Throw Out The 50/30/20 Budgeting Method If You Want To Reach FI

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While diving into budgeting, I read about the 50/30/20 budgeting method a lot. If I start to use that method, I will probably never become financially independent. So I would like to suggest the 50/40/10 budgeting method instead.

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use this budgeting method to reach financial independence

What is the 50/30/20 budgeting method?

The numbers stand for:

  • 50% needs
  • 30% wants
  • 20% savings

If I take an average US household income, which is about $5000 a month, this method tells me to:

  • Spend $ 2,500 on needs
  • Spend $ 1,500 on wants
  • Allocate $ 1,000 towards savings

Wait a minute! This method tells you to spend $ 1,500 a month on wants? That sounds totally absurd to me! This method is definitely not designed for people who want to become financially independent (or rich for that matter).

So, let’s talk about a new method.

The budgeting method to reach financial independence

If you plan on reaching FI before you’re too old to actually enjoy your freedom, start challenging yourself to reach a 50% savings rate every month. How about a 50/40/10 budgeting method?

  • 50% Savings & Investments
  • 40% Needs
  • 10% Wants

With the average US household income of $5000 a month this means that you would:

  • Allocate $ 2,500 towards savings & investments
  • Spend $ 2,000 on needs
  • Spend $ 500 on wants

With a savings rate of 50%, you can retire in 17 years according to this post from MMM. And the $ 500 a month for wants is still enough to watch Netflix, eat out once in a while, go on a holiday every year and do fun stuff with friends and family.

What goes into what category?

Needs – 40%

The first category to explain are your needs. Needs are the basics, like a house, electricity, water and food.

If you look at your needs category at this moment, are you able to keep it at 40% of your income? Don’t worry if you’re not there yet. There are always ways to save money.

Mortgage or rent

Are you currently paying a lot for your house? You could save a lot if you move to a smaller place. Or what about another area that’s less expensive?

Maybe you can renew your mortgage against a lower interest rate? Talk to your financial adviser to check out your options.



There are always options to save money on utilities:

  • Check the rates of your energy supplier and compare them to other suppliers
  • Lower the thermostat by a few degrees
  • Save water by using this shower head that saves water.
  • Install solar panels


When you’ve got healthcare insurance or you need certain medication or treatments every month, put that into your needs category. It might be hard to save money in this category.

Check out if your job can cover expenses (or consider changing jobs if your healthcare costs are always high and your current job can’t help you with that). Also make sure to have an emergency fund in place in case there are unforeseen costs once in a while.

Paying off debt

The minimum amount you have to pay towards your debt goes into the needs category as you really need to pay this amount, no mater what. You will get in trouble if you skip these payments.


We all need food, but it doesn’t have to be so expensive. Here are some tips to save money on groceries:

  • Make a list before you go to the store
  • Shop no more than once a week to avoid impulse buying
  • Eat less meat
  • Buy things like toilet paper in bulk
  • Use your freezer to stockpile food that is on sale or seasonal products


Only the transportation you really need goes into this category, like the transportation costs of going to work. You can also consider to walk or take the bike, depending on the distance.

Or bike halfway and take the bus the other half. This will save money for the bus and you get your daily exercise for free.

take the bike to work


If you work, you probably have some form of childcare. But you can always look for cheaper options.

  • Maybe friends or family can take care of the kids one day a week?
  • Is there an option to work from home sometimes? This will also save money on transportation.
  • Maybe both parents can go to a 4-day workweek and each be home 1 day a week. This saves you 2 days of childcare. Calculate the lower income versus the costs of childcare. Don’t forget the transportation costs you also save on those days.

Another solution to keep your needs category at 40% is to raise your income. You can ask for a pay raise or look for another job. And what about a side hustle?

Savings & Investments – 50%

This category is important if you want to reach financial independence in a couple of years.

Extra debt payments

Do you have debt with a high interest rate? Pay it off as soon as you can to save money. The sooner it’s gone, the less interest you pay. Debt with an interest rate of ~5% or less is up to you if you want to pay it off.

Personally I would rather pay only the minimum amount towards debt with a low interest rate and invest my money instead against a higher  rate. This is also one of the reasons why we don’t pay off our mortgage.

Emergency Fund

When you actually save 50% or more of your income every month, you can use this money for any unexpected stuff that occurs instead of having a large sum of money laying around doing nothing all the time.

But personally I feel better & saver with an emergency fund on my savings account for a couple of months worth of expenses. You can aim to build this fund towards 3-6 times your monthly expenses to feel save.

In the worst case scenario, you could always sell some of your investments while resolving your problems.


Investing your money is really important if you want to reach financial independence. Investing means making your money work for you. You put the money in and the money does the rest basically.

Your investments gain interest and when you invest the received interest again, you will receive interest over interest which is called compound interest. This means that your invested capital will grow over time even when you don’t invest more money.

You can invest in all kinds of things, for example:

Make sure to know what you’re doing. Read books or blogs about investing and really understand where you’re putting your money into and understand the risks involved.

Wants – 10%

Wants are the things that makes our lives easier and more enjoyable.

Internet / mobile phone / TV

These three things might feel like needs nowadays, but you can actually life without them. You’re not going to die without them.

But, we all like to have these things. They are handy and can provide relaxation. You can however save a lot of money on them.

  • Do you really need the fastest internet connection?
  • Do you need a new phone every year?
  • How about cable, what happens if you cut it? Lots of stuff can be watched on the internet nowadays.

Netflix / Hulu / HBO and sorts

We personally don’t have cable, but we do have Netflix. I love to watch a movie once in a while and the kids love to watch cartoons.

Check out the different options and choose the one(s) that you actually use and are worth spending your money on.


In this category belongs everything you buy in shops other than food. For example:

  • Clothes
  • Shoes
  • Furniture
  • Kitchen supplies
  • Make up

To save money in this category, check for secondhand stuff first. People give lots of things away for free or really cheap. A new couch doesn’t have to cost you $1,000 or more.


Going out / day trips

Probably everyone loves to go out to eat once in a while, go to a bar for drinks with friends or go to the theater or an amusement park. If money is tight, just go less often, but don’t ban it forever. You are allowed to have fun!

Remember: The journey is as important as the destination!


Most people love to go on a holiday. And you totally can! If you reserve $100 from your wants category every month, you will have $1,200 every year for a family vacation.

Want to go on a big trip? Make sure to reserve more money towards your holiday budget and save money on the other wants-categories.

Start budgeting today

You can start by writing down your current income and expenses to see where your money is going. Are you anywhere near a savings rate of 50%? Don’t worry if you’re not. You can start taking steps in the right direction today!

Start believing in yourself and set the goals you want to achieve, I know you will succeed!

“If it’s important you’ll find a way. If it’s not, you’ll find an excuse.”
Ryan Blair

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