Home Budget – A Spending Ratio for a More Balanced Life – Personal Finance
On Money Monk’s December 2006 post – Why I Save Money I learned about a spending ratio that will lead us to a more balanced life financially.
50% Must-Haves
20% Savings
30% Wants
This spending ratio is apparently brought forth in Elizabeth Warren and Amelia Warren Tyagi’s book All Your Worth: The Ultimate Lifetime Money Plan. Now this brings up an important issue for me. Remember this spending ratio is designed for take home pay. There are those that come into this personal finance thing making more money than the average Joe. The average Joe being anyone wanting to get a handle on their personal finance and in debt. Now…
If a person makes $600 a week (31,200 a year – gross) and has family health insurance premiums taken out of their pay plus taxes and social security – this person will take home around $400 a week or a bit under $1700 a month. Let’s look at the numbers with this example because this is the kind of person I know 
50% Must-Haves $840
20% Savings $340
30% Wants $504
Now, I’m thinking that this type of ratio works better for those that make more, alot more than the average blue collar worker unless housing isn’t included in this type of spending ratio. Housing is a must have so you see – this ratio works better for someone that has paid off their house and is living debt free. Is it something worth striving for? Yes!
I’m not a financial analyst or banker, even a debt specialist but I am leaning more toward a ratio along the lines of
70% Must-Haves $1200
10% Savings $170
15% Debt $250
5% Wants $85
That 70% under “must-have” would include rent, mortgage, lights, telephone, heat, gas, car insurance, water bill, other utilities, groceries, child care, life insurance, etc. As you can see – that with the 50% rule – this person would have only around $850 to pay for all of these which is not conceivable. Since this ratio is designed to propel us toward financial independence that means we should also look these numbers from yet another angle.
Total up your “must haves” – we are talking about your monthly housing, groceries, insurance and auto costs (if you have car payments that’s a separate issue altogether) and utilities plus child care. Take that total and multiply it by 2. This is what you need to be taking home each month to work the financial plan in All Your Worth.
On the Dave Ramsey radio show, he is frequently able to quickly come up with the number of extra dollars you need to get yourself out of a negative financial situation. With that magic number you are able to see what you need to pull in above what you already have. This is basic budgeting – working the numbers. There is no use of trying to manage your money without a home budget. It just plain doesn’t work.
Often times, it’s not a second job per se but possibly a home business or online venture that you can do to bring in that extra money. (Which is why I have my own home business working online during my “off” time) In the end – determine how much you have, what you need to make then fill in the gap.
Want to brainstorm? Let’s do it here. Tam
P.S. My own Why I Save Money
1.) To meet my family’s needs in an emergency
2.) To avoid the chaos of finding money when something unplanned crops up
3.) To work toward realizing my personal dreams… down the road when the time is right.
4.) For my children’s future.
Tags: budget, business, debt, debt free, finance, Goals, home, life, money, personal finance, planning, spending, wahm
