{"id":2131,"date":"2008-10-27T01:00:39","date_gmt":"2008-10-27T08:00:39","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=2131"},"modified":"2019-08-02T00:30:21","modified_gmt":"2019-08-02T07:30:21","slug":"the-balanced-money-formula","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/the-balanced-money-formula\/","title":{"rendered":"The Balanced Money Formula"},"content":{"rendered":"
Building a budget<\/a> is one of the basic tasks of personal finance. But not everyone can keep a budget. As much as I’d like to, I don’t feel comfortable with detailed planning. I continue to use a spending plan<\/a> as a rough guide to my future, but a traditional budget just doesn’t work for me.<\/p>\n Last night I stumbled across the Balanced Money Formula proposed by Elizabeth Warren and Amelia Tyagi in their excellent book, All Your Worth: The Ultimate Lifetime Money Plan<\/a><\/b><\/i> [my review<\/a>]. Like my spending plan, the Balanced Money Formula is an alternative to traditional budgets<\/b>. Though I considered this concept a little “light” in the past, it really hit home yesterday. It helped me to realize that my own spending has become unbalanced.<\/p>\n The Balanced Money Formula is based on your net income (your income after<\/i> taxes). Warren and Tyagi say that, ideally, no more than 50% of your paycheck should be spent on Needs (and keeping them below 35% is best). Of the remaining amount, at least<\/i> 20% should be devoted to Saving, while up to 30% can be spent on Wants.<\/p>\n Here’s what it looks like:<\/p>\n <\/p>\n That’s it. Simple. Three categories. No detail. This is the sort of Big Picture budget that I find useful<\/b>, and in this case I could see that there was something wrong with my Wants. Here’s how the authors define these terms:<\/p>\n Warren and Tyagi write:<\/p>\n When your money is in balance, you always have enough to pay your bills, have some fun, and save for your dreams. And here is the best part of all. Once your money is in balance, you can stop worrying about it. Managing your money becomes automatic.<\/p><\/blockquote>\n This Balanced Money Formula is a goal. It’s an ideal. If you’re just beginning to manage your money, your financial life will probably be distinctly un<\/i>balanced.<\/p>\n For example, if your income’s small (or your mortgage is large), you might be spending 80% (or more) on Needs. If you are a compulsive spender<\/a>, if you like to dine in fine restaurants or to collect Hummel figurines, you might be spending 45% of your income on Wants. And, of course, few people starting out can afford to set aside 20% of their income for Savings<\/a>.<\/p>\n Here’s what that might look like:<\/strong><\/p>\n Small income\/Large mortgage<\/strong><\/p>\n<\/span>The Balanced Money Formula<\/span><\/h2>\n
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