And then you have to kind of choose between your wants and your goals. 

So the percentages in the 50 / 30 / 20 budget might be super unrealistic for you. You need to make every dollar stretch as far as possible.

And of course you can adjust the percentages, but if you’re a beginner then this goes back to the argument I was making about rules last week. 

You can’t just throw out a rule and tell people to change it when they highlight why it doesn’t work. 

Most of the time, if you’re relying on the rules then you’re probably super overwhelmed and you don’t know what to do. That’s why you sought out a rule. For help, for guidance.

And when the rule doesn’t work for you, it does’t help when the response is “so change it then”.

So, the best option is to realise that this is probably not the right budgeting method for you and to try something different instead.

Unrealistic for high income earners

Following on from that, the 50 / 30 / 20 budget can actually be super unrealistic for high income earners, too, but in the other direction. 

By following the set percentages, you could be budgeting way too much for each area. And that can lead to some irresponsible behaviour on your part. 

And I say irresponsible not because I’m sitting here trying to judge you like Joe Internet.

I’m saying it because there’s nothing wrong with spending money, loads of money, on what you value and what brings you joy. 

But only if you sat there and planned out how many dollars you wanted to spend, and you’re going to spend it intentionally. 

When you have a high budget just because you applied a rudimentary percentage, and you take that as permission to spend that way — that’s irresponsible.

That doesn’t serve you and or help you build the life you were meant to live.

Hard to consider weekly / bi-weekly or irregular income

Another con is that the 50 / 30 / 20 budget only works well if you get paid a consistent income and on a monthly basis. 

It really doesn’t work if you get paid weekly or fortnightly, because you’re setting a budget for a month but you don’t get paid that way. 

Your spending habits may change throughout the month, especially around the time you get paid. 

Also, when you’re paid multiple times per month, it’s much harder to cover big expenses like the rent or mortgage from one single paycheck.

You need to manage your cash flow across all your pay checks to make it work and this method doesn’t allow for that.

Not to mention, if you’re paid an irregular income then this absolutely won’t work. You don’t pay 10% less on your rent if your income came in below budget this month. 

So, this method really penalises you if your income is irregular, like if you’re a freelancer or if you’re self employed.

It’s not a set-it-and-forget-it type deal, you’ll need to be constantly reviewing and adjusting your percentages. But you won’t be able to decide which non-essential costs to cut when money is tight.

Lifestyle inflation is built into the budget

On to the next con — the 50 / 30 / 20 method has lifestyle inflation baked into it. Anytime you’re budgeting with percentages, you’re budgeting for lifestyle inflation. 

So, what is lifestyle inflation? It’s the way your expenses increase as your income increases. Essentially, the more you earn, the more expensive your lifestyle becomes. 

And this can be really dangerous because it means that any pay increase you earn is being spent — and not always intentionally. And it’s not being put towards your goals. 

Let’s say you’re budgeting by dollars and you earn an extra $400 per month. You can choose where every dollar of that pay rise will go. 

You can put an extra $50 towards a nice dinner out every week and $350 to paying off debt. 

Or you can decide to add $100 to your fun budget and start shopping only organic groceries for an extra $300.

You get to decide. But when you budget with percentages, the choice is made for you.

If you earn an extra $500 a month and follow the 50 / 30 / 20 rule, then your automatically budgeting adds an extra $250 for your needs, $150 for your wants and $100 for your goals.

You’re not intentionally making the choice — you’re letting the rule do it for you.

Yes, you can change this, but you have to put in the time and effort to change it and a lot of the times when people choose this budget it’s because they want to minimise the time and effort they spend crunching numbers.

Limited customisation

I’ve made it to the last con on my list, but by no means is this list exhaustive. The 50 / 30 / 20 budget has very limited room for customisation. 

You can adjust the percentages and change the definition of a need and a want, but that’s really about it.

It’s just not detailed and transparent enough to allow you to fully customise it for your unique and beautiful life. 

And when a budget isn’t a true reflection of all the complexities of being you, then it’s not going to work. It’s going to feel restrictive and you won’t be able to stick to it. 

Or if you’re a masochist, you probably could stick to it if you really tried, but you won’t be happy about it. 

And life is way too short and way too precious to spend it being miserable.

Who it’s good for

Okay, we’re almost there, friends, just a little bit more to get through and then I want to share the results of my little experiment with you. 

So, now that we’ve gone through this giant list of pros and cons — who is the 50 / 30 / 20 budget good for? Who do I recommend should give this a try?

