To think the 50/30/20 rule is impossible to do?

[Yetanotherwittyname]

I’ve been having a look at our household finances against the 50/30/20 rule. For the unfamiliar this suggests you should spend 50% of your income on needs (bills, groceries, etc), 30% on fun, and 20% on future (pension, saving etc).

We’re way off!!

Our “needs” is more like 70%, mainly due to mortgage rates and nursery fees. Fun is about 10-15%; we haven’t had a holiday in 3 years. We have a total HH income of 145k so we should be more comfortable, but we live in the South East so costs are frighteningly high.

So are we in the minority, or are the majority in a similar camp to us?

AIBU to think the 50/30/20 rule is impossible to meet?

Perhaps the difference is in the definition of needs? Things that have dropped off our “needs” list in harder times are - keeping pets, having heating and hot water at home, having a car or a bike, having internet or phone, having home or life insurance, paying for childcare. Amongst other things, they’ve all been deprioritised in favour of actual needs - shelter, doors that lock and windows with glass, water that’s safe to drink, lights, kettle and food storage that works, a space to sleep with blankets, enough food.

Our household income has never been above 40k and at times lower than 10k (with mortgage and kids) so sometimes economies have been necessary. But a reassessment of what actual needs are, in this context, might be worth while. Lots of what you are classing as need may well be in the fun/wants category - like pets, cars, etc. I wanted childcare when mine were small as it was much harder to work without it but I couldn’t afford it, so I didn’t have it. I wanted to have a car but I couldn’t afford one, so I sold it.

For most, childcare is a need when you are working though, as most employers won’t let you work with your children coming along for the ride! Different if you’re self employed I guess.

Absolutely. I had an argument a discussion with someone on here a few years ago. She was adamant her income (which was about 5x what mine was) was only just enough to exist. I disagreed. She came up with more and more reasons why she was right.

"I live in the SE" (so do I.)
"I have 2 DC." (So do I)
"I live in x town" (so do I.)
"I need to be within walking distance of the town centre and train station" (I am, where I live.)

Turns out she lived in a large 5 bed detached in the most expensive part of town. So she could choose to live somewhere smaller/cheaper.

I'm not saying she shouldn't be able to live where she did, but to do so and then claim her very high housing cost was a "need" is crazy IMO!

I have worked for quite a few companies in my life and even the most generous ones only offered 12% employer contribution and usually 5% employee was the norm.

that was only for senior employees through. 5/5% is the norm. Most small companies could not afford anymore. Some people chose to up their contribution a bit to 8% but not common

What age you are is a huge factor. I would go out on a limb and say most people in their 30s with 2 children in nursery are not putting 20% into their pension.

Yes, it can be, until you end up in the situation where the childcare is more per hour than you can earn per hour in your job, which is what happened to me. It can no longer be classed as a necessity then, regardless or employed or self employed.

Yes, savings. But the poster mentioned savings and pension.

I have pension contributions of 24% of my salary each month (I pay 7% of that). It's a regular DC scheme with a pot, not public sector.

On a thread about savings though I wouldn't contribute by saying 'Oh yes, I have savings of £150k'...because that implies I have a cash pot with that in.

“According to savings stats from the FCA, up to a third (34%) of UK adults had either no savings, or less than £1,000 in a savings account. This equates to around 22.8 million people with very little or no money to fall back on. This figure was skewed towards the younger population, with under half (47%) of 18-24 year-olds having less than £1,000 in their savings account.
According to a survey by the Money and Pensions Service (MaPs), around a quarter of UK adults (11.5 million people) have less than £100 in their savings account, with one in six people having no savings at all.”

https://www.money.co.uk/savings-accounts/savings-statistics

That means that the majority of British adults have more than £1000 in savings, skewed towards the younger age group. That makes complete sense, given that a large proportion of that age group have either not worked for long (or at all, or are in training.

@Completelyjo I agree about housing needs and wants, some overstretch because they have hardly any money and some because they want certain areas or room amounts. My sister had no sitting room for a few years as it was her bedroom when she divorced. Whereas my friend overstretched herself and had two spare bedrooms and three bathrooms. I felt sorry for my sister whereas I struggled to garner sympathy for my mate as she did it to herself.

I haven’t heard of this 50:30:20 rule but someone upthread said it’s American. I’m retired now so out of those mortgage and childcare years. We have meticulous financial records going back to 1997 when we got together. I know that our mortgage for many years was 15% of our income, in 1999 we earned 26k and 21k pa before tax and childcare 20 years ago was £25 per day. Just looked at average wage for 1999 and it was 17.5k. So we were lucky enough to have those expensive years in much cheaper times and are more savers than spenders. In my ideal world you would save 30% and spend 20% on fun.

I have a DS still living at home at 23 and he is doing well for financially for his age but housing is off the scale expensive. I feel for the plight of younger generations in these times.

Gosh yes I pay 90% on just the mortgage, nursery, bills at the moment 😬it’s due to come down in may though (hopefully) no car, no expensive phone contract, small 2 bed flat with 2 kids no plans to ever upsize!

nursery fees be gone in 3 years I guess

hope mortgage comes down when my term is up in may!

