50/30/20 ratio? "All Your Worth" book

[BuckyBadger]

Originally Posted by disneysteve

We don't use this method, or any other method in particular. We currently save at least 25% of our gross income so I'm not at all concerned with how the other 75% gets spent, whether on wants or needs.

This is what we do. As long as we are saving enough or more than enough for our goals, we spend the rest on whatever we want/"need." We save 35% of our gross pay for retirement. We spend the rest. (Spending includes short term savings for other goals.)

[feh]

We're not using it. To spend 30% of our income on wants would be ridiculous; we'd be spending left and right on stuff we don't need.

[disneysteve]

Originally Posted by feh

We're not using it. To spend 30% of our income on wants would be ridiculous; we'd be spending left and right on stuff we don't need.

The point isn't that you must spend those percentages but rather that those should be the limits: spend no more than 50% on needs, spend no more than 30% on wants and save no less than 20%. If you are able to spend less on needs and wants and more on savings, that's terrific.

[feh]

Originally Posted by disneysteve

The point isn't that you must spend those percentages but rather that those should be the limits: spend no more than 50% on needs, spend no more than 30% on wants and save no less than 20%.

Right - I understand that. The point I was trying to make is 30% for wants is the maximum, and does not make sense for all situations. I fear some people making good salaries see that percentage and think to themselves "hey, we can spend a bunch of money on cars/vacations/whatever".

[disneysteve]

Originally Posted by feh

Right - I understand that. The point I was trying to make is 30% for wants is the maximum, and does not make sense for all situations. I fear some people making good salaries see that percentage and think to themselves "hey, we can spend a bunch of money on cars/vacations/whatever".

I think if everybody would follow the 50/30/20 ratio, we'd have far fewer financial problems in this country. The real problem is that most people aren't anywhere near those numbers and not in a good way like yourself (or me). Needs and wants are way over 50/30 and saving is well under 20%. We see that all the time in posts here and I hear it all the time on the Dave Ramsey show. People who have a house payment of 50% and that doesn't count any other needs like utilities, auto expenses and gas, food, insurance, etc. When you add it all up, there is often nothing left for savings even if their wants are fairly modest.

[snshijuptr]

Originally Posted by feh

We're not using it. To spend 30% of our income on wants would be ridiculous; we'd be spending left and right on stuff we don't need.

That's why I use 30% for our savings and 20% for our wants. The original method was for people who were established (house, kids, car, job, etc) and were looking for an easy way to budget. These people may only need 15% to retirement and 5% to other savings. As for me, I need all the savings I can get to meet our future goals. We have a lot of "future" ahead of us.

[rarnold_416]

Originally Posted by snshijuptr

Well the first thing I would say is that you might be counting too many things as Needs. Do you Need a cell phone? No you don't. In my budget, needs are groceries, shelter, basic utilities (electricity, water), and necessities to work (gasoline, some school fees, internet if I paid for it). My Wants are everything else including entertainment, luxury utilities (cell phone, cable tv if I had it), and restaurants.

I will admit that I've never read the book, but separating a Want from a Need should not require a book, only common sense.

Based on my living situation, and the fact that I don't own the home in which I live, but I rent, and there is no guarantee that I'll stay in any one place for any amount of time, my cell phone is considered a need. I understand those of you who have landline phones, and in that instance, it makes sense that a cell phone would not be considered a need. However, for me, because I don't own a home, nor do I have the need for a landline, my cell phone serves all the purposes I need. You might say that I could do without all the extras on my phone, and you're absolutely right, I could. However, because I don't stay in one place very long, my cell phone allows me to access my email, contacts, etc etc, and so if I were to be without an internet connection for a given period of time, my phone would keep me in touch with the "extras" that are most critical in my life (for the purposes of school and work). As I said, everyone's circumstances are different, and although a cell phone isn't necessary for everyone, it is a necessity for me.

[thesmartnickel]

I actually wrote about this budget in my blog a while back. I would take the advice with a grain of salt since I believe that most of the benefits of budgeting come from the discipline and knowledge of your spending habits that come with it, not the specific breakdown. You should find your own distribution that fits your needs and goals. If you are saving up for a car or home in the forseeable future, maybe your savings should be higher than 20%. Find something that fits you.

[dawnwes]

I have a hard time with these types of numbers too.

Our "needs" are more than 50%, but that is partly by choice. We are choosing to have a 15 year loan rather than a 30, which eats into a lot of that 50%. Once I add in food, clothing, car expenses (insurance, gas), etc....., it is about 65% or so.

Thankfully, we do save at least 20% though and have no debt other than the mortgage, so we make it work.

Dawn

[thesmartnickel]

Originally Posted by dawnwes

I have a hard time with these types of numbers too.

Our "needs" are more than 50%, but that is partly by choice. We are choosing to have a 15 year loan rather than a 30, which eats into a lot of that 50%. Once I add in food, clothing, car expenses (insurance, gas), etc....., it is about 65% or so.

Dawn

That sounds like a great plan to pay less interest in the long run by taking a shorter loan time period. I wouldn't worry about the numbers and focus instead on the concept of budgeting. Make the proportions that work for you.

[dawnwes]

Yeah, we are. In hindsight, this is too much house, but moving isn't really an opion at the moment.

Dawn

Originally Posted by thesmartnickel

That sounds like a great plan to pay less interest in the long run by taking a shorter loan time period. I wouldn't worry about the numbers and focus instead on the concept of budgeting. Make the proportions that work for you.