50-30-20 budgeting

[StateOfMyHead]

I'm sure this is too simplistic for the hardcore WCIs and likely discussed previously which I was unable to locate with search or scanning past few months titles. Do you use a version of 50-30-20 budgeting and if so what are your percentages? Thanks in advance.

 

 

[childay]

Perhaps you can explain what 50-30-20 budgeting is?

[StateOfMyHead]

Sure, according to Investopedia: "Senator Elizabeth Warren popularized the 50/20/30 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings."

[The White Coat Investor]

Why would you let a politician decide your budget?

I think for most docs, you can never really spend more than 50% of your gross because 30% goes to taxes and 20% goes to savings.

[ENT Doc]

Was this idea floated before or after she decided to give everything away for “free”?

[angeladiaz99]

I prefer

50 = savings
30 (or more) = taxes
20 (or less) = I can spend it all without guilt

[Peds]

StateOfMyHead wrote:

Sure, according to Investopedia: “Senator Elizabeth Warren popularized the 50/20/30 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings.”

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no.

mainly because i base everything off of gross.

so no.

 

[Lordosis]

If a high income professional is spending 50% of their salary on "needs"  They need to redefine what they really need.

[StateOfMyHead]

Peds wrote:

StateOfMyHead wrote:

Sure, according to Investopedia: “Senator Elizabeth Warren popularized the 50/20/30 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings.”

Click to expand…

no.

mainly because i base everything off of gross.

so no.

 

Click to expand...

Thanks for responding. Do you have guidelines based on your gross income?

[Peds]

of course.

[CordMcNally]

I think most budgeting "rules" are ridiculous. I prefer to work backwards. I save however much I've determined I need to save to meet my retirement goals. After that, I look at my fixed expenses (I guess this would be the "needs" in your proposed budget) and then my variable expenses ("wants"). If it doesn't add up then I need to adjust my variable expenses. One caveat is that my fixed and variable expenses are typically sufficiently low enough that I just put the rest leftover back into savings every month.

[StateOfMyHead]

CordMcNally wrote:

I think most budgeting “rules” are ridiculous. I prefer to work backwards. I save however much I’ve determined I need to save to meet my retirement goals. After that, I look at my fixed expenses (I guess this would be the “needs” in your proposed budget) and then my variable expenses (“wants”). If it doesn’t add up then I need to adjust my variable expenses. One caveat is that my fixed and variable expenses are typically sufficiently low enough that I just put the rest leftover back into savings every month.

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Thanks, working backwards is how I have always done it also. I'm kicking around a significant upgrade in primary residence which would be an extravagance not a need and has me a little squirrely so I wanted to ensure I have looked at it from all possible angles.

[CordMcNally]

StateOfMyHead wrote:

Thanks, working backwards is how I have always done it also. I’m kicking around a significant upgrade in primary residence which would be an extravagance not a need and has me a little squirrely so I wanted to ensure I have looked at it from all possible angles.

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As long as you're meeting your savings goal then you've just got to decide what your typical costs and wants are each month/year and go from there. Just as work is trading time for money, budgeting sometimes requires you to trade one thing for another.

[Kamban]

I look at it this way.

Save 30% of gross income. Pay taxes with the remaining money. Live off the rest.

Usually some money is remaining after this and it usually gets invested. Any dividends or distributions from investments gets reinvested at this point. When I retire it might become my income stream.

Did not know that Senator Warren has taken up a side gig like Suze Orman. :-)

[Tim]

The problem I have with 50-30-20 is that this approach conveniently deflects to after tax. When she defines “needs” I don’t have a clear picture of what that is. You know, what does government provide and what do I provide. Don’t care to get into percentages of net unless she defines the tax and what government services are available for free. Kind of like solution ignoring the problem. I don’t follow Jim Kramer’s “Am I diversified” segments either.

Does she have any data to back this up? Sure would like to see how 20-50-30 compares.