@IIdaClair
That is so true. I am including my sky tv in my needs section. But it isn't a need it just so happens to be on the bills section of my spreadsheet.
I am also including food in needs, but to be honest my food is fairly extravagant. Will spend £10 on olive oil, £4 on dundried tomatoes. Off out to get avocado and coriander for lunches etc..

Well no, that would lead to a very difficult decision for me because having children around while working is against the terms of my contract.
I actually did make a bit of a loss in the very early years with 2 in nursery, but it was worth it for me to keep going with my career without losing profession. It depends on your circumstances.

As well as housing needs being high a lot of people seem to get their cars on a lease scheme so they end up paying out a lot more than they need to in order to run a car (or sometimes more than one per household) - if they count that as a 'need' then that can easily push that ratio out.

I've never tried to apply this rule exactly, though decades ago when life was cheaper, I reckoned that if needs took up about a third of my take home, that left me with plenty to have fun with and several hundred to save every month. I was young, free and, if not single, not married nor living with someone. That would make me think 50% is a lot to spend on needs but there again, life costs a lot these days.

Having said that nursery fees are a huge expense and as long as you don't have too many children, don't need to be paid for more than a few years. When we did it, we resigned ourselves, not just to having nothing over each month, but to dipping into our savings, knowing it wasn't forever - unless you plan to use private education,which was never a consideration for us.

I have never worked for a company that pays more than 5% contributions. That’s various UK law firms and a couple of multi nationals in different sectors.

The 50/30/20 plan is, if I may be permitted to use a technical term from economics, "a load of bollocks".

If it's good for anything at all, it's as a proposal for how to split "fun" and "frugality", once you have met your needs. That is, 60% of the rest on fun and save the 40% of the rest. So if you can meet your needs with 50%, then 60% of the rest is 30% ("fun") and 40% of the rest is 20% ("frugality").

But of course you meet your needs first. If your income is only just sufficient for that, then you don't not pay the gas bill because you've budgeted 30% for brunch.

If I remember correctly, 50/30/20 comes from an American self-help book. 🙄 If so, I rest my case.

It’s an American thing. They have less taxation but far more personal responsibility for healthcare, childcare, unemployment, retirement, sickness and unemployment. Unless you join the army which is where most of their tax receipts go.

It also fails to take into account that many British people see owning their house as an investment as well as a need. Those South East England housing costs have provided a far better yield than other types of investment for people who own their home. A lot of that profit comes tax free.

I have sympathy for renters in high cost areas but not home owners. They are using their house as a saving and investment vehicle.

Also please remember what % means. 20% of £145k is £29k. 20% of £30k is 6k. A low % of a high number can be more than enough for people to live a good life.

I have sympathy for renters in high cost areas but not home owners. They are using their house as a saving and investment vehicle.

Yes I agree, I see my mortgage as part of my savings, I know I pay interest, but I assume the house will ultimately be worth far more than the interest I've paid on it at some point anyway.

No you can't do it with nursery fees. However nursery fees will pass.

Needs are always going to be relative though. We chose to live in an expensive area because we liked it, and it meant good schools for our DC but could have made different choices.

It meant the nursery years were tough but we clung on & things got easier. Even now, though our housing costs; mortgage, council tax & insurance is over 1/3 of our income. But our other bills are modest So It balances out. Overall our bills are around 50% of income. And I include pets, Netflix, newspaper subscriptions & museum memberships as bills.

Holidays are what we save for. No idea where that goes in the calculations of what we do wrong!

My adult DC spend about 80% on needs. And that’s with renting a room in a shared flat with no lounge.

Of course it's possible on 145K.........it's about living within your means.

(my household income is less than 1/3 of yours)

The model is supposed to be 50% needs. 30% wants (rather than fun) and 20% savings.

So things like food, transport, clothes, even housing, can be both a need and a want ie fresh fruit and veg is a need but out of season strawberries and asparagus instead of apples and carrots are a “want” if you can’t afford to pay for them out of your 50% needs budget. The 30% “want budget” isn’t just for holidays, takeaways and days out.

That said, there are millions of people in the UK who are only just surviving whose needs take 100% of their income. I would guess with a household income of £145k (even with nursery fees and expensive housing) that some of your “needs” are actually “wants” but whether sacrificing them would make much of a difference financially without making serious compromises to your quality of life is another matter.

The model is helpful to make you evaluate your choices and look for ways to save money eg if your housing costs are high, is it worth sacrificing some of your wants budget to live in a house with a garden instead of a small flat? Probably. Or would you rather live in a tiny flat that you never spend any time in because you are out all the time spending your “wants” money on going out and holidays?

@Citrusandginger Holidays are what we save for. No idea where that goes in the calculations of what we do wrong!

This is quite clearly still spending in the fun category. I find it baffling that people count slightly delayed gratification spending as saving.

The rule makes no sense at all! Different families will have different priorities, incomes and circumstances. What if your "needs" fall under the 50%? Do you find more stuff that you "need" like a bigger house?

The best thing anyone can do for their finances is to keep all their receipts for a few months and work out what they are spending all their money on. Then sit down and decide if they are really happy with how it's being spent, invested or saved, and also have a 5, 10, 20 year rough plan.