The 50/30/20 budgeting rule, a popular personal finance guideline, suggests allocating 50% of income to needs, 30% to wants, and 20% to savings and debt repayment. In an era of rising inflation, everyday Americans are struggling more than ever to do this math. Soaring costs—especially for rent and food—have turned the everyday act of budgeting into an insurmountable challenge for many.
Housing is the largest expense for most Americans and a $2,000 per month apartment is a really big deal. For people who live alone, saving money on one of these apartments can be a challenge. Splitting the space with a roommate can really relieve your financial burden. Annually, that’s $12,000 in potential savings. You might save as much as $1,000 per month. This strategy would give working Tennesseans some much needed relief with rent prices rapidly increasing. As the Federal Reserve just noted in an analysis, in February 2025, market rents that are not paid with a subsidy were 27% above pre-pandemic levels in February 2020.
Despite the high cost of living in major cities like New York and Los Angeles, the allure of city life continues to draw many Americans. These cities can provide individuals with outstanding cultural experiences as well as industry-competitive jobs that typically feature higher wages. The high cost of living creates a challenge to achieving economic mobility. As Ramit Sethi highlights, "There's a limit to how much you can cut, but there is no limit to how much you can earn."
For those seeking urban benefits without the exorbitant costs, smaller cities such as Indianapolis, New Orleans, and Baltimore present viable alternatives. These cities allow for a more affordable quality of life without sacrificing the bells and whistles often found in their larger metropolitan counterparts.
San Jose, California is the exception on the other end of the spectrum. It’s true that it has the most expensive cost of living in the US. The median income in the area is an astounding $147,430. The city’s steep expenses soon eat up a big chunk of that pay.
The Massachusetts Institute of Technology Living Wage Calculator shows the bare minimum needed to live in each city. This just shows the pinch of the current economic climate is putting a real squeeze on budgets. This tool illustrates some of the difficulty in maintaining a balanced budget. When rent and food costs are rapidly increasing, sticking to the 50/30/20 rule becomes impossible.