This will be a bit of a recap over all the considerations and pros and cons we’ve gone over in this episode so far.

#1 Absolute beginners

And I mean absolute beginners. It’s the training wheels of budgets. And when you’re first getting started, budgeting can be confusing and overwhelming. 

It takes time and effort to get into a groove with it and figure out how to incorporate it into your life. 

And I really don’t want you to get frustrated and upset and give up before you’ve really been able to experience the benefits of budgeting. 

Not just for your life now, but for your dreams in the future and building the life you were meant to live.

So, if you’re a beginner, then try it out. It doesn’t have to be forever. Finding the right budgeting method is just like shopping for shoes. 

Try them on, walk around a little bit. See if it hurts — maybe you need to change sizes or maybe you need to try another shoe altogether.

#2 People on average income with very simple finances & goals

Like I said before, it just doesn’t work if your income is low or high, it really needs to be average. 

And average will also depend on where you live, because expenses are different in different parts of the world and different parts of the country.

Also, the more complex your goals are the harder it is to really customise this budget or make intentional choices to support those goals. 

#3 Those who earn a fixed monthly salary

If you’re on a fixed monthly salary, then it’ll work. So if that’s you, then consider trying this method out. 

At least just try it out to see whether you like it or not. If you love it, then great, if not then you can start trying something new.

Who it’s not good for

Okay, so now for the other side of the coin. Who wouldn’t I recommend the 50 / 30 / 20 method to?

#1 People who want more control or transparency

If you want complete control over where your money goes, and you want to see where it all ends up then this is not the budget for you. 

I fall nicely into this category. I want to see where all my money is so that I have the choice to allocate it to different areas of my life. 

If you’re trying to cut your expenses in order to save money or pay off debt or invest, then this also isn’t the budget for you. 

There just isn’t enough detail in it to be able to really analyse it and make those kinds of decisions.

#2 Low & high income earners

As I mentioned before, if you earn above or below an average income, then this method won’t work for you. 

We’ll be covering percentage based budgets next week, so that might be a better option for you. 

#3 Those living paycheck to paycheck

The same applies if you’re trying to break the cycle of living paycheck to paycheck. 

Avoiding that cycle requires tenacity and dedication and a lot of information, which a 50 / 30 / 20 budget just doesn’t provide. 

You really need to be hyper aware of where every single dollar is going and you need to be able to redirect your money. 

So, I really don’t recommend this method if that’s where you are on your financial journey.

#4 People who want to prioritise their goals

I also don’t recommend it if you want to prioritise your goals. Yes, you can put more than 20% towards your goals, but it’s still too vague. 

If you’re like me and you’re prioritising your goals, then you want to be able to put as much money towards them as possible. 

And that means you need more control over your budget than you can get with the 50 / 30 / 20 rule. You want to make every dollar count.

You probably also have multiple goals that have different levels of priority as well, and you’re trying to balance all that with paying for necessities and living life.

It’s really hard to do all that with this budget. You’ll see how I struggled with it in my experiment in just a second. 

#5 Anyone who doesn’t earn a fixed monthly salary

And the last one — if you don’t earn a fixed monthly salary, then this isn’t the right budget for you. It’s just not designed to work with those complexities.

It won’t take your weekly or fortnightly pay checks into account, and it’s quite problematic for those who are freelancers or self employed and earn an irregular income. 

My experiment with the 50 / 30 / 20 budget

Okay, so I want to end this episode by sharing my own experience with the 50 / 30 / 20 budget, or a needs / wants / goals budget as I prefer to call it.

Like I mentioned before, I used all three budgets in one month to compare them and see how I, I guess, reacted to each of them.

And by all three, I mean the 50 / 30 / 20 budget, percentage budget and paycheck budget which were the three budgets we talked about in last weeks’ episode.

Full disclosure here — I have tried the 50 / 30 / 20 budget in the past, but I honestly didn’t try very hard. 

Not because it’s so easy that I didn’t need to, but because I quickly realised that it was just too simple for me and that it wasn’t telling me the things I wanted and needed to know. 

So, I gave up on it, moved on and tried something else. Remember what I said? You’ve got to try on budgets like you try on shoes until you find something that fits. 

I do still like to figure out how much of my income goes towards my goals. That’s still very important to me. 

But it’s more of an FYI instead of the crux of my budget. And it’s also because understanding your savings rate and how much it costs to cover your lifestyle are important factors in calculating when you can retire. 

That’s something for future episodes, though, so I won’t get into it now. But suffice it to say that even though I don’t budget with this method, I do still use some elements of it to create a holistic picture of my finances.

