Classic budgeting rules don't work anymore - -2-

The 5% of income left over would need to cover a lot, including student loan and other debt payments and nonessentials like subscriptions, clothing and gifts. It would also have to cover things like paying for vacations, replenishing an emergency fund if it's been tapped, and setting aside money in a health savings or college account.

With $417 a month to spend, a family would likely not be able to afford all these things. Paying off high-interest debt would be the priority.

This simple budget illustrates how difficult it can be for families with young children to save 15% for the future while managing their spending today.

To cover their basic expenses, Emerson said, many of her clients have to temporarily reduce their 401(k) contributions for a few years before their children start school. "While not ideal - and generally I try to encourage clients to reduce discretionary expenses first - sometimes it's the only option," she said.

If parents must lower their retirement contributions during those lean years, financial experts recommend they at least put in enough to get their company's full match, if one is offered, because that match is part of their compensation.

Look at housing and transportation to make big changes

On average, housing and transportation alone account for about half of household spending. Decisions about these two budget items can have huge effects on how much is left for a family to spend on everything else.

"If you're spending more in those categories, it's going to come around on the back side to impact you, potentially in a negative way," Watts said.

Making the choice to live in a smaller home or in a different neighborhood, or to drive an older car or only have one vehicle for the household, can save hundreds of dollars that can then be spent on other things the family needs or wants.

There may not be many other areas where a family making $100,000 can cut back, financial planners told MarketWatch. Gaining financial flexibility then requires increasing income, for example through a side hustle, a raise or a new job.

Lock in expenses, even as income rises

Over time, bonuses and raises add up, and the trick is to avoid lifestyle creep as your disposable income increases, Grant said. Lock in whatever expenses you can. "Some things are going to rise with inflation, but not everything," he said. "So try to control what you can control."

Married couples with children had a median income of about $130,000 in 2024, giving them more leeway than the family in the budget outlined above. One-parent families, however, earned significantly less.

Based on a gross income of $130,000, contributing 15% toward retirement would add up to $19,500 per year for a couple.

Locking in the modest spending levels (in dollars) from the budget above would mean spending 17% of gross income on housing, 5% on transportation, 5% on food, 5% on healthcare and 10% on childcare. In order to save money and have enough for discretionary items, it may be more helpful to maintain these spending levels than to use the well-known rules of thumb.

Accounting for taxes on the $130,000, the family would have about $1,700 per month, or roughly 15% of gross income, for things like debt payments; spending on subscriptions, shopping, gifts, dining out and vacations; replenishing emergency funds; and setting money aside in health savings or college accounts.

This is more in line with popular budgeting assumptions for "wants" and can only be achieved if the family can find ways to spend far less on their basic needs than common spending guidelines allow for.

"What we're doing by setting these rules of thumb is establishing what our standard of living can be," Watts said. Even families with typical incomes cannot afford their ideal standard of living in all categories, he noted, so they need to focus on "spending on what matters most to them."

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-Venessa Wong

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09-19-26 1031ET