The Expert Budgeting Advice I Don’t Follow

The 50-20-30 budget is a cornerstone rule-of-thumb according to personal finance budgeting experts. In it, you spend 50% on needs, 20% on savings and debt reduction and 30% on “wants.”  This may be sacrilege but this seems like a terrible plan for your budget.

Frittering money away on a budget

Consider the following hypothetical 10-year spending of a 23-year old who makes approximately $30,000/year post-tax and who follows this budget.
Age Posttax $ Annual wants Monthly Wants
23 30,000 9,000 750
24 31,200 9,360 780
25 32,448 9,734 811
26 33,746 10,124 844
27 35,096 10,529 877
28 36,500 10,950 912
29 37,960 11,388 949
30 39,478 11,843 987
31 41,057 12,317 1,026
32 42,699 12,810 1,067
 Total $108,055

Starting with a modest entry-level salary and modest raises, this person has spent $108,055 over just 10 years on indeterminate “wants.” Over a 40 year career, this number could be half a million or more.

What do you get if you spend 30% on wants?

What do you think these wants are? Well, if you look at the number as $100k, and think of spending a lump sum like that, it seems like you could have bought some really awesome stuff that would be valuable now. You could have a designer wardrobe, a nice car, some nice vintage furniture or maybe you can point to key moments in your life- lavish vacations, a big wedding.

But if you subdivide it into $750-$1000 month, it’s very easy for that money to disappear rapidly. You find that you can piddle your money away on Kardashian-endorsed clothing, a Hyundai, and overpriced West Elm furniture (I don’t have anything against the Kardashians or Hyundais but I’ve heard West Elm isn’t very good). Instead of memorable meals, you’ve spent way too many weeknights at the not-so-good pub or the meh takeout place.

Why 30% “wants” can be a bad idea

Budgets are often thought of as ways to restrain our spending but, if used incorrectly, they can be the impetus to increase spending. Say this person is 23 and never made any real money before and now has license to use $750 with no real purpose every month. How is this person going to spend that $750? Probably not in a malicious way but likely in an easy way. Someone suggests a trip somewhere and you go.

Then, you have a rough day at work so you go out to a fancy dinner to treat yourself. Upgrade your electronics and your cars. Upgrade your furniture. You have kids and buy your kids stuff. At the end of 10 years, you have the latest versions of things you used to have when you were 23, your closets are filled with stuff, you have a fair number of frequent flyer miles and you wonder, why am I still in debt? Why don’t I have the career I want?  Why don’t I have the relationships I want? Why isn’t my life fulfilling?

 All this regret and you’ve been sticking to a budget. You did everything the financial gurus told you to do, but you might not be getting ahead of your finances.

A Possible Solution

The regrets people have in their 20s were not traveling more, not building close relationships, not exercising, not trying new things. Instead of putting an indiscriminate “wants” category, perhaps you could subdivide your “wants” budget to address these possible regrets.

Chinese billionaire Li Ka-shing offered some interesting budget advice. Some background on Li, after his dad passed away, he was forced to start working 16-hour days at age 15. He did not come from wealth but is worth an estimated $31 billion today.

Anyway, Li’s advice is to divide one’s budget according to the following categories:

50% live. 20% save. 15% grow. 10% build. 5% play.

Here’s How It Would Work

Here’s an example of what this looks like on the same $30k posttax salary:

Live (the basics)

$800 rent/utilities
$150 food
$200 other necessary spending (insurance, phone etc.)
$100 transportation

Total = $1250=50%

Grow (learn and experience)

$50 building your network/dating (building new relationships)
$50 books/classes (structured learning)
$200 travel/trying new things/starting a new business (independent learning)
$75 charity

Total =$375 =15%

Build (acquire the things you will need in your life)

$100 furnishing your home/home needs
$100 furnishing your wardrobe/personal needs
$50 exercise (classes, building your own at-home gym)
Total = $250 = 10%


$500 savings/debt repayment
Total = $500 = 20%

Play (whatever you want)

$125 entertainment/eating out
Total = $125 = 5%

$2500 total

You get $50 to spend on networking this month. Who do you want to meet and treat to coffee? A cute dating prospect? Your coworkers? People with your potential dream job?

You get $200 to travel this month. Where do you want to go? What do you want to see? Paris? Polynesia? Pittsburgh?

You have $100 to spend on classes. What do you want to learn? Java? Italian? How to bake a cake? How to play the piano?

Even you can’t make these percentages, that’s fine. It’s something to work towards. The point of a budget is structure, not perfection. The beauty of this budget is that if you follow it perfectly, you will grow and you won’t squander too much of your money away on activities and products that you won’t remember.

I’ve heard some people say that the 20s don’t matter. Those people probably think life doesn’t matter. In your 20s you may (finally!) be out of school, and you can make your 20s can be all about growth. Even if all you learn is how to tread water, that’s a great skill

Some people enter their 30s in hundreds of thousands of dollars in debt. Why can’t you use these 10 years to build a foundation for your career growth?

What do you think of this alternative budget?

Expert budgeting financial advice I don't follow

Photo by Fabian Blank on Unsplash