When I tried to actually take my income and divide it into the 50 / 30 / 20 portions, it was a mess.

It was really straightforward to get the numbers, but they made absolutely no sense for me and my life. 

I looked at this 2-minute budget I created and it was meaningless. I just couldn’t work with it.

I had no idea what was included, what I was planning to spend money on, how much I wanted to save or invest. I couldn’t even tell when my bills were due.

And I thought to myself, well, it’s a 2-minute budget, you’re going to get a 2-bit result. It just did not work for me and I hated it. 

I couldn’t work with it at all and it made me afraid to spend any money because I didn’t know what I was giving myself freedom to spend on. 

I really need the detail and the control, so the 50 / 30 / 20 budget just isn’t for me. 

But I did go back and analyse the results of my budget for last month for the purposes of my experiment. 

I wanted to see what my actual percentages would be and if that would make it any easier. I didn’t categorise every single expense as a need or a want. 

I just determined which categories were a need and which ones were a want. So, here’s how my categories were broken down.

Priya’s needs

Things that were classified as needs were:

  • rent;
  • food;
  • utilities including internet and mobile data;
  • car expenses like petrol and insurance
  • health which for me is prescription medicines including birth control; and
  • clothes, which were basics like undies as opposed to tailored dresses.

These needs accounted for about 39% of my income, which is quite different to the 50% rule.

It doesn’t mean that I don’t value those things because I don’t dedicate as much money to them. I absolutely do. 

But it means that those expenses as a proportion are low compared to my income. 

Because my income is higher than the average income the 50 / 30 / 20 rule is based on. So, 50% for needs doesn’t make sense to me. 

If I were to follow the rule, I’d be paying a ton on rent and probably have super expensive groceries. 

But that would mean much less income leftover for my goals. So, the rule already doesn’t make sense for me. It really doesn’t reflect the choices I make. 

Another thing to note is that the household expenses like rent, food and utilities, are being split with my husband. 

And we do a sort of 60 / 40 split when we split expenses because our incomes aren’t the same but I’ll get into that in another episode.

But for about 5 years, I was the only source of income for our family. And during that time, I was paying for everything from my income. 

So, the way my income was split between needs / wants / goals was very different.

Priya’s wants

Things that were classified as wants were:

  • entertainment;
  • subscriptions like iCloud and app subscriptions;
  • donations;
  • fun spending;
  • beauty and personal care; and 
  • other miscellaneous expenses.

I spent about 7% of my income on wants. That was kind of surprising for me. I actually don’t consider myself a naturally frugal person. 

I’m not dripping in Chanel and luxury brands, but I do like to shop, especially for stationery or books. 

But when I was looking through this budget, I realised that I haven’t really done any fun spending for about 6 months. 

I have been spending a little bit of money on Kindle books. I like to read, I’ve got a goal to read 41 books this year. 

Audiobooks don’t work for me, my mind goes wandering off on all sorts of adventures and I don’t retain anything. 

I’m actually also transitioning my entire library to being ebooks except for the sentimental books like travel guides and my Harry Potter series. 

And I try to wait until prices on the books in my wishlist go down or Amazon sends me a voucher for selected items in my list. 

So, I have been doing some spending but not like I normally do. Who knows, maybe it’s time I spoil myself a little bit?

Priya’s goals

And then the last section is my goals, so that included:

  • Out of pocket business expenses — my business isn’t able to cover all it’s own expenses yet, so I have to fund growth from my own pocket which I classify as a goals because it’s an investment in my business;
  • Sinking funds — both for my own personal goals and for us as a household; and
  • Contributions to my stock market investments.

My goals accounted for 55% of my income. Which is huge, it’s much more than just 20%.

I don’t have any debt, so I don’t need to consider that in my goals. My emergency fund, if you remember from episode 6 is fully funded

It covers a years worth of expenses on a single income salary, to find out why I choose this specific and somewhat pessimistic number, be sure to go back and listen to episode 6 if you haven’t already.

So, my goals are basically just sinking funds and investments for my future through my business and stock market investments. 

And out of my sinking fund, the largest goal is my travel fund because I love travelling and I can’t wait to get back to it. 

We’ve also got sinking funds for the household there which is for things like the utility bill, which comes quarterly and extra rent payments. 

We pay rent fortnightly. July and December will both have a third fortnightly payment. So, to avoid having an extra rent payment in one hit, we set up a sinking fund for it.

I’m able to put a lot more money towards goals at the moment, because I’m not the only source of income anymore. 

