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50% to needs
30% to wants
20% to savings and retirement
All would be based on what you are bring home after taxes. I do all my budgeting on an after tax basis since I can't avoid taxes. I can lower them, but I still have to pay them.
Living a slightly more spartan lifestyle at the moment, I personally use 50% needs, 30% savings, 20% wants. Also, I use gross income, BEFORE taxes. That way, I'm able to be better aware of what money is going where.
But really, it doesn't much matter. It's a rule of thumb planning concept. Like any ROT, it's just a general guide--spin it however works for you. It's more important that you're doing something to manage your finances than exactly what process you're using to do it.
Taxes are definitely a need. Personally, I do take-home pay which means our pretax retirement and taxes are not included.
If you want the complicated from my take home pay I
1) Assume I always take home only $4650, which is the lowest our combined salary usually gets
2) Save 30% of $4650 + $300 (which is an arbitrary amount I used to put aside for retirement, but use more flexibly now)
3) Put 52% toward needs, $200 of that goes into a savings account for annual expenses
4) Put 18% toward wants, but $200 of that goes toward savings because we still weren't meeting our reach goals
5) If we overspend our needs category, I pull money from our wants
6) I save any extra money we earn. Some of that goes into our Frivolous account which I allocate to wants if we overspend ourselves.
So 50/30/20 is a very flexible budget, as it should be. The reason it works because it is a general guideline to kick start your budget. It is also simple enough to stick with it. I never functioned well on budgets for Gasoline, Rent, Restaurants, etc, etc, etc.
Personally, I do take-home pay which means our pretax retirement and taxes are not included.
This is another reason I use gross income. I save about 8% of my gross income via pre-tax retirement savings, so by using net income, that savings would be totally ignored. Likewise, I also have my life insurance premiums and a few charity allotments drawn straight out of my paycheck which again wouldn't be included by only using net income.
Another thing I do that is probably different from most, I consider debt payments part of the "wants" category (keep in mind, I don't have a mortgage--I would definitely call that a "need", since it's also your housing). For each of the two debt that I have, I made a conscious choice to hold onto the debt I have, in order to provide for something else that I wanted. Thus, it's a "want", and counts against that portion of my budget.
This is interesting
So, how about charity? would that be part of the 30% wants?
50% needs
20% personal wants
10% charity
20% savings
Some would put that in the needs column, because to them charity is a necessary non negotiable payment that must be made. There was a thread recently discussing tithing that dealt with this.
In my case my needs are saturated so tithing would go under wants, unless I am doing something wrong.
I will have to put it on Wants, because my 50% need is saturated. How about this for needs:
Needs Total 2837 (51%)
Rent 1195
Electrical 100 (monthly average from yearly)
Minimum Phone 10
Child care 630
Food 300
Diapering 80
Car Insurance 147
Gas 180
Tolls 70
Car Maintenance 100 (monthly average from yearly)
Car Registration 5 (monthly average from yearly)
Clothing 20
During the first couple of years I was working, and specially when my husband finished his master and started working too, I realized that not mater how much money we made, we tend to spend every dollar we had on our spending account.
The solution however turned out to be very easy. Realizing that we don't spend the money we don't see, we put 20% of our income to be automatically transferred to a saving account. It worked very well. In addition, every year when I have a salary raise, I add almost all of it to the % transferred to the savings.
Several years later I can prove that this approach really works.
Some would put that in the needs column, because to them charity is a necessary non negotiable payment that must be made. There was a thread recently discussing tithing that dealt with this.
Personally, tithing is a need, and charity donations (to other various private organizations) is a want.
What you consider a part of each category really doesn't matter a whole lot, it's just a question of where you place your priorities, and how you organize yourself. I think of the 50/30/20 idea as a way of identifying what is most important in your finances. That way, when times get lean for you, it's a simpler matter to say (for example), "Okay, my spouse is suddenly out of a job, so we're going to cut the wants and savings in half, and trim the needs wherever we can." It's a planning technique, IMO.
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