Spending guidelines designed to put diligent consumers in a solid financial position may not set them up to succeed in today's economy

Spending rules may make sense on their own, but when put together, they don't account for the full reality of modern household needs.

There are many budgeting rules of thumb designed to put diligent consumers in a solid financial position. But in today's economy, those rules may not actually set a household up to succeed.

The problem is that such rules, while individually reasonable, don't necessarily take into account the reality of what a family today needs to spend.

For instance, families with two parents who work and have no grandparent or other relative to help with childcare must pay for that care, which is very costly, said Gerald Grant III, a financial planner at Equitable Advisors. Meanwhile, rising costs for housing and transportation are squeezing middle-income families.

"The more things go up in cost, the less [spending guidelines] apply" to lower- and middle-income households, whose earnings have not kept up with the price of some key necessities, Grant said.

That has left many Americans without emergency savings and with little in their retirement accounts.

As prices continue to climb and higher-paying jobs have gotten harder to find, 80% of surveyed Americans say they want to budget better and save more.

We've broken down why traditional budgeting tips might not work today - and what to do instead.

Spending rules don't add up

There are a number of well-known spending guidelines. Some steer policy decisions, while others help lenders determine how much someone can borrow. Looked at individually, each rule might make sense.

The problem is that if a household pushes the limits of all these spending rules - which is easy to do - they may end up with with little left over to build financial security or wealth. For example:

-- Housing is considered affordable when it costs no more than 30% of a household's gross income, according to a guideline based on federal government standards. In reality, middle-income families spend about 32% on average on housing, including utilities and taxes, according to 2024 data from the Bureau of Labor Statistics.

-- For transportation, the budgeting rule recommends that people keep total costs, including car payments, gas and insurance, below 10% of their gross income. The average in 2024 for middle-income families was closer to 15% of gross income, according to the BLS.

-- Food, including groceries and dining out, should account for no more than 10% of income, traditional guidelines suggest. Average food spending for middle-income households is about 12% of gross income.

-- Health insurance is considered affordable when it doesn't exceed 9.96% of gross income, according to the Affordable Care Act's 2026 benchmark.

-- The government considers childcare to be affordable when it accounts for no more than 7% of household income.

A family with children can spend over 60% of their pretax income on just these five basic needs, even if their costs are below these affordability thresholds.

And this budget hasn't yet accounted for federal, state and other taxes, which for middle-income households added up to about 26% of gross income in 2024.

After accounting for taxes, this family would have just 10% of gross income left for all of their other spending, including "wants" and investing for retirement.

If they pushed the upper limits of the spending guidelines above, here's what a budget might look like for a family with one young child and $100,000 in income, which is close to the median household income for people ages 35 to 44 in 2024.

Let's assume that roughly 26% of each paycheck is withheld for taxes (a household's tax bill may be different if they claim certain tax credits, or save in retirement or health accounts that reduce taxable income for that year).

One major flaw in this budget is that the guideline for childcare, at 7% of income, is likely not high enough. Childcare on average costs about $1,100 per month per child, according to Child Care Aware of America.

That discrepancy aside, this family - staying within standard spending guidelines - spends 90% of their income on taxes and needs.

That leaves 10% for savings, miscellaneous expenses and all discretionary spending, which is inadequate if the family wants to work toward financial independence. Fidelity recommends that workers invest at least 15% of pretax income to set themselves up to maintain their lifestyle in retirement.

Many households don't have even this 10% margin to set aside money for retirement or to spend on anything they might want to buy. An analysis by the Brookings Institution estimates 45% of all Americans, including one-third of middle-class families, can't afford basic necessities.

In order to allocate more to childcare when their children are young and to have money for things they want to buy, for savings and for retirement, this family must make cuts in most categories in their budget - which is challenging in today's high-cost environment.

An alternative budget - and how far $100,000 gets a family today

The only surefire way to save money is to put it aside before it gets spent.

In the alternative budget shown in the chart below, the parents automatically invest 15% of their gross pay (in line with common recommendations) in their employers' retirement plans before their paycheck hits their bank account.

After then paying taxes, they budget with what is left: about 60% of their gross paycheck, or $60,000. This may help explain why consumer sentiment has been poor.

"Depending on where you live," an income of $100,000 "can be just barely enough or nowhere near it," said Audrey Emerson, the owner of Cents of Joy Financial Planning in Bellingham, Wash.

This illustration shows what this family's budget might look like if they auto-invest 15% in retirement plans. During the years when they have a large childcare bill, the numbers are very tight, requiring them to minimize their spending on housing and transportation, virtually eliminate dining out and switch to a lower-tier health insurance plan.

The expenses in this chart are also shown as a share of take-home income - what's left after taxes and deductions for retirement. "Nobody budgets their [expenses from] gross income," said Devin Watts, a financial planner at Fallbrook Fi in Clovis, Calif.

This example also assumes the family already has emergency savings to cover six months' worth of expenses and therefore doesn't set aside money for that.

Budgeting "only works if you actually do it consistently. It's not a once-a-year exercise," Watts said. At minimum, there should be a monthly conversation between partners to see where their money is going.

How realistic is this budget? It doesn't leave much room for surprises. Let's take a look.

Housing: $1,833 per month, including utilities and insurance (22% of gross income / 37% of take-home pay)

The sample budget that includes saving for retirement allocates 22% of gross income for housing. That's well within the standard 30% affordability threshold but still a huge chunk (37%) of take-home pay.

Hitting this target may be a challenge in some markets. Median rent for a two-bedroom home was about $1,893 nationwide in July, not including utilities or insurance, and for a buyer today, the typical monthly mortgage payment, at current interest rates, was $2,641. But for the rest of the budget to work, it's critical to keep housing costs under control.

Finding a way to pay less for housing provides flexibility for other expenses. "I've had real conversations with clients where it's like, 'Hey, I know you like this area, but it may make sense for you to move,'" Grant said.

Transportation: $583 per month, including gas, insurance and maintenance (7% of gross income / 12% of take-home pay)

Transportation, normally the second biggest expense after housing, is a huge budgeting problem. The average U.S. household spends about $1,100 each month on transportation, twice as much as this budget allocates.

Minimizing spending might mean dropping down to one vehicle or relying on public transit, if that is an option. If this family needed to buy a car, they would have to get a used or low-cost model and save enough for a large down payment or a cash purchase.

The average monthly payment is now $770 for financed new cars and $531 for used cars. That alone could blow the budget. On top of that, the average monthly spending on car insurance is about $140, and average spending on gas is $200.

Groceries: $500 per month (6% of gross income / 10% of take-home pay)

The average monthly spending on groceries, not including eating out, was about $500 in 2024. Families with children typically spend more, so cutting back would require things like planning low-cost meals, saying no to prepared and convenience foods, making use of leftovers and bringing lunch to work.

Healthcare: $500 per month (6% of gross income / 10% of take-home pay)

The average monthly spending on healthcare in 2024 was about $500, including insurance premiums and out-of-pocket costs. Hitting this target is largely out of a family's control, however, and usually depends on how much of the insurance premium is subsidized by the parent's employer for workplace health plans, or by the government for marketplace plans. Many people have no choice but to pay more.

Childcare: $1,100 per month (13% of gross income / 22% of take-home pay)

The average cost of care per child in 2024 was $1,100, and at 13% of gross income, it is much higher than the government's affordability standard. These costs decline once a child starts school, but many working families must continue to budget for care after school and during the summer.

Everything else: $417 per month