Apr 13, 2010

Simple Budgeting Plan (Carole)

I like to read books about money.  You too?  Right now I'm reading a brand new book called Your Money:  The Missing Manual by J. D. Roth.  I've just recently discovered Mr. Roth, but it turns out he is a long-time blogger at Get Rich Slowly.  Check it out.  You'll find he has tons of good ideas and stories.

However, back to the budgeting plan. . . in J.D. Roth's very readable book he tells of a very simple budgeting plan proposed in another book, All Your Worth by Elizabeth Warren and Amelia Tyagi (I haven't read All Your Worth yet -- but I plan to).  These two authors recommend dividing your take-home money into 3 simple categories.

1.  50% of your money for needs:  housing, food, transportation, insurance, basic wardrobe. . . (this is where some hacking and slashing may be needed -- a very worthy endeavor)

2.  30% of your money for wants:  eating out, extra clothes, books, cable TV, hobbies, travel. . .

3.  20% of your money for savings (this should be used for paying off debt if that is where you are on your financial journey)

(For those of us who pay a tithe to our church, I would suggest dividing your money into these 3 percentage categories AFTER you've paid tithing -- otherwise you'll get all goofed up.)

This balanced plan (as they describe it) lets you have fun (30% of your take-home pay is A LOT of fun!) while living within your means AND paying off debt or saving for your future.  If you've struggled to live on a budget, give this really good method a try.  Let me know if it helps!


Melanie said...

The GRS blog is great! I've added it to my reader, thanks for introducing it.

Here is a question about something that always confuses me when it comes to saving: how do I save for both long and short term goals at once? Once I pay off my car, build my emergency fund to 6 months, and start to contribute to a retirement fund (in about a year) I'll be ready to really start saving. I'd like to start saving for a house. I am determined not to buy until I can put 15-25% down, and with my small salary it looks like it will take me 3-5 years until I can save that much.

But what about smaller expenses - saving for car repairs, travel home during the holidays - not wants, but legitimate needs?

What about putting money into a non-touch savings. If I put all of my money into saving for the down payment on a house and then purchase a house, I'll be left with no savings (other than an emergency fund, which I don't plan to touch).

I could put small amounts into savings accounts for all of these things, but with that method it would take years and years to be able to afford a house.

There are lots of books that advise on how to save, but none of the plans I've come across have ever answered my question about how to save for both long and short term expenses. What is your advice?

Kimberly said...

What's really great about this plan is if you were to lose your job, for example, you could quickly cut your expenses by half, which would allow you to live off that emergency fund a bit longer.

Unknown said...

great blog - i would love to have any money for 'wants' 65% of our income goes on our mortgage - but i live on a small island and housing is expensive xx