The “50/30/20 rule” is bad financial advice

The 50/30/20 rule is a commonly used mantra that suggests one should allocate 50% of their income towards their needs, 30% towards their wants, and 20% towards their savings. The idea behind this is that you should keep track of all of your expenses and categorize them into one or more of these three buckets, adjust as necessary, and you'll be financially stable.<br><br>This is bad financial advice. Here's why:<br><br>* It encompasses way too many expenses. How much money you should save every month really has nothing to do with how much money you spend on groceries, gas, or your cable bill. This money is what's left over after subtracting your expenses, so why should we include those expenses in the formula?<br>* It doesn't take inflation into account. If inflation is high, you should probably save more money. The 50/30/20 rule doesn't give you any advice for how you should adjust your savings to account for inflation.<br>* It gives bad advice to the poor. If you don't make very much money, you don't have very much money to save, no matter how hard you cut corners. For example, if you live in a big city, chances are you're spending most of your money on rent alone. The 50/30/20 rule doesn't take cost of living into account, which makes it unfair to people who live in expensive areas.<br>* It doesn't work well for people who make a lot of money but don't have many expenses. For example, someone who works remotely from another country will likely have a lot of savings and not very many expenses, but the 50/30/20 rule would classify them as irresponsible for not saving enough.<br><br>Here's a better system in my opinion: calculate the minimum amount of money required to maintain the life style you have now, adjusted for inflation, and subtract that from the amount of money you have. Invest the difference. This system works well for both the rich and the poor, and it's not biased towards any one geographical area.