As a household, our income increased, and personally my income increased as well, but we didn’t increase our expenses so that means we have more going towards our goals. 

Analysing my needs / wants / goals

So, now that we know the way my income is split between needs, wants and goals, let’s analyse my budget.

Instead of a 50 / 30 / 20 budget, I have more of a 39 / 7 / 55 budget. Doesn’t sound as nice, does it? 

Doesn’t sound as clean and simple but definitely more realistic for my life. You can really see what my priorities are. It’s super clear that I’m prioritising my goals for my wants. 

I’m choosing the life I want in the long term over things that bring me joy in the short term.

But that’s about all you can see. I can’t see exactly how much I sent to my brokerage account. 

And I can’t see if we’re spending a lot on food for two people. I can’t see where I might be able to cut something that doesn’t add joy or value to my life. 

It makes it a lot harder to get intentional about my spending because I can’t really see what I’m spending money on.

At a glance, I also don’t know what I’m saving for. I know that my goals are important to me because they make up the majority of my income. 

But I can’t see what goals matter to me the most. Which goals are non-negotiable when I think of the vision I have, and the life I want to live.

I can’t really see where my money is going for my wants and needs either. I could be spending more on food than I’d like to, or more on subscriptions than I want to. 

There really isn’t much visibility here. It’s just a really high level view. And because I can’t see all the detail, I don’t have any control over the detail. 

I don’t feel like I have any control over my money with this budget because it’s so much harder for me to make decisions, because I can’t see anything. 

The needs / wants / goals budget won’t work for me. It’s just too high level, I want the detail. I want to be in absolute control over every single dollar.

And I just don’t get there with this budget. I also really hate the fact that even small changes in my income will make it into my budget without me knowing. 

Even if my income is $20 off, that means all the amounts will change a bit and I don’t like that. 

Because I can’t see what’s changing and I don’t get to decide what changes either. And it’s actually stressful for me, because if you look at our household expenses, it’s really only rent, the internet bill, food and sinking funds. 

So, if my income were to change a bit or even if something unexpected comes up, I can’t pay any less on my rent or internet. 

And I don’t want to contribute less to the sinking funds because they’re there to prepare us for the future. 

So the only option would be to adjust how much we spend on food. Or would I take it out of fun spending, or drop miscellaneous?

I don’t know, I really don’t know because I can’t see anything. It’s actually really frustrating for me.

I feel like I have no idea what I’m doing, or where the money’s all supposed to go. I like having control, this feels like the wild west to me. 

Honestly, my favourite thing about this budget is that I got to make a really pretty donut graph, so I’ll drop that in the show notes. 

I do like knowing that I’m generally spending a lot more on my goals than anything else, and that I’m keeping my wants in check. 

It makes me feel like overall, I’m going in the right direction. I’m putting my money where my mouth it, or where my dreams are to be more exact.

But it’s hard to see whether I’m spending too much and where I can cut back. With a budget like this, I wouldn’t be able to tell if my rent is too high for the area that I live in or anything like that.

So, my overall conclusion would be that these numbers are nice to know but I can’t budget like this. It’s just too simple for me, I can’t see exactly where all the money is going.

And I feel like I don’t have any control over it this way. It’s also really stressful to think that if my income changes, I won’t know where to make up for it in terms of lowering my expenses. 

Where would I start? I know I can start with non-essentials but how much would I cut? Most importantly, how much can I cut while still maintaining a realistic budget?

But that was my experience because of what my life is like, who I am and what I want. It could be totally different for you. 

If you’d prefer the 50 / 30 / 20 budget, then I do have a spreadsheet available in my shop.

You can check it out at It’s got a nice donut and an expense tracker where you can categorise your expenses into needs, wants and goals. 

So, go and check that out if you’re interested. Of course, some of my Patrons get access to this spreadsheet as well as my other budget spreadsheets as part of their membership. 

Those Patrons also get lifetime upgrades to all my spreadsheets for free as well.

Next weeks’ episode

And that’s all I have for you Girls on FIRE today!

On next weeks’ episode we have part 2 of this deep dive series and we’re going to be talking about percentage based budgets.

It’s another really popular budgeting method that you’ll hear a lot of financial experts recommending. 

If you’ve ever wondered how much you should be spending on rent or groceries, then that episode is for you.

It’s going to be super interesting so you’re definitely not going to want to miss it.

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The advice shared on Girl on FIRE is general in nature and does not constitute financial advice. The information shared does not consider your individual circumstances. Girl on FIRE exists purely for educational purposes and should not be relied upon to make an investment or financial decision.

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