Money experts swear by this classic budgeting rule—but most Americans can't afford it

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An often-forgotten tenet of personal finance is that it's, well, personal. Because your financial situation isn't the same as your friends' or neighbors', the advice you follow will generally be different too.

Still, some recommendations make sense for a lot of people, such as gravitating toward funds with low fees or prioritizing your emergency savings.

But even advice thought to be tried and true is worth revisiting, especially when financial conditions change. Take the classic 50-30-20 budgeting rule, which recommends that you allocate 50% of your taxable income to living expenses, such as housing and transportation; 20% to savings goals, such as investing for retirement and paying down debt; and 30% to everything else.

Budgets are getting stretched these days, making the 50-30-20 rule harder to follow. Over the past two years, thanks to rampant inflation, the consumer price index, which measures the price growth in a basket of consumer goods, has bumped up by 13%. And with wages failing to keep up, it's worth questioning whether a classic budgeting model still applies to the average American.

Calculating the average American net income

Let's crunch some numbers. For a single American, the median annual income is $57,200, according to the Bureau of Labor Statistics. But as anyone who has ever collected a paycheck knows, a few line items are removed before that money makes its way to you.

First, federal taxes. A single filer earning a $57,200 salary and claiming the standard deduction would owe an obligation of $4,985, according to the IRS's Tax Withholding Estimator tool.

If you live in one of 41 states or the District of Columbia, you'll also owe state income tax. All told, state and local taxes amount to 11.6% on average, according to the Tax Foundation. On a median salary, you're paying $6,635.

Assuming you're not self-employed, you and your firm split the bill on Social Security and Medicare tax. Your share is 6.2% for Social Security and 1.45% for Medicare. That's $3,546 and $829, respectively.

Plus, if you receive medical coverage through your employer, you'll owe insurance premiums. Among workers who face an annual deductible for single coverage, the average is $1,763, according to the Kaiser Family Foundation.  

To review:

  • Median gross salary: $57,200
  • Federal tax obligation: -$4,985
  • State and local tax obligation: -$6,635
  • Social Security: -$3,546
  • Medicare: -$829
  • Health insurance premium: -$1,763
  • Net income: $39,442

Where the 50-30-20 math gets challenging

After everything is taken out of their paycheck, someone earning a median salary is left with an annual income of $39,442, which equates to $3,286 per month. Let's see how that looks divvied up.

  • Living expenses (50%): $1,643 per month
  • Savings (20%): $657 per month
  • Everything else (30%): $986 per month

You don't have to look very hard to realize some of those numbers look unrealistic. That $1,643 will scarcely cover the national average rent — $1,495 — on a one-bedroom apartment, according to rental platform Zumper. Plus, the average single-family home spends about $172 per month on utilities, according to EnergyStar.gov.

Need a car to get work? The average monthly payment on a used vehicle is $526, according to Experian, plus, you can expect to pay $150 to $200 per month on gas, per J.D. Power.

That puts our hypothetical budgeter at about $2,400, and they've yet to feed themselves. The U.S. Department of Agriculture's "thrifty" food plan prescribes a $302 monthly cost for men aged 20 to 50 and a $241 cost for similarly aged women. The agency recommends nudging those numbers up by 20% for people living alone.  

Added up, the total is just short of wiping out not only the 50% for living expenses, but also the 30% for everything else. And think about how much "everything else" you have in your life.

How to budget when money is tight

It's no wonder, then, that when push comes to shove, Americans aren't able to stash away the 20% that financial pros recommend. In fact, the U.S. average personal savings rate is just over 5%, according to the St. Louis Fed.

If you're among the legions of Americans looking to get your budget in order and your savings rate up, forget 50-30-20. Start by making sure you can make ends meet.

From there, focus on what Rachel Camp, a certified financial planner and owner of Camp Wealth, calls "needle movers": upping your income and slashing large, fixed expenses.

However, that can be easier said than done.

Boosting your income likely means picking up a side hustle or earning a raise at your current gig — both big asks if you're already stretched thin.

In terms cutting costs, consider moves like adjusting your living situation, either by downsizing or taking on roommates, or rethinking whether you need a car in the city you live in, if you can.

For now, these moves may feel impossible. Your budget may currently look less like 50-30-20 and more like 90-10, with just about everything you have going toward living expenses and the rest going toward an occasional luxury.

Once you know what you need to live on, though, try to dedicate some portion of your income toward financial goals, even if you're at 85-10-5. "Even if you can invest $20 a month, that's how you get started," Ramit Sethi, a self-made millionaire and host of "How to Get Rich," recently told CNBC Make It.

Set that money to come out of your paycheck automatically each month. The hope is that as your salary increases, you'll be able to sock away a higher percentage of your income.

Aim to get to the point where you're reverse budgeting: setting aside 20% toward goals each month automatically, paying your living expenses and then spending the rest of your money as you see fit.

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How a 26-year-old earning $27,000 in Seattle, Washington, spends her money
How a 26-year-old earning $27,000 in Seattle, Washington, spends her money