Why The 50-30-20 Rule Is Unrealistic For Young People

Daisy, writing for boandtree.com, explains why the 50-30-20 rule may be unrealistic for young people living alone or starting out in their careers today.

Young People and the 50-30-20 Rule; Why It's Unrealistic For Young People

When it comes to how your income could be distributed, very often, the go-to is to follow the 50-30-20 rule. However, with a fast-changing economic landscape, particularly for young people, it’s not quite as simple to follow this strategy, particularly for people living alone. So, we’re going to discuss the rule and why it might be unrealistic for young people these days. We will also introduce a few strategies to help you get as close to this as possible during challenging financial times for many people.

What is the 50-30-20 rule? 

The 50-30-20 rule is all about helping you find a good balance between living now and saving for the future. It provides a guideline that you should spend around 50% of your income on non-discretionary spending, 30% on your wants, and then 20% on your savings. Whilst some incomes can easily support this structure, for many young people, this is highly unrealistic. 

Of course, there are ways to reduce your non-discretionary spending, such as choosing a house share over a one-bedroom apartment, choosing a cheaper car, or shopping at a cheaper supermarket. However, even when people are frugal, for many, this rule still isn’t attainable when starting out your career. 

For example, in the UK, the average salary for a 22-—to 29-year-old is £24,600. If that person makes a 3% contribution to their pension, their take-home pay will be around £1,680 per month. This would leave £840 a month for needs, £504 for wants, and £336 for savings. 

If someone were to live with their parents and pay a small amount of rent, or live in an inexpensive house share, then following this rule could be realistic. However, for anyone required to pay rent away from home, in a particularly expensive area or in a city, then it’s almost certain you’d need over 50% of your take-home pay to cover your needs. This doesn’t even take into account other factors that impact young people and their ability to stick to this rule. 

The average rent in the UK is now around £1,221 a month, although you can usually rent a room for between £500 and £800 a month if you’re happy to share a house. Even then, for someone moving to a city wanting to kick start their career, by the time you’ve covered rent, bills, food, car payments, student loan repayments (if relevant) and potentially debt repayments, only spending 50% on rent and living expenses becomes unrealistic. We’re going to discuss a few of the reasons why this is unrealistic for most young people. 

Why this rule is unrealistic for young people

Rental prices in major cities

Since 2020, private rental costs in the UK have grown by 26%, with demand significantly outweighing supply, especially in the major cities. With the increase in house prices and interest rates, it’s no wonder more people are renting. This is driving up costs, making it more difficult to rent and save for a first home simultaneously. 

Unexpected costs

Many young people struggle with financial planning for unexpected expenses, such as dental care, car repairs, or even job loss in an unstable economy. If people had managed to save nearly 20% of their income, it may need to be directed toward these unexpected costs. 

Cost of living in general

It’s common knowledge that the cost of living in general is increasing, from food shops to nights out and rent to clothing. Every element of life seems increasingly expensive, so the percentage of income needed for essential spending and wants is increasing. Unfortunately, the income available to spend decreases. 

Ways to make the 50-30-20 rule work for you

Whilst the economy does often place restrictions on young people in terms of what they’re able to achieve, there are a few things you can do to reduce your essential outgoings and also your wants: 

  • Automate your savings at the start of the month.
  • Review your utility providers.
  • Consider a house share to cut rental costs.
  • Pre-plan your weekly shop to avoid unnecessary spending.
  • Swap your car for public transport, if possible.
  • Cancel unneeded subscriptions.
  • Prioritise paying off high-interest debts as soon as possible.
  • Build an emergency fund to help you stick to your goals.
  • Don’t get tempted to use “buy now, pay later” services.
  • Travel out of key seasons to save money.

Final thoughts

Based on the increased cost of living overall, the 50-30-20 rule isn’t viable for many young people. Many factors, largely out of their control, mean that the cost of needs and wants has increased significantly, so in order to enjoy life as a young person, usually saving 20% of income isn’t possible without making quite significant sacrifices in terms of where you live and your lifestyle. So, if you’re a young person wanting to achieve the 50-30-20 rule, our advice would be to exercise the rule and get as close to it as possible without sacrificing your happiness and enjoying life! 

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