How Much Millennials Should Be Saving From Each Paycheck

December 21st 2016

The intense internet backlash against the Atlantic article titled "Why Aren't Millennials Saving Money" has illuminated an important truth: a lot of the financial advice older generations give millennials is outdated, unrealistic, and, frequently, insulting.

While the idea that a high school job can pay for college or that your rent should equal no more that a quarter of your income seem obviously laughable today, there are still some tried and tested budget tips that are still being passed down like gospel.

One of those tips is the "50/30/20" rule.

For the uninitiated, the 50/30/20 plan is a general budget guideline that suggests spending 50 percent of your post-tax budget on necessities (rent, food, transportation, mortgage), 30 percent on discretionary items (movie tickets, restaurants, gadgets), and saving or investing the remaining 20 percent. Interestingly, the plan was originally codified by Elizabeth Warren, years before she became US Senator. In the 2005 book "All Your Worth: The Ultimate Lifetime Money Plan," Warren and her daughter Amelia Warren Tyagi laid out the 50/30/20 budget, writing that “there is always enough for each of the three categories.”

Elizabeth Warren Wikimedia -

But can a budgeting standard created before the 2008 economic recession reallyapply to millennials in 2016? Speaking with ATTN: on the phone, Erin Lowry, a millennial finance expert and author of the Broke Millennial blog and forthcoming book, lamented that the 50/30/20 rule is an ideal most millennials will be unable to achieve.

“I would say that’s the Pleasantville rule,” she says, going on to describe the rare millennials who could conceivably live by the budget. “They’re unicorns. They live in low cost-of-living areas with decent paying jobs and no student loan debts. They do exist, but they’re a very small percentage of the population.”

For the average young person, allocating only half of your income to basic living expenses is an impossibility. The median income for millennials in 2014 was just $20,000 (compared to the general population's $31,100), the average 2016 graduate has $37,172 in student loan debt, and the cities in which millennials abound have sky-high rent, often over $1,000 a month.

Percentage budgeting, like the 50/30/20 rule, is still an option for non-unicorn millennials. Lowry suggests that a more attainable goal for young people with lower incomes who live in urban environments might be allocating 60 percent to basic expenses, 30 percent to discretionary spending, and 10 percent for savings.

While high expenses and low income often result in little to no money saved, Lowry emphasizes that the amount allocated to savings shouldn’t dip below 10 percent for an extended period of time. “Even if you have debt, you need to have at least $1000 accessible at any given time,” she says, adding that those with dependents (including pets) should increase that number to $1500 to $2000.

Percentage budgeting isn’t the only budget option available to millennials.

If you frequently find yourself wondering where all your money goes, Lowry advocates for the “cash diet” to curtail discretionary spending. Here's how it works: after subtracting the money allocated to necessary expenses and savings from your income, you then divide the remaining amount by four. At the beginning of each week, withdraw the quotient in cash from an ATM. That's all you can spend over the course of the week.

Why cash? “It’s been proven over and over again in studies that when you swipe with plastic, you’re going to more mindlessly spend than if you’re paying in cold hard cash,” says Lowry. “So if you’re trying to get your financial health in order, the cash diet is a way to feel the pain of handing over money."

CashFlickr / 401(K) 2012 -

Lowry also advises mindful spenders to document every purchase. “Write down those transactions so you can go back and see where all the money’s going,” she says. “You’ll find out really quickly if what you’re spending actually matches up with what you say you value.”

Using these tips and tools might help millennials get their percentages to 60/20/20, but why does the 50/30/20 rule remain so elusive? Factors like the recession, student loans, and stagnant wages play a part, but Lowry thinks that one way to make sure each new generation doesn’t financially flounder is to prioritize financial education and de-stigmatize money talk. “Our generation could help the next if we’re more vocal about money and our own failures," she says. "We could be setting people up to not go through such a hard time in their 20s.”

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