THE 50-30-20 MONEYPLAN:
THE MOST IMPORTANT STUFF
WHY EVERYONE NEEDS A 50-30-20 MONEYPLAN:
AMERICANS SPENDING TOO MUCH ON FIXED EXPENSES
In 1972, the average family had only one spouse working, but even with just that one paycheck,
they only spent 54% (a little over half) of their income on fixed expenses - that is, expenses that
had to be paid each month, like the mortgage, insurance, basic food, any car loans, debt
payments, etc. By 2005, the average family had both spouses working, yet they spent a
whopping 75% (three-quarters) of their income on fixed expenses.
Why is this critically important?
It is important because it makes the average family today much more financially vulnerable. In
the past if something went wrong, such as a job loss or illness, the 1972 family only had 54% of
income going to fixed expenses that they couldn't quickly or easily cut back. The other 46% was
discretionary / optional spending. It was spending on things like eating out at restaurants,
movies, fashion clothing, and vacations that could immediately be cut back.
In many cases, unemployment insurance paid over 55% of one's previous income, so from that
alone many families could get by because they only had to cover fixed expenses of 54% until
another job was found. They could weather the job loss without having to resort to debt, which
can spiral out of control and ruin a family. In addition, in 1972 typically only the husband was
working, so there was a spouse in reserve who could go into the workforce to make up for a lot
of the lost income.
By contrast, the average family of 2005 had 75% of its income going towards fixed expenses like
the mortgage, insurance, and car payments that cannot be quickly or easily cut. All that they can
cut back immediately (or anytime soon) to cope with the crisis is a mere 25% of their expenses.
They can eat all the generic macaroni and cheese, and drink all the grocery store coffee they
want, and not spend a penny on clothing and entertainment, but all it will do is cut their expenses
by 25%, at most, and that's usually not enough to weather the loss of a spouse's income without
having to eat up savings or take on debt.