Home > Balanced Budget Formula

Balanced Budget Formula

December 12th, 2013 at 04:17 pm

A while ago I read this great article on the Get Rich Slowly website:

It's about the balanced money formula from a book by Elizabeth Warren and her daughter. It advocates allocating some money to things that are not needs or must-haves, but wants. Some money allocated for fun.

I like a balanced approach and a balanced life. I want to note, though, that there are income levels where there is only enough for Needs, and nothing leftover. And I think if you have debt, you'd want to get rid of that first, so maybe you allocate less for fun while you attack the debt.

They advocate allocating your budget this way:
- 50% needs/must-haves
- 30% wants
- 20% savings

I just did our 2014 budget and managed to make our budget exactly match this formula. If we are below budget in any category, that money will go toward savings (which will increase savings from 20% - that would be great!).

What gets categorized as wants v. needs/must-haves is a personal thing. Here's how I did it:

Needs/Must-Haves: mortgage, utilities, life insurance, house repairs, food, auto, medical, dental, household supplies.

Wants: Cash, personal items, haircuts, clothes, pets, entertainment, pool, toys, birthday parties, supplies for F, camp, F's classes (piano, soccer), furniture, appliances, gifts (within the family and birthday and Christmas), vacations (including pet boarding, travel insurance, airport parking and everything else). And F's private school tuition.

That is kind of the key to Wants. You have to prioritize and budget. F's school tuition is $650/month. That for us is a Want, but it's important to us. The money leftover after that is for the other Wants that aren't as important. Clothes aren't that important to me. Neither are haircuts. I don't do a huge, expensive birthday party for F (we usually have it at home). But we have money for the Big Want: that private school tuition.

Savings: Emergency fund, paying down principal on our mortgage, retirement savings.

0 Responses to “Balanced Budget Formula”

Leave a Reply

(Note: If you were logged in, we could automatically fill in these fields for you.)
Will not be published.

* Please spell out the number 4.  [ Why? ]

vB Code: You can use these tags: [b] [i] [u] [url] [email]