50/30/20 rule: why experts got it wrong

US Senator Elizabeth Warren popularized the 50/20/30 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings.

Thereafter, experts have been recommending consumers to save 10-20% of their income. Even in Singapore.

But I have a different opinion on this and won’t recommend people of all ages to only save 10-20% of their income.

Here’s my view.

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The 50/30/20 rules works when you’re starting your first job

For someone who is starting their first job, the 50/30/20 budget rule may be a good start since the salary isn’t very high.

According to Straits Times, the median monthly salary of fresh graduates is around $3,400. Let’s break the salary up using the 50/30/20 budget rule as a benchmark. With $2,720 after CPF contribution, that means as a fresh graduate, you should be spending up to $1,360 on needs, $816 on wants and $544 on savings.

I think that’s a fair starting point, if expenses such as insurance is considered part of needs.

What happens later?

Let’s fast forward to 3 years later.

You worked hard, possibly switched to a higher paying job. Your salary went up by 10% (I’m being pragmatic) and you’re getting $3,740 per month now.

That splits your salary into $1,496 on needs, $897.60 on wants and $598.40 using the 50/30/20 rule, after CPF contribution.

By following the budget rule, you would be spending an additional $217.60, bumping your total expenses to $2,393.60.

But what if your lifestyle hasn’t changed much? Are you going to spend more money just because the budget rule allows it?

Lifestyle inflation is totally within your control

If you received a salary increase and your lifestyle has not changed, there’s no reason to be spending more money. I know it’s enticing to eat in fancy restaurants more often, but does it really bring you joy and value?

The prudent and logical thing to do with that extra stash of money is to channel it into savings.

Now that we agree on this, your budget now becomes $1,360 (unchanged) on needs, $816 (unchanged) on wants and $816 (+$272) on savings.

We’ve jumped off the 50/30/20 budget rule bandwagon.

Your needs/wants/savings proportion is now 46/27/27 and this budget works for you!

Once we’re off the bandwagon, the sky’s the limit

Let’s go even further. You’re 30 with around 10 years of work experience under your belt.

You’re making $100,000 per year now. That’s $6,666 per month after CPF contribution.

Your needs have slightly increased to $1,500. You have a girlfriend and you’re spending a bit more bringing her to nice places, spending quality time. So wants have ballooned to $1,500. You save the rest.

The increases are real, but in reality your needs/wants/savings proportion have improved significantly to 22/22/56.

Considering all things, I think 56% is a very decent saving rate.

What it all means?

In the long run, needs-based expenses will eventually plateau while wants expenses have to be managed. But all things considered, it won’t be surprising for savings to hover around 70-80% eventually.

When you start your financial planning journey, your needs/wants/saving budget rule has to be suited to your current income. The 50/30/20 rule is not necessarily relevant and should not be even be a benchmark (unless you are starting your first job).

How did you plan your first budget? Let me know in the comments below.


  1. Totally agree.

    And I think most thoughtful people will realise that in order to even contemplate being able to retire by 55 without a significant drop in living standards means being able to save at least 50% of your income from an early stage in your career & growing it consistently by a moderate 5% to 6% CAGR.

    I’ll bet that most senior people in govt knows this, but obviously drumming this message certainly won’t get you much supporters.

  2. I realised I’m able to save 50% at the early start of my career till a wife, baby, BTO comes in the picture I can’t hit that percentage any. Unless I see my spouse’s savings as a combine savings in totality, the percentage is closer. But you know what they say “whatever is mine is hers, whatever is hers is her”

    Maybe it’s time to find a higher paying job. 🙂

    1. It’s not uncommon for couples to combine their incomes together and then work out their budgets together. In the MrMoneyMustache forum, some members are even able optimise their family expenses such that they only needed to spend 50% of their combined income each month. To me, I still think that’s pretty decent.

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