Financial Allocation rules

[bjl584]

Does anyone follow any of these?

50/30/20
50% needs
30% wants
20% savings

I've also seen a
75/15/10

Personally, I have a savings goal. Everything else sort of organically falls in line after that without too much planning on my part.

[MonkeyMama]

When I saw this a long time ago, I'd say we more aimed for 50/20/30. As savers, I felt the 20 & 30 should be flipped.

I don't know if it's starting out in a mega high cost region (still in 'high cost') or just not wanting to work that much (probably more to the point in our lower cost locale) but the truth is probably 60/10/30. & I consider a lot of our 'wants' built into the rest. Like being home bodies who have a nice home. Or the 'not working that much' aspect of it.

Like OP, we always just focused on the savings goals and haven't focused too much on the rest. As we approach 50, we've been trying to decrease our savings by about 10% and enjoy more. So the equation is changing. & will change dramatically when it's just 2 of us (with a paid for home). At that point, either we save a lot or we just work less. (As we near a comfortable retirement, it will probably just be a short final sprint, and then work a lot less.)

[myrdale]

Your vehicle should not cost more than half your annual gross income. If you earn $100k per year, a $50k vehicle is not out of the question. If you earn $30k per year, you shouldn't be over $15k for your car.

Your home should not cost more than twice your annual gross income. If you earn $100k per year, a $200k house is reasonable.

Your mortgage / rent shouldn't be more than 25% (30%?) of your monthly net (take home) pay.

Retirement savings should be 15% of your income.

Do not carry debt on stuff. Pay all credit cards off 100% every month. Pay cash for all luxury purchases.

Do not buy something unless you can afford to buy it twice.

[Fishindude77]

Your vehicle should not cost more than half your annual gross income. If you earn $100k per year, a $50k vehicle is not out of the question. If you earn $30k per year, you shouldn't be over $15k for your car.

Your home should not cost more than twice your annual gross income. If you earn $100k per year, a $200k house is reasonable.

Your mortgage / rent shouldn't be more than 25% (30%?) of your monthly net (take home) pay.

Retirement savings should be 15% of your income.

Do not carry debt on stuff. Pay all credit cards off 100% every month. Pay cash for all luxury purchases.

Do not buy something unless you can afford to buy it twice.

Pretty much the guidelines I've folowed.
The house thing gets really goofy in high cost of living areas and gets a lot of folks in trouble. The reality often may be they can't afford to own a home there, or maybe can't even afford to live there.

[riverwed070707]

A vehicle worth half your gross income is WILD to me. Especially with an income like $30k/yr. I think there is a little more flexibility as you get into a higher income, but even then, there is a limit where I'd move it from the needs to wants category.

Your vehicle should not cost more than half your annual gross income. If you earn $100k per year, a $50k vehicle is not out of the question. If you earn $30k per year, you shouldn't be over $15k for your car.

Your home should not cost more than twice your annual gross income. If you earn $100k per year, a $200k house is reasonable.

Your mortgage / rent shouldn't be more than 25% (30%?) of your monthly net (take home) pay.

Retirement savings should be 15% of your income.

Do not carry debt on stuff. Pay all credit cards off 100% every month. Pay cash for all luxury purchases.

Do not buy something unless you can afford to buy it twice.

[myrdale]

A vehicle worth half your gross income is WILD to me. Especially with an income like $30k/yr. I think there is a little more flexibility as you get into a higher income, but even then, there is a limit where I'd move it from the needs to wants category.

What cost vehicle do you think someone at $30k/yr can afford?

[Fishindude77]

At $30k income a $10k vehicle is a big stretch.

[myrdale]

At $30k income a $10k vehicle is a big stretch.

That is where I couldn't tell which way riverwed070707 meant, if it should be higher or lower.

That number really is meant for what a top end purchase should be. At around $110k, my truck is only $32k new. For the $30k example I don't know how good of a vehicle one can still get for <$5k, but the cheaper the better in that bracket.

[ua_guy]

These kinds of rules of thumb are too rigid for either end of the income spectrum and too rigid for individual situations. Rules of thumb are good to have but should be applied in context. Are other goals being met? Or is being over-extended on a car always wrong? I don't think so.

[myrdale]

These kinds of rules of thumb are too rigid for either end of the income spectrum and too rigid for individual situations.

That practically applies to everything in life.

How many calories should you eat per day? 2000. Well unless your a 12 year old girl who weighs 50 pounds or a 6'4" guy who is 270, or a diabetic, or any number of conditions.

Rules of thumb / one size fits all / proverbs / stereotypes. The goal isn't to cover 100% of the population, but cover the majority +50% in the middle of the bell curve.

[LivingAlmostLarge]

When I saw this a long time ago, I'd say we more aimed for 50/20/30. As savers, I felt the 20 & 30 should be flipped.

I don't know if it's starting out in a mega high cost region (still in 'high cost') or just not wanting to work that much (probably more to the point in our lower cost locale) but the truth is probably 60/10/30. & I consider a lot of our 'wants' built into the rest. Like being home bodies who have a nice home. Or the 'not working that much' aspect of it.

Like OP, we always just focused on the savings goals and haven't focused too much on the rest. As we approach 50, we've been trying to decrease our savings by about 10% and enjoy more. So the equation is changing. & will change dramatically when it's just 2 of us (with a paid for home). At that point, either we save a lot or we just work less. (As we near a comfortable retirement, it will probably just be a short final sprint, and then work a lot less.)

Me and MM are in the same vein of thought. Our needs were almost always more like 65% wants 5% and savings 30%. Only way to live in HCOLA and buy a house.

[riverwed070707]

What cost vehicle do you think someone at $30k/yr can afford?

I mean I imagine someone making $30k can "afford" very little, but financing $7-10k over 3 years would put the payment in the 10% range of take home pay which is reasonable. The more you spend on the car, the more you also spend on the registration and insurance and at that income level you're probably stretched pretty thin in all budget categories. I know whenever car pricing comes up its always hotly debated that cheap cars require more maintenance, but I think that's an overplayed excuse to spend more than you need to. My car is worth around $10k and I've had it for 4 years. Works fine.