Money experts love to recommend the 50/30/20 budget, but ignoring that advice helped me save more than $20,000

With the 50/30/20 budget, you spend 50% of your money on needs, 30% on wants, and 20% on savings and debt. But it only led to frustration.

The beloved 50/30/20 budget will certainly work for some people, but author Jackie Lam (not pictured) created a “money flow” system that’s helped her save thousands. Photo: Tetra Images/Getty Images

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By Jackie Lam

Just as fitness buffs like to experiment with different exercise regimens and diets, as a money nerd, I’ve tried pretty much every single budget imaginable. From the zero-sum budget, where every dollar has a task and is accounted for, to the guilt-free budget, where you pay yourself first, then spend the rest — you name it.

I’ve also tried the popular 50/30/20 budget. That’s where you assign 50% of your income to your needs or fixed expenses, 30% to your wants or variable expenses, and the remaining 20% your debt and savings.

While it’s often touted as an effective way to manage your money, that didn’t ring true for me. In fact, ignoring the 50/30/20 rule was the best thing I did to stash more money in my emergency fund.

The author, Jackie Lam. Photo: Courtesy Jackie Lam

The 50/30/20 rule lead to frustration

On paper, the 50/30/20 rule sounds like a great idea. But for me, following these rules only led to feelings of frustration and anxiety.

If I couldn’t keep my spending within these three neat categories, I felt like I was failing. And those feelings of self-defeat discouraged me from keeping up with the budget.

Budgeting with the 50/30/20 rule felt time-consuming

On top of that, every month I felt like I was constantly having to track each expense and make tweaks to my budget. I found myself asking questions like, “Will my car insurance premium tip my ‘needs’ category over this month?” And when one-off expenses hit — like during the holidays, or when I spent more on “wants” during sales or when friends visited, I would get nervous about spending over the allocated 30% of my income.

I created a ‘money flow’ system instead

Instead of going by the 50/30/20 budgeting rule, I created my own ‘money flow,’ or system of linked accounts to help me save. While it took a bit of work up front to set it up, in the long run, creating a money flow has led to less time spent on budgeting and quibbling over daily spending decisions.

I keep a main checking account, which is where all my take-home pay gets deposited and where I pay my bills. Then, from there, my money is transferred to either a separate savings account or separate checking account. I use the separate checking account to keep my discretionary spending money, cash I use to pay for groceries, household items, clothes, and going out. My separate savings account has different “buckets” for different goals, including saving for a computer, vacations, and buying a new car.

When I had a day job and a steady paycheck, I tucked away the same amount into my savings account each month. When I switched to freelancing, I started socking away a percentage of what was leftover after I covered my basic living expenses. That way, I stay on track to reach my savings goals.

My money flow system reduced decision fatigue and helped me save

With this system, the only number I really needed to keep tabs on regularly was how much was in my checking account for everyday spending. As long as I was sticking to my weekly limit, I didn’t need to tap into my savings account.

More importantly, I didn’t have to feel bad if I dished out a little more on, say, food, or clothing in a given month. At the end of the day, as long as I was making headway on my money goals, I could allocate the rest without fretting too much over sticking to specific categories.

With my money flow system, I’ve been able to build an emergency fund of $20,000. I also have separate savings that I can dip into if I want to take a spur-of-the-moment road trip, spend a little extra at a restaurant, or use when I’m having a slow income month. I treat my emergency fund like a “golden cow” of sorts, to be protected and not “slaughtered” under any circumstance. I definitely couldn’t do that with the 50/30/20 system.

Sometimes what’s popular doesn’t always work for you. I’ve found that coming up with your own way of managing money can take a bit of trial and error. There’s no one-size-fits all solution, so you’ll need to do a bit of exploring to see exactly what sticks and what’s effective.

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.

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