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

[autoxer]

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

When I first saw the ratios, It didn't seem realistic, but now that I plugged my numbers into the worksheet, it makes a lot more sense & shows how imbalanced I am. Mine came out to 36% needs, 16% savings & 48% wants. Then occasionally I'll switch to 36% needs, 40% savings & 24% wants. Maybe if I had some balance, I wouldn't go from one extreme to the other so quickly.

The authors are as anti-credit cards as Dave Ramsey. While I don't agree with that completely, I think their CASH system for fun money is very practical for me. I started doing that a few months ago, before I read the book, but now it has given me some ideas to simplify it for me.

[rarnold_416]

Hi everyone, I found this forum and wanted to post some stuff that I thought may help some of you if you still had questions. I'm very much a fan of this book, and I've been following the advice for sometime. I'm 22 years old, have started a 401(k), and although my ratio isn't exactly where it should be, it definitely makes it very easy for me to regulate my spending and monitor where my money is being spent.

I ratio is something to the effect of 60/24/16. Albeit it's not perfect, I'll soon have the rest of my debts paid off, and then things will work themselves out. I treat a few of the rules a little differently, for example, I have a cell phone, and that bill is roughly $90 a month. I take $50 from my needs, $20 from my wants, and that pays my cell phone bill. I justify doing it this way because it frees up a little bit of my needs money which lowers my need percentage, but it also draws a small amount from my wants, and this in turn motivates me to work towards lowering my overall spending, so that I can alter my numbers somewhat in the future, move my numbers closer to 50/30/20, and at some point in the near future, have more money to put in my pocket for my "wants" spending.

As far as retirement spending, health benefits, and credit card bills, this is what I found.

Retirement plans are considered as follows. If you make a contribution, you should count it towards your savings. If your employer makes a contribution, count it toward your savings. The women say to do this because even though it doesn't come from your income, or count against it, it does count toward your lifetime savings, and so it should be accounted for there.

Premiums for health benefitsthat are subtracted from your income should be included in your total income, as this is one place where you could cut spending in a dire situation. For example, if you have $25 deducted from your paycheck each cycle for your health benefits, and you find that your "needs" spending is over 60% of your spending, it's plausible to assume that you could reduce your health spending in such a way to lower your payroll deduction to maybe $15 each cycle. Although this makes a minimal reduction to your "needs" spending, any reduction counts. There is a place in the book that talks about "getting serious" in order to reduce your needs spending, and it mentions healthcare as a place to make cuts until you get things in order. This is the reason that your healthcare costs (as related to employer taxes) are included in your income for the purposes of the book.

The credit card bills are counted as negative savings. What this means, as paraphrased from the book, is that any money you are spending on your credit card, whether it be on a bill due this coming month, or a bill that is past-due, is taking away from your savings (and therefore your future). So in the scheme of things, credit card spending of any kind is taking away from building your savings. When I started this plan, I did things a little bit differently. I had credit card debt (because I was an irresponsible teenager), and therefore I didn't have any savings at this point. To save myself the trouble of having to calculate this complicated issue, I just maintained having "zero" savings for the purposes of the book, and later in the book it talks about taking the money you would have saved (going by 20%) and putting it toward paying off your credit card until it is paid off, and then put that 20% back into savings, and you're on the right foot again.

The book suggests that you do it in the opposite order. If I read correctly, I believe that it says to save so much money beforehand, $1000 I think, and then pay off your credit card debt, but I personally wouldn't be able to sleep at night if I knew that my credit card balance would grow that much considering late charges and interest accrual, etc. This system has worked for me and I'm in a much better place because of it.

I hope that you all have had success with the system and have worked out a plan that helps you to meet your financial goals If I can do anything to help, or if you have any suggestions for me, please let me know

[disneysteve]

Is anyone else using the 50/30/20 budget method from the book All Your Worth by Elizabeth Warren and Amelia Warren Tyagi?

I give this concept a great big shoulder shrug.

It reminds me of oversimplied fad diets.

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.

That said, for someone just starting out or someone who finds their finances really out of whack and trying to get a handle on things, I think a general guideline like this can be very helpful. You need to have some kind of rule of thumb to judge where you are and where you want to be. Just read through these forums and you'll hear people giving guidelines all the time - save 15% for retirement, mortgage payment no more than 28% of income, car payment no more than 10% of income, etc. For anyone looking for a starting point, I think this is a perfectly good one.

[snshijuptr]

I ratio is something to the effect of 60/24/16. Albeit it's not perfect, I'll soon have the rest of my debts paid off, and then things will work themselves out. I treat a few of the rules a little differently, for example, I have a cell phone, and that bill is roughly $90 a month. I take $50 from my needs, $20 from my wants, and that pays my cell phone bill. I justify doing it this way because it frees up a little bit of my needs money which lowers my need percentage, but it also draws a small amount from my wants, and this in turn motivates me to work towards lowering my overall spending, so that I can alter my numbers somewhat in the future, move my numbers closer to 50/30/20, and at some point in the near future, have more money to put in my pocket for my "wants" spending.

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.

[isralexba]

Ratios and more

These ratios are quite nice but unrealistic .... you would like to increase your income significantly or spend less in order to acheieve proper wealth well before the age of 85 ... i actually believe in investing in a wide spread of high yield bonds to ensure that the return will be appropriate and will compensate for inflation...

[BuckyBadger]

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]

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]

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]

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]

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]

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]

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.